Last quarter, we said that Southern Nevada’s office market was in neutral. This quarter, it may have finally gotten into gear. For the third straight quarter, Southern Nevada’s office market posted positive net absorption and office vacancy decreased. Vacancy stood at 22.8 percent in the fourth quarter of 2012, feeding off of 265,336 square feet of net absorption. There were no new completions this quarter, and the weighted average asking rental rate fell to $1.88 per square foot (psf) on a Full Service Gross (FSG) basis. Given the office market’s recent history, one feels hesitant to let their joy be unrestrained, but it looks as though the office market might finally be in recovery mode.
According to the Nevada Department of Employment, Training & Rehabilitation, between November 2011 and November 2012, a net of 500 office sector jobs were gained in Southern Nevada. The professional & business services sector, which had been adding jobs in 2011, has dropped 400 jobs over the past twelve months. The financial activities sector, which includes insurance and real estate, continued its decline as well (though at a slower pace), losing 200 jobs over the past twelve months. The health care & social assistance sector added 1,100 jobs over the same period, though this sector has a limited impact on the professional office market. Unemployment in the Las Vegas-Paradise MSA stood at 10.4 percent as of November 2012, down from 13.0 percent in November 2011. Over the same period, total employment in Southern Nevada has increased by 6,300 jobs, the majority in the education and health services sector and the trade, transportation and utilities sector. The leisure and hospitality sector had been growing at a strong pace through much of 2012, but slowed in the latter half of the year.
If Southern Nevada’s office market is still bouncing along the bottom, then the fourth quarter of 2012 found it on the upward leg of its trajectory (and hopefully not its apogee). After five years of ill news, it would be our fondest desire to declare three quarters of positive (if somewhat weak) net absorption and falling vacancy rates a trend and predict a stellar 2013 for the office market. Two things (only two?) keep us from taking this plunge. The first is the uneven growth in office jobs, the foundation of demand for office space. If office jobs gains were clearly on the rise, it would be sensible to predict a strong 2013 for office demand. National and global headwinds, from the dreaded “fiscal cliff” to the slow-down (or potential slow-down) in Europe, China and Japan also keep the prognosis for Southern Nevada’s own economy in 2013 a bit hazy. By and large, the local economy should see continued slow growth in 2013, and we believe the office market will follow suit. If the economy does turn sour, though, expect continued difficulties for the office market as well.