Industrial construction steady as market grows

With vacancy below 4 percent for the third straight quarter, it remains difficult for tenants and users to find industrial space, CB researcher Jessica Willett said.

“Developers that are still motivated to build big industrial facilities are becoming constrained by land availability,” she said. “Some industrial experts around the market believe that distribution construction is no longer going to be an option.”

Reno-based DP Partners is among the last of the “big-box” builders, having erected walls for the 513,000-square-foot fourth building at Logistic Center in North Las Vegas. It’s the largest speculative, or unleased, industrial building in the valley, DP regional manager Brad Myers said.

LogisticCenter, which will eventually have seven distribution buildings totaling more than 2 million square feet, meets the needs of tenants looking for large space at a premium location, Myers said. The 102-acre business park is near Interstate 15 and Craig Road.

The type of industrial development will change in the coming years with more focus on flexible space, mixed-use and for-sale product, Willett said.

Most of the 672,488 square feet in new construction completed in the quarter came in North Las Vegas and the southwest submarket. Notable projects expected to be completed in the second quarter are Cheyenne Industrial Center, Beltway Business Park and Speedway Commerce Center II.

“The North Las Vegas submarket is as strong as it’s ever been,” said John Ramous, vice president of operations for Harsch Investment Properties. “There’s a lot of demand out there, not only for the big box that Thomas & Mack is building, but also for the smaller mid-bay product that we like to build.”

Harsch finished the 523,000-square-foot second phase of the Speedway Commerce Center, with flexible space that can be divided down to 10,000 square feet.

The average monthly asking lease rate was 75 cents a square foot in the first quarter, an increase of 10 cents from a year ago, CB reported. As new supply is added to the market, average lease rates will reflect changes in construction costs and increases in land values, Willett said.

The challenge of finding available industrial land for future development continues to call on the creativity and resources of developers, said Dave Dworkin, research analyst for Grubb & Ellis. Commerce CRG reported a record-setting level of expansion in the first quarter with 2.3 million square feet of industrial space completed. Significant inventory — 7.1 million square feet — remains under construction, more than half of it in the expanding southwest market. That includes large build-to-suit properties for International Game Technology and Pepsi Co.

Separated by product type, research and development space showed virtually no vacancy, while flex space had the highest vacancy of 6.7 percent, according to Applied Analysis research firm.

Industrial employment growth, which assumes construction-related employment demands warehouse and manufacturing space, exceeded the valleywide employment growth at 4.3 percent over the past 12 months, Applied Analysis reported.

“Despite concerns about long-run land constraints, the industrial sector appears to be moving forward with significant completions during the quarter and substantial forward-looking supply,” Applied Analysis principal Jeremy Aguero said.

Restrepo Consulting Group showed 4.3 percent industrial vacancy in the first quarter on total inventory of 94.7 million square feet. Vacancy is up from 4 percent in the previous quarter and 3.8 percent in first quarter 2006. Rents rose nearly 25 percent from a year ago to 81 cents a foot.

Industrial demand in North Las Vegas and the southwest valley is being driven by location along the beltway and I-15 to the north, as well as a healthy economy in the resort and construction industries, Colliers International managing director Vic Donovan said.

“The rapidly changing industrial development landscape is causing a number of developers to look at new, more creative and dense forms of industrial development,” he said.

LAS VEGAS INDUSTRIAL MARKET
	First Quarter 2007	Fourth Quarter 2006	First Quarter 2006
Inventory (square feet)	94.7 million	92.5 million	88.8 million
Under construction (sf)	2.8 million	4.1 million	4.2 million
Planned (sf)	5.3 million	4.6 million	3.6 million
Vacancy rate	4.3 percent	4.0 percent	3.8 percent
Lease rate (sf/month)	81 cents	77 cents	65 cents
Net absorption (sf)	1.9 million	331,000	1.8 million
Completions (sf)	2.3 million	834,800	1.4 million

SOURCE: Restrepo Consulting Group