Jerry Doty / July 11, 2019
A Quick Start in 2019
- 1.1 million square feet of industrial space was absorbed first quarter of 2019
- New completions totaled 578,008 square feet this quarter
- Industrial vacancy decreased to 3.2 percent
After a strong 2018, Southern Nevada’s industrial market was fast out the gate in 2019, posting 1.1 million square feet of net absorption, more than one year ago. Vacancy decreased to a very low 3.2 percent. New completions totaled 578,008 square feet in the first quarter. The weighted average asking rate increased by $0.03 to $0.75 per square foot (psf) on a triple net (NNN) basis.
According to the Nevada Department of Employment, Training and Rehabilitation, Southern Nevada’s industrial job market added 11,400 jobs between January 2018 and January 2019. Over this period, Southern Nevada added 6,800 jobs in the construction sector, 2,100 jobs in the transportation and warehousing sector, 1,300 jobs in the manufacturing sector and 1,200 jobs in the wholesale sector. Unemployment in the Las Vegas-Paradise MSA was 4.7 percent in January 2019, down from 5.4 percent in January 2018. From January 2018 to January 2019, total employment in Southern Nevada increased by 30,700 jobs, a 3 percent increase.
New completions of industrial space in the first quarter of 2019 totaled 578,008 square feet, most of it in the warehouse/distribution sector and mostly in the North Las Vegas submarket. 46 percent of this space was preleased. An additional 2.6 million square feet of industrial space is slated for completion in the second quarter of 2019, with approximately 32 percent of this space preleased. There was 2.4 million square feet slated for completion in the second half of 2019.
Net absorption was 1,082,224 square feet in the first quarter of 2019, more than the 832,583 square feet absorbed in the first quarter of 2018. The Valley’s highest net absorption this quarter was in North Las Vegas at 797,476 square feet, followed distantly by the Southwest submarket at 144,109 square feet and Henderson at 129,271 square feet. Net absorption was negative this quarter in West Central, East Las Vegas and Northwest. Industrial developments in the West Henderson area should boost net absorption numbers in Henderson this year.
The Valley’s lowest vacancy rate at year’s end was 2.1 percent in the Southwest submarket. The Valley’s highest vacancy rate was 4.6 percent in Northwest submarket. The Northwest and Southwest submarkets had the largest decrease in vacancy since last quarter at 2.4 points each.
The industries most active in occupying space in the first quarter of 2019 were involved in professional and business services, transportation and warehousing, wholesale and manufacturing. Local companies took 24.2 percent of the leased square footage we tracked. Companies headquartered in the Great Plains took 22.0 percent of the space occupied, Midwestern companies 12.6 percent and Mid-Atlantic firms 12.3 percent. This quarter continued the trend of the broader national appeal of Southern Nevada’s industrial market that began in 2018.
In the first quarter of 2019, the weighted average asking lease rate for industrial space was $0.75 psf NNN, an increase of $0.11 from one year ago. On a quarter-over-quarter basis, asking rates increased by $0.19 psf for flex properties, $0.10 psf for light industrial properties and $0.02 psf for light distribution and warehouse/distribution properties, and decreased by $0.04 psf for incubator properties. The large increase asking rent for flex properties was due to two new large availabilities with a high percentage of office space and thus higher than average asking rental rates.
2018 had Southern Nevada’s highest investment sales volume since the boom that preceded the Great Recession. Based on first quarter results, 2019 does not look as though it will top 2018, though it may equal 2016 and 2017. Industrial investment sales volume in the first quarter of 2019 was $101.3 million in 16 sales totaling 845,000 square feet at an average sales price of $119.99 psf. Although investment sales were strong in 2018, there was a trend of diminishing sales over the course of the year, and this trend continued into 2019. It is notable that prices for industrial buildings have increased dramatically over the past five years. The average cap rate in the first quarter of 2019 was 6.5 percent, higher than in 2018.
Southern Nevada’s warehouse/distribution market continued to dominate the industrial market in the first quarter of 2019. Warehouse/ distribution properties had 709,143 square feet of net absorption. New construction of warehouse/distribution was 455,270 square feet in the first quarter of 2019, compared to 2.2 million square feet of new inventory completed in the first quarter of 2018. Warehouse/distribution vacancy was 2.2 percent, a very low level of vacancy, and one sure to inspire additional warehouse/distribution construction.
The light distribution sector was not significantly different in the first quarter of 2019 than it was in the first quarter of 2018, except in terms of vacancy. Net absorption was 179,551 square feet in 2019, compared to 187,249 square feet one year ago. New completions of light distribution space were lower in 2019 than one year ago, which helped bring the light distribution vacancy rate down to 3.3 percent. The average asking rental rate was $0.69 psf NNN in the first quarter of 2019, and was also $0.69 psf NNN one year ago. Development of light distribution product is beginning to ramp up, with forward supply of light distribution now more than twice what was seen in the first quarter of 2018.
The light industrial sector posted 146,557 square feet of net absorption in the first quarter of 2019, considerably more than one year ago when net absorption was negative 49,483 square feet. Light industrial vacancy was 3.7 percent this quarter, compared to 4.1 percent one year ago. Light industrial’s weighted average asking rate increased by $0.13 year-over-year to $0.84 psf NNN. Other than the new 750,000 square foot Google data center under construction in the Henderson submarket, light industrial development remained
light. This means asking rates for light industrial space will probably continue to rise over the course of 2019.
Incubator space posted negative 22,394 square feet in the first quarter of 2019. This was not particularly good, but was better than one year ago. Incubator vacancy was a healthy 5.6 percent. Flex space did better than incubator, with 69,367 square feet of net absorption bringing vacancy down to 6.3 percent. This was a very healthy level of vacancy for flex product.
It is difficult to predict whether 2019 will meet, beat or fall behind Southern Nevada’s industrial performance in 2018. Numerous projects are now planned or under construction, so steady demand will be met by new supply. The difficulty is predicting how much demand the Valley can expect over the next 12 months. Recession talk is in the air, and though a recession in 2019 does not appear to be likely, just the talk of recession can have a negative impact. We think 2019 will follow a similar trajectory to 2018, with generally strong demand for industrial space and a continued strong level of new warehouse/distribution construction.
“We think 2019 will follow a similar trajectory to 2018, with generally strong demand for industrial space and a continued strong level of new warehouse/distribution construction.”
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