According to Grubb & Ellis, a national third-party research firm’s internet First Quarter 2007 Las Vegas Industrial Trends report: 

“The challenge of finding available industrial land for future development continues to call on the creativity and resources of developers. While some possible solutions outside of Las Vegas may be five to 10 years away, industrial activity in the valley remains strong with approximately 1 million square feet of product completed within the last three months. Development has been especially active in the North Las Vegas submarket with approximately 2 million square feet under construction and in the southwest with 2.1 million square feet under construction.

In 2007, two significant projects will be delivered to the market. In the second quarter, all eight buildings of the 523,000-square-foot Speedway Commerce Center II will be completed at the same time, a very unusual occurrence for the light industrial, mid-bay product type. In the third quarter, the 492,500-square-foot Cheyenne Industrial Center is expected to finish construction, a majority of which is already pre-leased or sold.  Lease rates across all product types and all submarkets have risen dramatically over the past two years. The airport submarket offers some of the highest rents in the valley, currently at an average annual lease rate of $16.02 per square foot and consisting mostly of available flex space. The lowest rents in the valley reside in North Las Vegas, currently at an average annual lease rate of $5.98 per square foot and consisting mostly of available warehouse/distribution space. Overall, lease rates are expected to climb slightly over the course of the year, but not as drastically as in the previous eight quarter”

In support of the Grubb & Ellis findings, a May 2, 2007 Las Vegas Review Journal article entitled “Industrial Construction Steady as Market Grows”, revealed the following: 

“The Las Vegas industrial market continued its active pace in the first quarter with nearly 4.5 million square feet of buildings under construction and 333,000 square feet taken by tenants, CB Richard Ellis reported in its market overview.  With vacancy below 4 percent for the third straight quarter, it remains difficult for tenants and users to find industrial space, CB researcher Jessica Willett said.  "Developers that are still motivated to build big industrial facilities are becoming constrained by land availability," she said. "Some industrial experts around the market believe that distribution construction is no longer going to be an option."

The type of industrial development will change in the coming years with more focus on flexible space, mixed-use and for-sale product, Willett said.  Most of the 672,488 square feet in new construction completed in the quarter came in North Las Vegas and the southwest submarket. Notable projects expected to be completed in the second quarter are Cheyenne Industrial Center, Beltway Business Park and Speedway Commerce Center II.

"The North Las Vegas submarket is as strong as it's ever been," said John Ramous, vice president of operations for Harsch Investment Properties. "There's a lot of demand out there, not only for the big box that Thomas & Mack is building, but also for the smaller mid-bay product that we like to build."  Harsch finished the 523,000-square-foot second phase of the Speedway Commerce Center, with flexible space that can be divided down to 10,000 square feet.

The average monthly asking lease rate was 75 cents a square foot in the first quarter, an increase of 10 cents from a year ago, CB reported.  As new supply is added to the market, average lease rates will reflect changes in  construction costs and increases in land values, Willett said.

The challenge of finding available industrial land for future development continues to call on the creativity and resources of developers, said Dave Dworkin, research analyst for Grubb & Ellis. Commerce CRG reported a record-setting level of expansion in the first quarter with 2.3 million square feet of industrial space completed. Significant inventory -- 7.1 million square feet -- remains under construction, more than half of it in the expanding southwest market. That includes large build-to-suit properties for International Game Technology and Pepsi Co.

Separated by product type, research and development space showed virtually no vacancy, while flex space had the highest vacancy of 6.7 percent, according to Applied Analysis research firm.  Industrial employment growth, which assumes construction-related employment demands warehouse and manufacturing space, exceeded the valley wide employment growth at 4.3 percent over the past 12 months, Applied Analysis reported. "Despite concerns about long-run land constraints, the industrial sector appears to be moving forward with significant completions during the quarter and substantial forward-looking supply," Applied Analysis principal Jeremy Aguero said.

Restrepo Consulting Group showed 4.3 percent industrial vacancy in the first quarter on total inventory of 94.7 million square feet. Vacancy is up from 4 percent in the previous quarter and 3.8 percent in first quarter 2006. Rents rose nearly 25 percent from a year ago to 81 cents a foot.  Industrial demand in North Las Vegas and the southwest valley is being driven by location along the beltway and I-15 to the north, as well as a healthy economy in the resort and construction industries, Colliers International managing director Vic Donovan said.  "The rapidly changing industrial development landscape is causing a number of developers to look at new, more creative and dense forms of industrial development," he said.”

Las Vegas Industrial Market

Source: Restrepo Consulting Group/Las Vegas Review Journal May 2007

Additional insight into the current Greater Las Vegas Industrial market is provided in the following Las Vegas Review Journal article, “Industrial development getting needed boost” January 18, 2007:

”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.”

Colliers international addresses the issue of industrial vacancy as a function of affordable supply versus lack of demand.  In an online publication “Market Research: Industrial – 1^st  Quarter 2007”, Colliers International reports that for the third quarter in a row industrial vacancy has increased, standing at about 4.3% in 1^st Quarter 2007.  However, industrial asking lease rates are also reported as having increased during the same time frame.  Colliers International reports current industrial asking lease rates as being $0.16 higher than 1^st Quarter 2006 or at about $0.81/SF NNN in 1^st Quarter 2007.

The Colliers International quarterly report attributes the minor downturn in industrial vacancy rates to two factors.  “The first is the decline in construc­tion employment. This may turn around by the end of the year, when the housing market is expected to begin its recovery. The second factor is the robust level of industrial con­struction. Over the past 18 months, the Las Vegas industrial market has averaged almost 1.5-million sf of new industrial space per quar­ter. Over the same period, net absorption has averaged slightly more than 1.5-million sf per quarter. This would suggest that even a small decline in demand will result in higher va­cancy rates. This is exactly what we are seeing now. “