The Las Vegas Valley’s industrial real estate market has recently recorded its highest vacancy rate in over a decade. In the first quarter of 2024, the vacancy rate surged to 9.5 percent, an increase of 40 basis points from the previous quarter, according to a report by CBRE Group Inc.
This rise in vacancies is attributed to the effects of a building and financial boom that occurred between 2021 and 2023. During this period, low interest rates spurred significant construction activity. Garrett Toft, a vice chairman for CBRE in Las Vegas, highlighted that the delivery of new industrial space during these years was nearly double the usual annual figures.
Toft explained that the simultaneous onboarding of this substantial amount of industrial space coincided with a slowdown in demand. “We went from absorbing around 10 million square feet of space a year to just 3.2 million square feet in 2024,” he said.
The report indicates that the construction pipeline for industrial space currently stands at 7.7 million square feet, reflecting a gradual decline from a peak of 20 million square feet in the third quarter of 2023. The Las Vegas Valley has seen an unprecedented influx of over 46 million square feet of new industrial projects, with about 25 percent of this space remaining unoccupied as of the end of the first quarter.
Despite the rising vacancy rates, Toft remains optimistic about the market’s future. He explained that continued absorption of space is likely to push the vacancy rate down in the coming quarters. Furthermore, a slowdown in new construction is expected to alleviate some of the pressure.
Toft elaborated, “Every quarter since the market began to slow down, we are still absorbing more space. We still have positive net absorption, but it’s not enough to offset the new space being delivered.”
He expressed confidence that the first-quarter vacancy rate likely represents a peak in the market cycle. Toft highlighted two specific submarkets—North Las Vegas, including Apex Industrial Park, and Henderson—as experiencing higher vacancies than other regions in the valley.
As construction activity ceases, Toft anticipates a significant increase in tenant demand, particularly in these overbuilt submarkets. This trend is expected to stabilize the market in the upcoming quarters.
In a historical context, the vacancy rates for industrial space reached a record low of 0.9 percent in the second quarter of 2022, driven by soaring demand for warehouse and distribution facilities. Currently, the segment with the highest vacancy rate is distribution space, which stands at 20.3 percent, followed by light distribution at 12 percent. CBRE forecasts that by the second quarter of 2024, the vacancy rate may surpass 10 percent, indicating a peak that is likely to diminish by year-end.
The growth of industrial space inventory in the Las Vegas Valley is notable, with approximately 25 percent of the total built in just the past five years. This rapid expansion was aimed at meeting rising consumer demands.
As a consequence of current market conditions, the industrial real estate landscape is becoming increasingly tenant-friendly. The report underscored that landlords are adapting by becoming more flexible and competitive in order to secure leasing agreements. With the vacancy rate climbing and available space expanding, it is believed that competition among landlords will intensify, which could lead to more advantageous pricing for buyers.
Overall, while the Las Vegas Valley industrial market is currently experiencing elevated vacancies, there is a belief among industry experts that a return to better conditions is on the horizon.
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