Jim Hill / ROI Commercial Real Estate
As of Q2 2020, the Northwest (NW) Submarket was comprised of 424 retail buildings consisting of 7.1 million SF, made up of 1.3 million SF of power centers, 3.4 million SF of neighborhood centers, 400k SF of strip centers, and 1.9 million SF of general retail. The NW represents 6% of the overall Las Vegas market of 117 million SF. The overall vacancy rate was 3.4% percent as of Q2 2020, up from 2.6% last year, and compared to 6.9% valley-wide. Further, the NW has the lowest vacancy of the 10 retail submarkets surveyed, which range from 3.4% to 10%, and can be attributed to this submarket’s above average net absorption of 115k SF.
The average lease rate was $2.22 PSF NNN as of Q2 2020, an increase of $0.10 PSF from Q2 2019. Lease concessions, such as abated rent and tenant improvement allowances, are common and vary based on strength of tenant and overall lease terms with landlords considering longer periods of abated rent to move deals forward in the face of uncertainty and tenant hesitation during COVID-19. Notable lease transactions include: Humana leased 7,000 SF within Cheyenne Commons; Planet Fitness leased 18,000 SF within Deer Springs Villages; Skecher’s leased 11,500 SF within Centennial Center.
Sales activity consisted of 23 sale transactions, a 30% decrease from the previous 12 months. Sale prices ranged from $218,700 to $26,000,000, with a median sale price of $1,800,000. Further, sales had an average price PSF and cap rate of $352 PSF and 5.6% respectively. Notable transactions include the purchase of a 28,000 SF vacant car dealership on 12.45 acres formerly occupied by Auto Buy Smart, which was purchased by the Howard A Keys Trust (DBA Keyes Motors) for $26 million in February 2020.
12,700 SF was under construction with 141,000 SF delivered over the previous 12 months, representing a year-over-year decrease of 36%, and another 140,000 SF is proposed over the next 8 quarters.
In summary, Las Vegas continues to have one of the fastest expanding population bases among major metropolitan areas. However, COVID-19 has caused considerable economic damage and uncertainty. Las Vegas is a destination city, and as long as visitation and travel is negatively impacted by the pandemic and decreased consumer spending, the local economy will suffer. The Northwest Submarket remains one of the fastest growing and desirable trade areas in the Las Vegas Valley due to the above average demographics of its residents. While construction and sales activity have slowed over the past 12 months, retail rents have increased by 4.5% in the same period in the NW. As vacancies are projected to rise, both brokers and landlords will need to be creative in the coming months to either re-purpose or backfill spaces vacated by both mom & pop and national tenants unable to pay rent, by considering non-traditional retail uses such as drive/pick-up facilities and fulfillment centers or by reducing shop space to make room for potential pad development with drive thrus. The effects from the coronavirus pandemic will continue to have a negative economic impact on the Las Vegas economy and the Northwest Submarket in the short term. However, once either a vaccine or effective treatment is produced, Las Vegas, which has proven to be a resilient community in the past, should be well positioned for a sustained recovery.