Southern Nevada Economy Continues to Stifle Development and Construction

Las Vegas unemployment is up while the retail, office and industrial markets continue to lag.

By John Restrepo

John Restrepo

The Nevada Department of Employment, Training and Rehabilitation reported that 18,700 jobs were lost this year through June in the Las Vegas Metro Area, versus a gain of 3,300 for the same period in 2008. However, it is important to note that June’s jobs were 167,100 higher than that recorded in June 2000. So on a net basis, more jobs have been created in Clark County in the last nine years than have been lost.

Clark County’s unemployment rate was 12.3% in June, 1.2 points higher than May, and much higher than the 9.5% U.S. rate. Labor force growth slowed, which is good, but there are still a large number of new entrants into the local labor force.

Job losses occurred again in nine of the 11 major employment sectors this June compared to June 2008, with the only gains in education and health employment. The construction sector continued to lead in largest amounts of job losses with a year-over-year drop of 19.8%. The problems are not abating in any meaningful way, and they continue to be a drag on the economy.

The Las Vegas valley speculative office market ended the second quarter firmly in recession, and the deterioration of market fundamentals continued its trek through the quarter. The drop of 300,000 sq ft of net absorption marked the sixth straight quarter of negative demand as office tenants continued to vacate space or downsize. Nearly 150,000 sq ft were completed in the second quarter, bringing total inventory to nearly 41 million sq ft.

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Reported vacancy jumped 1.5 percentage points above the first quarter, to almost 24%. The weighted asking rent stayed at around $2.33 per sq ft per month, inclusive of taxes, insurance, maintenance, janitorial and utilities. Forward supply -- space under construction or planned to begin construction over the next four quarters -- was comprised of 800,000 sq ft completed year to date and 350,000 sq ft currently under construction.

The general decline in supply additions during 2009 will help the market stabilize as tenants and landlords seek a new equilibrium between supply and demand. However, the valley’s office market still has a long way to go before it can return to any sense of normality. We expect that the local economy will remain weak in 2009 and 2010. As a result, the office vacancy rate is expected to remain above 20% for the next four quarters.

Retailers are finding it challenging to maintain the same sales figures that they were used to seeing prior to the recession, resulting in a 1.2 percentage point rise in anchored retail vacancy to 9%. Much of this weakening is clearly attributed to the plunge in consumer confidence and spending, which resulted in the closing of several national big box retailer stores in the last several quarters. There were also closings of numerous grocery and drug store locations by Albertsons, Vons, Rite Aid, Starbucks and Longs. The average rent dropped for the fourth straight quarter to $1.85 per sq ft while forward-supply totaled 1.5 million sq ft. Under-construction space totaled 700,000 sq ft at the end of Q2, with over 1 million sq ft completed year-to-date.

Economic concerns during the second quarter also continued to weigh heavily on the industrial market. Net absorption in Q2 was negative 1 million sq ft, marking the fifth consecutive quarter of negative demand. Completions totaled 350,000 sq ft, bringing total inventory to nearly 106 million sq ft. Direct vacant space jumped to more than 13 million sq ft, pushing vacancy to 13% compared to 11.8% in the first quarter.

Weakened demand continued to place downward pressure on rents, which hover at $0.70 per sq ft per month in the second quarter. Under-construction space rose to about 725,000 sq ft at the end of Q2, with over 3 million sq ft being completed so far this year.

John Restrepo is principal of Restrepo Consulting Group LLC, based in Las Vegas. The firm has been providing real estate and economic consulting services in Nevada for 19 years. For more information, visit their website at www.rcg1.com or call 702-967-3188.

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