Real Estate and Development

Big jump expected in commercial rents

By Jennifer Shubinksi / Staff Writer

What does the new year have in store for the Las Vegas Valley's commercial tenants?

Most likely increases in rent -- in some cases up to 15 percent.

"Potentially significant rent increases are expected during 2006 as leases expire and developers attempt to catch up to inflation," said John Restrepo, principal of Restrepo Consulting Group.

When adjusted for inflation, the average monthly rents for commercial properties have remained relatively flat since 2001, despite healthy demand, a local research firm reported.

After adjusting for inflation, the average monthly office rent in the third quarter of 2005 was $1.91 per square foot or just below the $1.93 recorded in the first quarter of 2001, Restrepo Consulting Group LLC reported.

The inflation-adjusted industrial average rent in the third quarter was 57 cents, compared with the 61 cents recorded in the first quarter of 2001, the firm reported.

The inflation-adjusted average retail rents in the third quarter was $1.51, compared with $1.47 in the first quarter of 2001, Restrepo Consulting Group reported.

Restrepo said absorption (demand) has remained strong, and vacancies in the third quarter in all commercial markets were relatively low. The reason rents, when adjusted for inflation, have remained flat is largely because of increases in supply during the past four years, tenant resistance to rent increases and the lease contracts, many of which have not expired yet, he said.

The slow rent growth has made certain types of new development, especially in the industrial sector, more difficult, said Vic Donovan, Colliers International managing director.

Increasing land prices have made it difficult for developers to justify building industrial products, while at the same time industrial land is being bought up and rezoned for other uses.

"It's about time that commercial rents start increasing to encouraging additional development to allow us to be supply-competitive with other cities in the southwest," Donovan said. "We can't afford to lose our competitive edge if we are to maintain a healthy commercial real estate market."

Restrepo said on average, rents will increase between 10 percent and 15 percent in 2006.

He expects retail and industrial, which have the lowest vacancies, to experience rent increases of at least 15 percent.

Average office rent increases will be at least 10 percent, but in some prime locations it could be more, he said.

"For example, our rent going up 17 percent here (Hughes Center) because there's virtually no space left," Restrepo said.

Despite a low vacancy rate there is always some vacancy in a market, he said.

"A whole market doesn't go zero; there's always turnover and frictional vacancy. It may not be in a location that's best or may not be product you want to rent," Restrepo said.

In other news:

Land in the Las Vegas Valley during the third quarter 2005 reached an all-time high of $708,000 per acre, research firm Applied Analysis reported this week. The average price during the second quarter 2005 was $601,600 per acre, the group reported.

The firm's report analyzed 362 transactions, comprising more than 1,800 acres. Values reached $16.25 per square foot for land during the third quarter, a 76 percent increase when compared with the third quarter 2004, when land prices were $402,500 per acre, or $9.24 per square foot, Applied Analysis reported.

Notable transactions during the third quarter included:

• The former Westward Ho, on 15.2 acres on Las Vegas Boulevard, which was purchased for $145.5 million, or $9.6 million per acre, by Centex Destination Properties, a division of Centex Homes.

• An 85.5-acre assemblage of 35 parcels in the southwest portion of the Las Vegas Valley was acquired by Gameday LLC for $48.7 million, or $568,000 per acre.

• Developers with projects in the southwest Las Vegas Valley have formed a partnership to create "West Village," a planned "suburban downtown" that would encompass about 700 acres.

West Village is centered at Interstate 215 and the intersection of Sunset Road and Durango Drive and includes projects that have been proposed for the area. By teaming up together, the developers and land owners in West Village said they hope to bring cohesiveness to the area, as opposed to each developer acting independently.

Developers hope to bring consistency to landscape design, share market ideas, coordinate mass transit and setting development standards for the partners to follow.

West Village is bordered by Patrick Lane to the north, Warm Springs Road to the south, Cimarron Road to the east and the Las Vegas Beltway to the west, and by the freeway as it curves north.

County zoning allows for heights up to 200 feet and up to 100 residential units per acre.

The developers in the partnership include Centra, KB Home, Curve Development Co., Glen Smith & Glen Development, Sunset Durango Partners, GKT Holdings, Station Casinos Inc. and UNLV. Clark County officials also are involved in the planning.

The area has the potential for 10,000 residential units, 8 million square feet of commercial space, a university research and technology park, and a possible casino complex is planned for that portion of the valley.

So far, the only project in West Village is Centra's Centra Point, an 11-building, 30-acre office project totaling 450,000 square feet.

Other key developments planned for the southwest valley that are now a part of the West Village concept are:

The Curve -- a 45-acre community that when built will include mid-rise residential buildings and retail in an open-air design.

Glen Smith & Glen Development -- a 20-acre project being planned by developer Glen Smith & Glen that will include high-end, mid-rise residential, office and retail.

Project Durango -- a yet-to-be-named 65-acre development that is a joint venture between Centra and KB Home. The planned project would include residential units and up to 750,000 square feet of commercial space.

Harry Reid Research and Technology Park -- a planned 120-acre research park that is being developed by the UNLV Research Foundation.

Durango Station -- a 70-acre site that has been owned by Station Casinos for many years. The land, on the south side of the beltway at Durango Drive, is zoned for a casino.

GKT Holdings -- residential and commercial uses are planned on 155 acres.

Sunset Durango Partners -- a 10-acre site that is entitled for mid-rise residential.

Jennifer Shubinski covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at (702) 259-8832 or by e-mail at js@lasvegassun.com.

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