When I look at what’s happening and what’s to come, I like the odds. As Las Vegas continues to navigate the current economy, she will continue to do what she does. Reinvent herself, bigger and better!
Southern Nevada’s commercial real estate industry entered 2022 on an upswing despite lingering pandemic effects, threatening inflation and supply chain constraints.
As we traverse toward the end of the third quarter, headlines today are contradictory.
Inflation or stagnation? Are we in a recession or has the definition changed? The jobs report is healthy, but some companies are laying off hundreds and thousands at a time.
What is the outlook for the rest of 2022? Let’s review where we are today, and then speculate together toward the end of the article. Should you hit the gas, or pump the brakes?
■ High inflation caused the Fed to increase interest rates. In the short run, that has slowed down transaction sales volume, more so in the runaway residential sector, and for levered buyers in the commercial sector. Given limited supply of quality product and high demand to place capital, pricing should hold or be slow to decline until sold comparables have a chance to reset sellers’ expectations. But expect softened pricing over the medium to long term.
■ The local office sector started cooling midyear after experiencing significant expansion during the first part of 2022. Southern Nevada’s inventory expanded by more than 382,000 square feet of new office space. With 41 percent of this space pre-leased, this will add as much as 225,000 square feet of vacant space to the local market. Expect vacancy rates to increase, with the understanding that this is a healthy increase. Southern Nevada has not added quality inventory since the Great Recession.
■ The industrial sector is expected to remain strong as the “darling” of commercial real estate through the remainder of 2022. Spurred on by the exponential growth of e-commerce, Southern Nevada’s industrial inventory recently expanded by more than 753,000 square feet, while 1.3 million square feet of space was absorbed. This brought vacancy down to 1.3 percent, the lowest industrial vacancy rate ever recorded in Southern Nevada. Demand remains high, keeping developers busy and attracting capital sources to the market.
■ Southern Nevada’s retail market just had its strongest quarter since the fourth quarter of 2021, with net absorption surging to 459,545 square feet. Deliveries of new retail space were light, bringing vacancy down to 4.8 percent, the lowest rate since the Great Recession. Looking toward the end of the year, the local retail market should continue to do well, despite supply chain disruptions and high inflation.
■ Developers seem to be positioning themselves for an expanding market in 2023 and beyond. Local land sales remained solid in the second quarter of 2022, with residential land dominating among all land types and industrial land sales falling significantly (likely because parcels have been picked off). The average price per square foot for land in the Las Vegas Valley changed little to $497,891 per acre, compared to $500,069 per acre during the previous quarter. On a year-over-year basis, the average price of land increased by $108,464 per acre, showing the real trend.
■ Hospitality metrics for Southern Nevada saw room inventory increase by more than 3 percent, from 146,723 units a year ago to nearly 152,000 rooms through May 2022. Over the last year, Las Vegas saw the completion of Resorts World and the renovation/rebranding of Virgin Hotels Las Vegas, and the re-opening of the Palms Casino Resort. These properties added over 5,700 rooms and 540,000 square feet of convention space to the local inventory. Room occupancy averaged 83.3 percent through the second quarter of the year, an increase from 77.3 percent for the last quarter of 2021. Through May 2022, year-to-date visitor volume stood at 15.3 million people, representing 45.1 percent annual growth.
■ Business tourism figures are still down 34 percent compared to 2019. Las Vegas has not seen a complete return of its international business, which isn’t expected to recover until 2024. Despite these depressing stats, Harry Reid International Airport set a new record for passengers in June 2022 (4,683,156), a 22.9 percent increase from June 2021. By midyear 2022, the airport has seen 52.4 percent more passengers (24,279,867) than the same time last year.
If you only look at the economic numbers, you’d be hard-pressed to find a problem with Southern Nevada’s economy. At worst, you could point to growth being slower in 2022 than 2021. This isn’t surprising, given that 2021 was being compared to 2020, the year of lockdowns.
Over the past three years, we have matured and added capacity in many ways.
Newly completed projects include the West Hall expansion of the Las Vegas Convention Center, Resorts World, Circa Las Vegas and Allegiant Stadium.
Pending projects in the pipeline are MSG Sphere, Fontainebleau Las Vegas, Hard Rock Las Vegas, UnCommons and Durango Casino &Resort by Station Casinos. Formula 1 is coming for sure. Major League Baseball is still flirting, and the NBA is like an imminent speculation.
When I look at what’s happening and what’s to come, I like the odds. As Las Vegas continues to navigate the current economy, she will continue to do what she does.
Reinvent herself, bigger and better!
Hayim Mizrachi is the president of MDL Group and the 2022 president of NAIOP Southern Nevada. NAIOP Southern Nevada is a chapter of NAIOP, the Commercial Real Estate Development Association, and it comprises 635 members serving the Southern Nevada market.
As we approach a post-pandemic market, interest rates have resurfaced around the 2019 national average, which was the 15-year average before 2020, median sale prices have continuously decreased since June and inventory has tripled over the last three months. Such shifts are defining factors of the market re-balancing and giving buyers some power back.
As we approach a post-pandemic market, interest rates have resurfaced around the 2019 national average, which was the 15-year average before 2020, median sale prices have continuously decreased since June and inventory has tripled over the last three months. Such shifts are defining factors of the market re-balancing and giving buyers some power back.
When it comes to getting the most out of the appraisal process, preparation is key. It’s also important to understand that appraisers are focused on the condition, function and features of the home to ensure the property is appraised at full market value.
It’s shocking how fast things change in the local real estate market. Is it time to accept that the housing bubble has officially burst and we’re headed for another collapse like 2007-2008? I can see the eager investors now, licking their chops and rubbing their hands together excited, waiting for values to crash so they can swoop in and cash in on deals, like before. Well, don’t begin to drool yet expecting a crash; I think a housing correction is what we’re witnessing.
In 2021, Las Vegas experienced its most frenzied market in years. Any agent could put a house on the market and it had a considerable chance to sell. But, with the shift in supply and demand 2022 has presented, today’s sellers are experiencing a more competitive market. Making the choice of who you select to represent you and present your home to the market is more important than years past.
We’ve had quite a real estate ride in Las Vegas since the early 2000s. Realtors who have navigated market conditions through recessions, foreclosure crisis, pandemics and extreme appreciation or depreciation are going to have experience, and their versatility and savvy will show in their online reviews.
With all construction, whether it is residential, multifamily or commercial, we are entering a new normal, and we won’t fully know what that normal is for a few years to come.
The good news is as interest rates rise; home valuations begin to stabilize. Inventory is also beginning to increase, a move that typically makes it easier to buy a home. In fact, Realtor.com estimates active listings will grow 15 percent this year and home sales are “expected to hit their second-highest level in 15 years.”
Overall, Las Vegas is still one of the country’s hottest real estate markets, as people from all over the world come here to live. Real estate is a long-term appreciating asset, just make sure to set your expectations and be aware of the changing marketplace.
The Las Vegas real estate market captivates and intrigues us, in part because it’s never boring! Right now, the market enjoys the confluence of continued strong demand, job creation and business diversification. Those who proclaim that prices will fall simply because mortgage interest rates have risen are ignoring the ongoing contribution of job creation and economic diversification.
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