Industrial development getting needed boost
Speculative industrial development, or construction without a tenant in tow, reached a record 6.4 million square feet in Las Vegas last year, beating the previous high from 1998 by nearly 2 million square feet, broker Dean Wilmore of IPG Commercial Real Estate Services said.
Another 3.5 million square feet of new speculative industrial space is planned for this year and Wilmore expects more projects to be announced in the first quarter.
Most of the larger projects under construction are in North Las Vegas, including ProLogis Park (253,200 square feet), Cheyenne Industrial Center (492,500 square feet) and two buildings at Golden Triangle Industrial Park (187,427 square feet). Reno-based DP Partners is building the largest spec development in the valley with 513,000 square feet at Logisticenter, also in North Las Vegas.
"We believe this new record is attributable to many factors, such as low interest rate construction financing, strong demand by tenants and buyers and a backlog of shelved projects that developers were able to quickly take advantage of," Wilmore said.
The surge in new construction is a welcome relief for tenants and buyers in Las Vegas because of the current shortage of available space, he said.
Las Vegas-based research firm Applied Analysis reported a fourth-quarter vacancy rate of 3.1 percent for total industrial inventory of 87.9 million square feet, compared with 3.3 percent vacancy for 82.8 million feet in the same quarter a year ago.
Brokerage firm CB Richard Ellis put the vacancy rate at 3.4 percent, with slightly more than 5 million square feet of industrial space under construction. Average lease rates are 75 cents a month.
Research analyst Dave Dworkin of Grubb & Ellis was in the same ballpark with his year-end figures of 3.9 percent vacancy, 5.1 million square feet under construction and inventory of 83.9 million square feet. Asking rent was $6.96 a square foot on an annual basis for wholesale and distribution product and $13.02 a square foot for research and development space.
The availability of industrial land remains the primary topic of discussion among brokers, users and developers as they search for the best way to move forward in the new year, Dworkin said.
The wave of construction activity may be the last of its size given land constraints and competitive pricing concerns, Commerce CRG Managing Director Mike Hillis said.
"It's pretty clear that most of those new projects coming on line, including the Thomas & Mack stuff by the speedway, most of those are being built on land that's been land-banked for some time at the old rates," Hillis said. "As that land gets developed and built, any new land is not going to be developed and leased at current lease rates for the entire market. People are going to have to pay more for it on lease rates and that's going to drive the whole market up. Even guys like Harsch (Properties) that bought in the 1990s at $2 a (square) foot, they aren't going to keep rates at 30 cents a (square) foot. They're going to charge what the market is."
Industrial rental rates rose as much as 10 percent to 25 percent in Las Vegas over the past 12 months, IPG's Wilmore said. He expects that to continue this year.
CB Richard Ellis Senior Vice President Donna Alderson said the dwindling supply of industrial space and strong demand has pushed the average price of industrial land to more than $10 a square foot, a 150 percent increase from 2000.
"Developers have to be more creative in decreasing their land (cost) basis, including selling portions of vacant land, offering both for-sale and for-lease product, offering options to purchase on leases and developing a portion of the property with higher-end product," she said.
