Rental rates expected to drop as more luxury apartments open in valley

A massive number of apartment complexes are planning to open in the Las Vegas Valley this year as 2023 looks to go down as a historic year for multifamily housing in the area, according to a new report.

As a result, apartment vacancy rates should climb, and rental rates should start to go down, according to a July report on Las Vegas’ luxury apartment market from Coldwell Banker Commercial.

The report shows 2023 will be a record-breaking year for apartment complex completions as 19 high-end projects (those with multiple amenities such as a pool, gym and dog park) have or will be completed this year or by early 2024 — a stark contrast to 2022 when only four came on the market, adding 882 units.

The majority of the apartment units that have come onto the market this year or will come in the coming year could be considered high-end, said Tom Naseef, a commercial real estate broker for Coldwell Banker Commercial, signifying a shift in market demand for Las Vegas.

Naseef said this wave of high-end product, including an additional 11 luxury complexes to be completed in 2024, got kicked into high gear during the pandemic, when interest rates bottomed out and construction costs followed.

“The momentum that led us to this period of large luxury apartment deliveries pre-dated the pandemic but were amplified during the pandemic,” he said. “There were already several developers that pioneered the amenity-rich apartment space, and so there was recognizable demand and incomes that supported the trend. However, permit activity really expanded during the pandemic.”

The report notes most of the high-end product is centered around four areas: Summerlin, downtown Las Vegas, Henderson and Spring Valley.

Ariva, a 754-unit complex in south Las Vegas, is currently leasing, along with Evora in Spring Valley, Elysian at Rainbow (also in Spring Valley) and The Watermark in Henderson, while there was one market setback as KAKTUSlife@the curve in Enterprise was destroyed by a fire.

Overall, Las Vegas is expected to add around 7,000 apartment units in the next six to eight months, according to the Coldwell Banker report, adding to the nearly 4,000 that have been completed this year so far.

‘Largest development pipeline of the decade’

Avison Young estimates the Las Vegas Valley has as inventory of close to 206,000 apartment units, noting “area multifamily now boasts the largest development pipeline of the decade” and that “inventory continues to grow in Las Vegas, as multifamily development activity has experienced a tremendous rebound following the slowdown experienced during the pandemic.”

This marks a shift in the marketplace. From last year dating back to 2015, the valley was averaging about three complex openings a year, with less than a few hundred units at each of them.

John McClelland, the vice president of research for Coldwell Banker Commercial, said the local real estate development market noticed an increased demand for “luxury features” along with apartment complexes a few years ago.

“So they purchased land in submarkets where incomes could support that,” he said. “These projects tended to pencil (show potential profitability) the best because development costs rose dramatically during the pandemic and the cost to build isn’t that much different in a high-end area versus a lower land cost area. Higher rents tended to make up for the increased land cost in the premium areas.”

Plus, Las Vegas is seeing an influx of high-income, college-educated workers, who now make up a quarter of all new residents, up 5 percentage points from before the pandemic. The city also finds itself in a serious supply pinch in multiple residential sectors, including multifamily and low-income housing.

Of course, Naseef noted this will ultimately have an impact on rental rates in Las Vegas, because there will be increased competition between developers for potential tenants.

“Vacancy rates are hard to forecast at a level, but the direction is pretty clear, higher,” he said, noting vacancy rates could break the 10 percent mark, which Las Vegas hasn’t seen for a decade. “The sheer volume of new units screams an increase.”

Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.