While the office and retail markets in Southern Nevada continue to improve, the industrial market appears to be the wallflower of commercial real estate. The culprit is most likely the construction sector, for other sectors of industrial employment are showing year-over-year job gains. After a positive year of net absorption in 2011, the industrial market gave back 268,000 square feet of occupied space in 2012. The vacancy rate increased to a new high of 15 percent, and asking rental rates dropped, year-over-year, by $0.03, to $0.48 per square foot (psf) on a triple-net (NNN) basis. For the industrial market, recovery remains elusive.
By any measure, 2012 was a disappointment, though not necessarily a surprising disappointment. The surge in industrial activity experienced in the middle of 2011 raised hopes, but the slow down experienced in late 2011 tempered expectations for the new year, and most people understood that there were head winds to overcome. Industrial employment growth was weak in 2012, and demand for industrial space generally followed suit. As people once again begin moving into Southern Nevada and the available housing inventory is slowly drawn down, the construction sector should find its bottom and then begin to grow. This could still be a two to three year process, but unraveling the problems created during the housing bubble is a tricky thing that cannot be rushed. Several build-to-suit industrial projects are slated to be completed in 2013, and this should help improve the numbers, at least temporarily, but it seems increasingly unlikely that Southern Nevada’s industrial market will really recover until the construction sector finally stabilizes and then begins to grow again. We think 2013 holds the possibility of slow growth, but it is more likely that 2013 will be another difficult year for the industrial market, with as many negatives as positives.
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