Las Vegas Real Estate and Business News

Industrial-space inventory still growing
Hunger for warehouse, manufacturing buildings still ravenous, observer says
By HUBBLE SMITH
REVIEW-JOURNAL

Apr. 13, 2006
Copyright © Las Vegas Review-Journal

Industrial developer Lee Phelps of Nevada Real Estate Group is paying $15 a square foot for land in the airport area that three years ago was going for $5 a foot, forcing him to build a more flexible building with office and research and development space.

"Right now the problem we have is land costs, finding land that's affordable to do our type of product," said Phelps, who has developed 7 million square feet of mostly industrial space in Las Vegas since 1985. "We had to build office to compensate for industrial."

With land prices escalating beyond what developers of typical industrial property can afford, the trend in Las Vegas is to become more "creative" with projects, real estate market analysts said.

The shift is toward free-standing buildings for sale, joint venture arrangements and subdividing parcels so stakeholders can make financial sense of projects in an "infeasible environment," said Jeremy Aguero, principal of local research firm Applied Analysis.

The vacancy rate for 84 million square feet of industrial space in Las Vegas remains at a record low 2.9 percent in the first quarter following a year of feverish demand, Applied Analysis reported.

The industrial market continues to outperform other commercial sectors with robust expansion and corresponding demand, Aguero said.

Industrial inventory grew by 1.4 million square feet during the quarter and 1.3 million square feet were absorbed, or taken by tenants, including the 513,000-square-foot CDW distribution warehouse in North Las Vegas. Another 3.7 million feet are under construction.

"This amount of new product will do little to satisfy the hunger for industrial space in this dynamic market," said Dave Dworkin, research analyst for Grubb & Ellis brokerage in Las Vegas. "The amount of new construction may drop in the years to come as less land becomes available for development."

Grubb & Ellis reported 81.1 million square feet of industrial space, including 26.2 million feet in the southwest submarket and 23.5 million feet in North Las Vegas, with 4.5 percent overall vacancy.

CB Richard Ellis, another commercial brokerage in Las Vegas, showed 83.5 million square feet of inventory with 4 percent vacancy.

Asking lease rates continue to increase, reaching 76 cents a foot in the first quarter, compared with 70 cents in the previous period and 59 cents in the same quarter a year ago, Applied Analysis reported.

Phelps said he has zero vacancy and his lease rates are 90 cents to $1.10 a foot because it's smaller, flexible office space with extra parking.

Aguero said it's important to note that the mix of available building styles affects average market price.

Some developers are starting to think "outside of the box," Dworkin said. He cited the Equipment Management Technology Center, a high-image office and warehouse project in the airport submarket with 114,000 square feet of industrial and research and development product.

By putting underground parking beneath each three-story building, the developer maximized use of the underlying land, an idea almost unheard of in this market, Dworkin said.

"It is possible that creative ideas such as this will be more and more commonplace as land prices continue to escalate," he said.

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