WESTERN SNAPSHOT, MAY 2008

Las Vegas Retail Market

Musser

Despite the softening of the overall economy, fundamentals within the Southern Nevada retail sector remain healthy. In fact, the commercial retail sector in Las Vegas posted a record-setting level of construction completion in 2007, expanding by 4.3 million square feet during the year and 1.6 million square feet in the fourth quarter alone. By year’s end, total inventory in anchored retail centers reached 48.7 million square feet.

Construction by Submarkets

Retail completions during fourth quarter 2007 were not limited to one submarket, but dispersed throughout the Las Vegas Valley. A substantial amount of new retail space came online in Town Square Las Vegas, an outdoor shopping, dining and entertainment mixed-use center. Developed by Turnberry Associates and Centra Properties, Town Square Las Vegas is located on the south end of the Las Vegas Strip at the intersection of Interstate 15 and the 215 Beltway.

In addition, several big box buildings are completing construction in the southwest submarket as part of The Arroyo Market Square, a 940,000-square-foot retail center made up of large retailers, junior anchors, multi-tenant pads and restaurants. The Arroyo is situated on 90 acres of land along Interstate 215 and is being developed by Laurich Properties in partnership with EJM Development.

A 90,000-square-foot Kohl’s outlet store located in Deer Springs Crossing at the southeast corner of Deer Springs Road and N. 5th Street in North Las Vegas also reached completion. The $75 million, 325,000-square-foot power retail center is being developed by Juliet Companies in conjunction with landowner Rome’s Golden 40 LLC.

A handful of other projects opened to the public at the end of 2007, the majority of which are housed in power centers in the southwest submarket. Additionally, a few neighborhood center openings were reported in the northwest, north and northeast portions of the valley.

By the close of 2007, the market reported 2.4 million square feet of anchored space under construction, with another 13.6 million square feet in the planning phases. Retail centers under construction during fourth quarter 2007 include The Village at Queensridge (west), Cannery Corner (north), Grand Flamingo Centre (southwest) and Lake Mead Crossing (southeast).
Vacancy and Rental Rates

Demand for retail space remained relatively stable with 1.5 million square feet absorbed during fourth quarter 2007 and 4.1 million square feet absorbed throughout 2007. Vacancy in the retail sector stood at 3.2 percent, down slightly from 3.3 percent in third quarter 2007, but up from 3 percent compared to fourth quarter 2006.

Retail rent growth remained strong with a 10.6 percent annual gain, reaching a valley-wide average of $2.20 per square foot per month. Fourth quarter 2007 reported rents up $0.07 per square foot from the previous quarter. Pricing premiums were reported in emerging parts of the valley, including the northwest, north, southwest and southeast areas.

Pricing is impacted by the size, location and type of space available. Power centers reported an above-average asking rental rate of $2.53 per square foot; community centers posted an average rate of $2.14 per square foot, while neighborhood centers reported a rental rate of $2.11 per square foot.
By Product Type

By the end of 2007, power centers represented 32.3 percent of the total market and posted a below-average 1.9 percent vacancy rate. Project completions within the sector totaled 1.4 million square feet, while substantial pre-leasing activity boosted market demand to a comparable 1.4 million square feet. Approximately 760,500 square feet of space was under construction at year’s end.

Community centers comprised nearly 27 percent of the market or 13.1 million square feet. Vacancy rates reached 3 percent with no material product completing construction and 11,000 square feet of negative absorption during the quarter. Approximately 1.1 million square feet remains under construction with plans for another 2.9 million square feet pending.

Neighborhood retail center inventory totaled 19.9 million square feet, with an above average vacancy rate of 4.5 percent. A total of 177,800 square feet completed construction during the fourth quarter, while market demand outpaced new supply (190,800 square feet of net absorption). Another 525,000 square feet is expected to come online in the next year, with another 2.2 million square feet remaining in the planning stages.

While the current economic downturn has resulted in an increased concern among retailers about consumer spending, and the subprime mortgage crisis has the potential to affect retail tenant credit profiles, the majority of new product in Las Vegas has been pre-leased and overall supply and demand has remained well balanced.

Skepticism in the retail market is predicted be short-lived as the current hospitality building boom on the Las Vegas Strip will boost Southern Nevada’s core industry. New properties opening in the next few years, such as MGM City Center, will serve as a key driver of population, visitation and employment growth — and ultimately, retail spending.

Mark Musser is a senior investment associate in the retail/office division of The Bentley Group Real Estate Advisors in Las Vegas.

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