Commercial Real Estate and Office Space Market in Nevada
Thanks to a strong visitor economy and a booming hospitality sector, the real estate market in Nevada has successfully weathered the economic recession and is showing encouraging signs of growth. The commercial property market is particularly strong in Las Vegas and Reno, where approximately 75 per cent of the population lives. The following is an overview of the market's recent performance (1).
Office Space Market
Data published by Colliers International revealed that commercial occupancy rates across Clark county (where Las Vegas metro area is located) exceeded 90 per cent in mid 2015, mostly thanks to recent job gains in sectors that have strategic importance locally, such as construction, hospitality, and gaming. However, market analysts believe the market is not at its peak yet, particularly when it comes to vacancy rates and rental rates. The latter have only increased by a modest $0.04 / sq ft since 2013, and growth in this front is likely to remain slow given the high vacancy rates, which average 18.5 per cent. The highest activity levels took place in the northwest and Henderson sub-markets, as these areas are under strong demand from firms in the health care, financial, and professional and business services sectors. Most new developments are class C office buildings and are located in the airport area, whereas build-to-suit developments are few and far between. With regards to investment sales, the figures remain below the past 5 years' average, and average sale sizes are down to properties of 29,000 square feet. Direct asking rates average $1.88 / sq ft in downtown Las Vegas, $2 in Henderson, and $2.15 in the south-western districts (2).
The market is somewhat different in Reno, where rental values have been growing steadily and absorption levels are positive in nearly every sub-market. Vacancy rates are down to 16 per cent and asking rents average $1.41 / sq ft, although they are higher in Meadowood ($1.57) and in downtown Reno ($1.60). The health care industry has become one of the key drivers of growth for the local office property market (3).
Retail and Industrial Space Markets
The retail sector in Nevada appears to be back on track after a couple of slow years, as taxable retail sales amounted to over $5.7 billion during the first quarter of 2015. In Las Vegas, rising demand has prompted a surge in rental rate values, which as of mid 2015 averaged $1.28 / sq ft for all property types, with the highest rents being asked for retail space in power centers ($1.51) and neighborhood centers ($1.42). The development pipeline is also showing encouraging signs of activity, as there are approximately 5.4 million square feet of retail space under construction in the Northwest and Henderson areas alone. Vacancy rates are especially low in districts to the northeast and northwest of downtown Las Vegas (7.4 and 7.9 per cent respectively), and have remained stable in the city core, where they average 9.1 per cent (4).
In Las Vegas, the industrial property market has been performing strongly since 2013. Increased demand has resulted in a large amount of speculative developments being started. In fact, in Q2 2015, it was reported that absorption rates for industrial space were at their highest since 2007, reaching figures of nearly 2 million square feet. Vacancy rates for industrial space in and around Las Vegas has decreased dramatically since 2013, going from nearly 13 per cent to just over 6.6 per cent. The number of completions is also on the rise, as more than 17 new developments are expected to be delivered by the end of 2016. However, rental rates remain more or less stable at $0.48 sq ft for warehouse space, $0.50 for light distribution, $0.66 for incubators, and $0.82 for flex space (5).
Tax Breaks, Business Incentives and Support
There are a number of tax abatements and other forms of business support available to Nevada-based companies, which in turn are behind the state's resilient economy. The State of Nevada has developed a number of industry-specific schemes, including:
- Property tax abatements for companies involved in recycling activities, which can amount to 50 per cent over a period of 10 years (6)
- Property tax and sales tax abatements are available to companies running data centers and that are committed to job creation (7)
- The Modified Business Tax Abatement scheme is available to firms looking to expand or to relocate to Nevada (8)
- Small Nevada-based business have access to financial support thanks to initiatives like the State Small Business Credit Initiative and the Nevada Small Business Development Center (9)