LAS VEGAS – The pandemic-stricken economy in southern Nevada began to recover in June 2020 as business restrictions were eased, particularly in the hospitality industry. While the expansion of non-hospitality businesses in southern Nevada has improved, the hospitality sector remains the key sector in the region. The growth there is essential to the health of the local economy. Fortunately, February job numbers showed the valley’s recovery was back on track and the hospitality numbers seem to be back in the right direction. We believe the economy will continue to improve through 2021 and that the return of conventions and other events to the valley will accelerate the recovery.
The southern Nevada industrial market saw net absorption of more than 1.9 million square feet in the first quarter of 2021, bringing the vacancy rate to 5.6%. E-commerce drove industrial demand in southern Nevada during store closings in 2020, and this has continued through 2021. Almost all of the valley’s net absorption was in warehouse / distribution buildings, primarily in the North Las Vegas submarket. Outside the logistics sector, the industrial market continued to struggle. The gradual return of visitors to the resorts in southern Nevada and the continued high demand for housing in the valley should help correct this situation and trigger a stronger recovery for these subtypes over the course of 2021.
The retail market appeared to be on a hiatus this quarter, with relatively low net absorption, a stable vacancy rate of 7.1%, and an asking rent rate only rising 0.01 psf. Without a sharp drop in the retail market in 2020, an equally impressive rebound in 2021 was unlikely. More specifically, the retail market problems are not over yet. Taxable sales have so far barely recovered, particularly in the food and drink subsector, and job losses in this subsector persist. We believe 2021 will improve as the year progresses, but a sluggish employment recovery can complicate things.
The multi-family market in southern Nevada weathered 2020 well, with vacancy at the end of the year lower than at the beginning and net absorption generally positive. The setback in Q1 2021 isn’t necessarily significant, as most signs point to strong future demand for apartment buildings in southern Nevada. The number of apartment buildings is currently 4.4% and the average rental price rose to $ 1,170 per unit this quarter.
After breaking into negative net absorption area in late 2020, office demand rebounded for the quarter, with total net absorption totaling 52,240 square feet. The vacancy rate fell from 15.1% in the last quarter to 15.0%. The valley’s office market is being hit from two sides – fewer tenants in the market and less demand for office space from these tenants. This accelerates the trend towards less office space per employee caused by the impact of computers on office productivity that kicked off in the 1990s. We feared last year that the negative net absorption that was seen through most of 2020 would continue into the first half of 2021. So far, this concern seems unfounded. We assume that the demand for office space will continue to improve until 2021. The recovery is likely to be sluggish as companies reevaluate their office needs and experiment with new work schedules.
The doctor’s office outside of hospitals had a tough time in 2020 as government restrictions kept people away from dentists and doctors to prevent anything other than infection with the COVID-19 virus. As of 2021, the doctor’s office market is showing signs of recovery. Net absorption in the first quarter was positive but not particularly strong and was exceeded by deliveries, increasing vacancies by up to 11.4%. We expect the demand for medical office space to improve over the course of 2021 and we should expect vacancy rates to decline by the end of the year. Medical office building investment sales were strong in 2020 and remained strong through the first quarter of 2021, suggesting investors are positive about the future of the medical office market.
Land sales are development driven and development in southern Nevada is now a mixed bag. Housing development is healthy, with strong residential sales possibly attributable to the “California Exodus”. Industrial development is also healthy, which is due to the demand from e-commerce companies. This strong residential and industrial development has stimulated land sales in the valley, but demand cannot be met without supply, and while the old joke goes about land, “they don’t make it anymore”. Large blocks of arable land are running out in southern Nevada, and this lack of supply will limit land sales as the decade of the 2020s continues. Smart investors are already looking for future developments beyond the valley’s borders.
The hospitality market in southern Nevada could recover from the pandemic store closings in 2020. When restrictions were eased in June 2020, the hospitality industry in southern Nevada saw rapid increases in visitor volume, room occupancy, and leisure and hospitality employment from April and May lows. Those gains peaked in October and November and declined in December and January before improving in February. All of this likely means that a rapid recovery is unlikely for the time being. The valley’s convention business remains closed, although conventions with World of Concrete will return to Las Vegas in June 2021. With the return of convention business and the reduction in fear of the COVID-19 virus due to vaccinations, we expect hospitality to pick up in southern Nevada will accelerate in the second half of 2021.
The full report can be downloaded here: https://www.colliers.com/en/research/las-vegas/2021-q1-las-vegas-lvqr-market-research-report
For more information please contact:
Maddie Skains | Mass media
702-433-4331 | [email protected]
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