Over the past two years, Southern Nevada has posted strong commercial real estate growth, and investors have responded by buying industrial and retail properties at an ever-increasing rate. The industrial market has shown extraordinary growth and the retail market has recovered from the Great Recession, but investors seem not to have noticed that Southern Nevada’s office market has posted three solid years of occupancy growth, as well. We think this means office properties are set to see the next surge in sales for five reasons.
• Replacement costs: Office properties can still be purchased at below-replacement costs, meaning you can buy an office property for less than it would cost to build it. Land prices have reached a post-recession high, and with limited large land assemblages available to developers, both the appetite and capacity to construct new office product are low. This makes the existing office product a better investment.
• Low barriers to entry: Southern Nevada is a second-tier office market. Tier One markets such as New York, Los Angeles and San Francisco have higher rental rates, lower cap rates and a pool of more institutional and sophisticated buyers, creating opportunities for those who are willing to bet on Las Vegas’ continued growth.
• Local opportunity: In years past, local developers were unwilling to sell due to a variety of complications, such as being publicly traded entities, conservative strategies, money partners or corporate considerations. Lately, though, some Class A buildings and large portfolios have gone to market, including the Summerlin portfolio and the master-planned office project in Henderson developed by American Nevada Company. As these investment properties become available, private investors with a long-term real estate investment strategy will reap the benefits.
• Money and finance: While Southern Nevada’s office market is in much better shape than it was a few years ago, there still are office assets in the market that have loans coming due in the near future. These loans will force dispositions within the market, and the Federal Reserve’s hinting at increasing interest rates in 2017 will exacerbate this. Buyers who track the commercial mortgage-backed securities loan pool and who leverage their relationships within Southern Nevada will find those bargain deals.
• Local growth: A decade after the Great Recession, Southern Nevada has added thousands of jobs and seen a renaissance on the Strip, with resort operators adding arenas, concert venues and new hospitality concepts. In addition, Nevada continues to attract companies and employees from California. That means that ancillary services, including those that occupy office space, will continue to grow. With significant economic benefits for small business in Southern Nevada, a long-term office investor can be the beneficiary of job growth that is exceeding the national average.
Ryan Martin is senior vice president of Colliers International — Las Vegas.