Las Vegas office market may gain speed after COVID emptied buildings

When the coronavirus pandemic turned life upside down in Las Vegas, the office market was not spared the turmoil.

Buildings emptied as white-collar staffers were sent home over fears of the outbreak, sparking discussions over how much office space companies really need as people worked from their couch or kitchen table. Several office deals in the works also got delayed or derailed amid the initial turmoil, brokers say.

The market still faces plenty of questions, though with vaccines rolling out, industry professionals figure activity will pick up in 2021, perhaps in the second half of the year. Above all, they think companies that are still working remotely will bring staffers back to the office, where people can work without the distractions and isolation of being stuck at home, and where they can be around others again, not just see them through computer screens.

“Zoom can be convenient, but people just want to get together,” said real estate broker Patti Dillon, an office specialist with Colliers International.

CBRE Group broker Randy Broadhead said a minimal number of tenants in Southern Nevada ended their lease to work remotely. Others plan to return to their buildings in the spring or rotate workers in and out, he said.

He figures the market this year will have “short-term pain followed by long-term resiliency.” As he sees it, the office is critical to promoting company culture, mentoring and innovation.

“That all comes from being together and working together,” Broadhead said.

Office setups could change because of the pandemic. Las Vegas broker Hayim Mizrachi, president of MDL Group, indicated firms might install higher cubicle walls or spread workers out more.

Still, he figures the market’s performance depends on vaccine distributions and how quickly the economy recovers.

“That will govern everything,” Mizrachi said.

Sublease efforts

The coronavirus outbreak has kept people home and away from crowds for fear of getting infected, dealing a crushing blow to tourism, the foundation of Las Vegas’ casino-heavy economy. However, real estate pros said the office market has held up relatively wellamid the chaos.

The valley’s third-quarter office vacancy rate was 13 percent, up from 12.1 percent in the first quarter, and the average asking rent was $2.21 per square foot, down slightly from $2.22, Colliers reported.

By all accounts, small firms are more likely than large ones to have already returned to the office, though numerous companies that sent people home have tried to recoup rent money they’re spending for space they’re not using.

Cushman & Wakefield broker Dan Palmeri said the amount of office space available for sublease in Southern Nevada has more than doubled since the pandemic hit, to about 1.3 million square feet.

He also said that landlord purchases have slowed and that a good percentage of the labor pool can’t go back to their offices until schools fully reopen and they don’t need to stay home with their kids.

Still, Palmeri said that market activity has picked up and that he has been talking to firms, mostly from California, looking to set up shop in Las Vegas. He also pointed to UnCommons, a 40-acre, $400 million project under construction in the southwest valley that calls for office space, apartments, and food and beverage spots.

Its goal, he said, is to have the office environment attract top talent.

“That only matters if you need to go to the office,” Palmeri said. “I still see that being the case.”

‘This will pass’

Developer Matter Real Estate Group was set to start construction on UnCommons in April but shelved those plans after the pandemic sparked sweeping business closures and other chaos. It broke ground in August.

Matter partner Jim Stuart said that working from home has grated on people and that most, if not all, of the companies he is interacting with are “anxiously pursuing” a return to regular work.

Another project underway, Axiom, is slated to feature two four-story, 80,000-square-foot office buildings and a parking garage. The developer, Sansone Companies, broke ground on the southwest valley complex in early February, about a month before the pandemic upended daily life.

Neil Sansone, a principal with the firm, said businesses saw benefits of working remotely, but for a number of firms, it doesn’t replace being in the same building with colleagues. He also said that developing an office complex now doesn’t make him or his family-owned company nervous.

“We all feel that this will pass,” he said.

Moonwater Capital founder Ofir Hagay, who owns more than 1 million square feet of office space in the valley, said all of his tenants have been paying their rent amid the pandemic, though most of his big tenants have been working remotely with skeleton crews left in their buildings.

Hagay said people live in packs and can’t stay isolated. Once people are vaccinated, he figures life will return to normal.

“We have short memories,” he said.

Contact Eli Segall at esegall@reviewjournal.com or 702-383-0342. Follow @eli_segall on Twitter.