Retail market improving slightly in Las Vegas Valley
The retail market ended last year on a positive note with the vacancy rate dropping slightly to 10.6 percent, but more improvements are needed to qualify as any sign of recovery, Applied Analysis principal Brian Gordon said in his fourth-quarter report.
Net absorption, or the amount of retail space taken vs. space vacated, was a positive 196,000 square feet during the quarter, bringing the vacancy rate down by 0.3 percentage points from the third quarter. Vacancy is still up from 10.3 percent a year ago.
It looks like the retail sector of commercial real estate is entering a “trough” after four years of contraction and elevated vacancies, Gordon said.
It’s small-business owners such as Marina Bradstreet that are driving demand for retail space.
She moved her Wild Orchid Florist shop to a larger store at 3981 E. Sunset Road, signing a three-year lease for 1,200 square feet.
“Where I was before on Tropicana (Avenue) was very industrial and I just wanted something more conducive to the flower industry,” Bradstreet said. “It still gives me access to the convention center for trade shows and the Strip hotels for weddings, but I also wanted to tackle the locals.”
Jerry Sullivan, owner of Fantasy Cakes LLC, doing business as Say Cheesecake, expanded by 50 percent to 3,000 square feet at 3720 W. Tropicana Ave. He’s been selling cakes on a wholesale level to hotels and casinos since 1994, and is now going to sell to the general public.
High vacancies continue to drive down average monthly asking rents, which slipped to $1.51 a square foot in the fourth quarter, a 5-cent decrease year over year, according to Applied Analysis.
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That opens the door for tenants looking to move into cheaper space, said Rob Lujan, retail broker for Gatski Commercial.
“A lot of tenants are challenging their landlords, breaking their leases and moving and saying, ‘Chase me.’ They see an opportunity to jump at a better deal,” he said.
The retail market is still one of the most volatile segments of commercial real estate in Las Vegas, the broker said. He questions whether any positive net absorption is from new business lifeblood coming into the market or from cannibalization taking place among retail survivors.
“Across the valley, it’s hard to say,” Lujan said.
Average asking rent among all retail categories has lingered within a relatively narrow range over the last 12 months, Applied Analysis reported. Rents were highest in power centers at $1.72 a square foot, compared with $1.77 in fourth quarter 2010. Community center rents were $1.51, down from $1.58, and neighborhood center rents were $1.41, down from $1.47.
While the downward trend may suggest average pricing is approaching the “proverbial bottom,” the resetting of asset value taking place may result in future price deterioration, Gordon warned.
“Going forward, landlords and property owners should expect to continue to operate from a position of caution,” the analyst said.
PRINCIPAL REDUCTION
Housing and Urban Development Secretary Shaun Donovan is working on a deal between banks and the government that would write down mortgage principal for about 1 million homeowners.
It’s going on two years since talks began between federal officials, state attorneys general and major banks to try and resolve allegations of “robo-signings” and other misconduct in foreclosures.
In exchange for $20 billion to $25 billion in relief to distressed homeowners, Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial would not be pursued for improper foreclosures and abuses in originating and servicing the loans.
Donovan estimated the settlement could provide roughly a $20,000 principal reduction for each of the 1 million homeowners.
“So what,” housing analyst Dennis Smith of Home Builders Research said. “The amount is much too small to affect the hardest-hit areas like Las Vegas. This settlement is well short of the principal reduction needed to help the thousands of mortgage holders who are $50,000 or more underwater with their mortgage. It is a small step in the right direction, but well short of what is needed.”
APARTMENT OUTLOOK
Las Vegas moved up seven places to No. 36 on Marcus Millichap’s 2012 national apartment index, primarily because of the re-emergence of the hospitality industry.
The brokerage firm forecasts a 1.9 percent increase in asking rents to $815 a month, while effective rents — taking out concessions — will rise 3.4 percent to $780 a month.
Vacancy is forecast to decline 80 basis points to 7 percent in 2012, following a 130-point decline last year.
Developers will complete about 750 new apartment units this year, which is 72 percent below the average number of units built each year from 2000 to 2010.
Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.
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