Those in the know in Las Vegas’ commercial real estate industry say they are cautiously optimistic about the performance of their industry in 2016.
Michael Newman is one of them. Newman is managing director of the Las Vegas office of CBRE Group, the world’s largest commercial real estate services and investment firm. The Fortune 500 company is headquartered in Los Angeles but employs 110 people in the Las Vegas Valley. Newman recently weighed in on where his company — and commercial real estate in Las Vegas in general — appear to be heading.
How was 2015 for CBRE Las Vegas?
The firm was responsible for more than $1.2 billion in real estate transactions during the year. CBRE’s headline-making deals in 2015 included the much-anticipated listing for Fontainebleau Las Vegas, the tallest tower on the Strip; the listing of 60-plus acres between Planet Hollywood and Hard Rock, the largest remaining undeveloped parcel in the resort corridor; the listings of Stirling Club at Turnberry Place and the historic Las Vegas Country Club; the bulk sale of 64 units at Sky Las Vegas; and the brokering of a milestone 15-year, $13.2 million lease at Prologis Las Vegas Corporate Center.
How is 2016 shaping up?
We’re only three months in, but early signs show promise of 2016 being the best year we’ve had in 10 years. The industrial market absorbed 4.6 million square feet in 2015, and signs point to increased absorption in 2016 as evidenced by the robust development activity we’re experiencing from companies such as Panattoni Development, Prologis, VanTrust, the Pauls Corp., Dermody Properties and Suncorp, to name a few.
As a market, we’ve missed opportunities because we didn’t have standing industrial inventories readily available to accommodate manufacturing, e-commerce and distribution businesses. That challenge is being addressed by the introduction of industrial offerings that were completed in 2015 and/or will be completed in 2016. Transaction values are expected to increase 15 to 20 percent above 2015.
Your firm is growing, correct?
On the whole, CBRE has been busy recruiting and acquiring other firms both to strengthen its core competencies and to diversify its business. In the past decade, CBRE has acquired and integrated more than 100 firms. Over the past year alone, the firm has been on pace to acquire about one company a month.
At the heart of these moves is the desire to ensure that CBRE offers the most robust and talented group of professionals to service our clients. With more than 70,000 employees in more than 400 offices worldwide, CBRE is able to mobilize around our clients’ most demanding real estate challenges to deliver outcomes that drive business value and asset growth.
In Las Vegas, we attribute our growth to CBRE’s international reach, significant resources and, of course, an improving market. However, growth also is achieved through the recruitment of highly experienced professionals, the acquisition of new businesses that complement our existing platform and new business development through supporting lines of business, including debt and structured finance, appraisal and valuation services, asset services and transaction services for large corporate clients. This complement of diversified services expands our client base well beyond brokerage.
What does that growth say about the state of commercial real estate in Las Vegas?
History has proven that national and local real estate cycles usually run seven to 10 years. The fact that Nevada hasn’t fully recovered from the last economic downturn causes some to believe the next downturn may be softer.
That said, companies are thinking cautiously about the next two years. The effect is that developers and investors are being cautious in their underwriting and, unlike in 2005 to 2007, they are adhering to traditional real estate investment fundamentals, allowing for smarter investment.
We still have room to grow in retail, but that growth is largely dependent on new housing construction and corresponding absorption. Measured growth should continue in the Southwest, Henderson, Summerlin and the Northwest, but it will be a gradual growth. Vacancy continues to be skewed by retail properties in the core of the city that have lost anchors. The Las Vegas retail market also is contingent on the performance of national retailers that traditionally drive the development of shop space for local and regional retailers.
CBRE Las Vegas doubled the size of its industrial group. Why?
Last year, CBRE significantly expanded its industrial division by adding Kevin J. Higgins and Garrett Toft, formerly with Voit Real Estate Services, along with three professionals from their team, as well as James Griffis, formerly with MDL Group. These strategic recruitments put the exclamation point on CBRE’s industrial practice.
The 2015 expansion of the CBRE team was well-timed with the recovering economy and significant growth in the valley’s industrial sector. In fact, strong leasing activity and net absorption headlined the region’s real estate activity for the year, and there appears to be no slowdown in sight.
How has the market changed since the recession?
New construction is more deliberate, and due diligence is more thorough, adhering to traditional real estate fundamentals.
The availability and affordability of land is an issue, particularly for industrial development in the Southwest. During the recession, land values adjusted to more realistic values that can support development, i.e. land is only worth what you can build on and support. However, since the end of the recession, land prices have increased, and the concern is that continued price inflation could restrict new development. For our local economy to thrive, we need to continue to grow and build.
On the industrial side, the Las Vegas market is being looked at as a preferred location for regional distribution centers. New buildings are bigger and taller, partly driven by e-commerce. Las Vegas is starting to see more manufacturing companies in the market. The Las Vegas industrial market is entering a growth period with developers.
What advice do you have for investors and developers?
Stay patient, because the recovery is going to be long and gradual. There still is pent-up demand for high-quality, well-positioned property in the Las Vegas market. Build it, and we’ll lease it.