Overall, tenant demand in the Southern Nevada industrial market remained elevated, pushing record levels of development activity.
Although market velocity tapered off during the past three months, nearly 4M SF of new construction was delivered during 1Q 2024. The market is on pace to complete more than 16M SF of new industrial space by year-end, its highest total on record and more than double the most recent 5-year average of 7M SF. While pre-leasing activity was relatively modest during the quarter, new deliveries contributed to a notable vacancy rate increase from 3.3% at the end of 2023 to 4.9% at the end of 1Q 2024.
After historic lows in 2022, vacancy rates are projected to rise this year with nearly 13.5M SF currently under construction, all of which are scheduled for delivery in 2024. Even if leasing activity comes close to the 5-year annual average of 6M SF, the market is projected to experience a supply and demand imbalance during the near term. Asking rates experienced a modest decline during the quarter to $1.06 NNN, compared to $1.07 NNN last quarter and $1.00 NNN at the same time last year.
Total net absorption was 1.6M SF in 1Q 2024, the markets 40th straight quarter with positive activity. Although activity was relatively strong this quarter, most of the significant transactions occurred in new construction deliveries. The correlation between demand and development activity has been consistently strong over the past few years. In terms of square footage, warehouse/distribution space accounted for majority of activity in Q1 at approximately 65%, followed by light distribution with 30%.
Near-Term Outlook
Previously leasing pre-commitments comprised 52% of all new industrial development, whereas today that figure stands closer to 15%. With over 10M SF of new construction in the vertical phase of development it is quite likely that the vacancy rate will eclipse 8.0% and that rate assumes absorption in the 2nd quarter remains on par with the first quarter. This upward availability trend is also fueled by an increase of over 120% in sublease space entering the market.
Of the total activity seen this past year, a considerable amount occurred from inbound or expanding regional companies, Additionally, firms operating in the Midwest, West and Mountain West states have also recently chosen to locate in the Las Vegas market to expand their operational reach. Because of its friendly business climate, the Las Vegas market will continue to attract industrial tenants from adjacent markets and the surrounding region. The region continues to garner the attention due to its diversified base of industries attracted to the region and the evolution as a destination for major sports franchises and leading-edge entertainment.
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