Western Real Estate Business

JUN 2018

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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M A R K E T H I G H L I G H T: L A S V E G A S 22 • June 2018 • Western Real Estate Business www.REBusinessOnline.com There is a lot of buzz in the Las Vegas market a full 10 years after the Great Recession. Much of this buzz surrounds sports with the new Golden Knights hockey team; the Las Vegas Lights professional United Soccer League team; Las Vegas Aces WNBA team; and the NFL Raiders team. The new Raiders stadium is under con- struction now and is widely consid- ered the most talked-about major development happening in Vegas. In a city that offers unmatched access to world-class gaming, shopping, trade- shows and conventions, the NFL com- ing to town creates yet another reason for people to visit Las Vegas. As you can imagine, many retailers and inves- tors are trying to position themselves to take advantage of this entry. The overall vacancy rate for retail in the Las Vegas metro area was 8.7 percent. Rents for new developments range from $2.50 per square foot, tri- ple-net to $4 per square foot, triple- net. Existing neighborhood centers, power centers and strip centers aver- age $1.75 per square foot to $2.25 per square foot. Anchor and mid- box leases average $0.75 per square foot to $1.25 per square foot for both gross and triple-net-structured leas- es. Ground lease and build-to-suit are averaging $120,000 to $225,000 in annual rents depending on deal terms, though most of these lease structures are absolute net. There are several new retail devel- opments under construction and in the planning stages in the valley's suburbs as well. Many of these devel- opments are grocery-anchored cen- ters. For example, Sprouts Farmers Market has three developments under construction and one that recently opened. Smith's has two stores under construction, one of them being a 124,000-square-foot Smith's Market- place. An Albertsons-anchored shop- ping center recently broke ground in the northwest part of the valley, while a Costco-anchored shopping center just broke ground on St. Rose Park- way in Henderson near the executive airport and the recently announced Raiders practice facility location. Submarket Development Development is strong in all Las Vegas submarkets, creating a pre- recession feel in the market. The southwest portion of the valley is seeing most of the activity due to growing residential density, proxim- ity to major roads and freeways, and an abundance of undeveloped land. Many are smaller, one-off retail devel- opments with one to five acres. Las Vegas is seeing many categories on the move. These include grocers, such as Smith's, Albertsons and Sprouts; specialty grocers like La Bonita, Sea- food City and Marianna's; and quick- service restaurants, which are very active and have too many brands to list. Furniture and home good ten- ants are also entering the market, with brands such as Floor & Décor, Crate & Barrel, Walker Furniture, At Home, Bassett Furniture and West Elm actively backfilling larger spaces in the market. Convenience stores are also very active, with 7-11 and Ter- rible Herbst being the most active. Economic Diversification The market drivers for retail devel- opment in Las Vegas are varied and expanding, but a major consideration is centered on economic diversity away from gaming and hospitality. This includes manufacturing, distri- bution, healthcare and other indus- try segments that have brought job growth and, subsequently, suburban sprawl. Forbes magazine ranks Las Vegas as the sixth fastest growing city in America. Privately held land, which is in short supply, continues to be an issue with BLM (Bureau of Land Management) auction sales being the only way to acquire larger parcels. Market Shopping Center Sales Suburban Las Vegas is seeing a trend of REITS and institutional owners cycling real estate holdings that have been held for many years. This allows them to take advantage of aggressively low cap rates and, in some cases, completely exit the market. This has opened up oppor- tunities for private capital and new- to-market REITS to acquire quality assets that have never been available. Many of these assets are grocery- anchored and power centers in need of capital improvements and new lease stabilization strategies to grow yields over a longer hold period. Cap rates are ranging from sub-6 to high 9 depending on quality of asset and location recorded. Core net-leased asset sales remain strong and in great demand thanks to Nevada's investor-friendly tax cli- mate, with cap rates ranging from 4.5 to 6. We have seen a bit of a correction in neighborhood strip center sales this year, with cap rates ranging from 7 to 8.5. This trend will continue as buyers are being more cautious and unwill- ing to take a risk with over-market rent rolls. LABOR, POPULATION GROWTH DRIVES LAS VEGAS MULTIFAMILY MARKET Las Vegas continues to benefit from a strong labor market, which is driving demand and strong fundamentals in the multifamily sector. Employment in Southern Nevada increased by 3.4 percent over the past year, reaching one million workers, while the total population in Southern Nevada increased 2.2 percent, surpassing more than 2.2 million people. With a well-documented shortage in housing, developers added more than 3,200 new apartment units during the year and still saw va- cancies decrease 30 basis points to 5.2 percent. Part of what is driving the tre- mendous growth in Las Vegas is the billions of dollars in commer- cial developments. This includes several major resort renovations (Palms, Monte Carlo, Caesars), several new resort developments (Paradise Park, The Drew, Resorts World), and the $1 billion expansion of the Las Vegas Convention Center. There is also the $1.9 billion football stadium that is helping usher the city into a new era of professional sports. On the capital side, multifamily properties continue to be highly sought after by both private and institutional buyers. Although transaction vol- ume slowed in the first quarter of 2018 compared to the same period a year ago, total volume was more than $350 million in the first quarter, marking the third straight start to the year at such peak levels. Strong fundamentals and strong demand have also pushed up property values with average prices hitting $105 per square foot, per unit in the first quarter of 2018. It is important to note, however, that this average is heavily impacted by a high number of large Class A transactions. Average prices were much more modest for smaller transactions, at $66 per square foot, for assets valued between $1 million and $20 million. With a tight housing market and strong employment forecast, multifam- ily fundamentals in Las Vegas are expected to continue their strong perfor- mance for the remainder of 2018 and well into 2019. Michael LaBar First Vice President of Investments, Marcus & Millichap Michael Shaffner First Vice President of Investments, Marcus & Millichap VEGAS' RETAIL MARKET SUPPORTS ECONOMY BEYOND GAMING, HOSPITALITY Dan Hubbard Senior Director – Retail Services, Cushman & Wakefield UPCOMING MARKET HIGHLIGHTS JULY AUGUST Seattle Los Angeles Portland Phoenix Orange County SEPTEMBER OCTOBER San Diego Portland Northern California Colorado EDITORIAL OPPORTUNITIES: Nellie Day nday@francemediainc.com ADVERTISING OPPORTUNITIES: Scott France scott@francemediainc.com

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