When the pandemic hit in early 2020, it carried the potential to disrupt Southern Nevada’s commercial real estate markets. While it did affect some segments more than others, the office, retail and industrial segments weathered the initial shock and have since rebounded to varying degrees.
A significant shift for workers during and after the pandemic was the move to remote work, with the rate of remote U.S. workers tripling since early 2020. This shift has had notable effects on the national office market, with the nationwide vacancy rate reaching an all-time high in the first quarter of 2023, according to the National Association of Realtors. In Southern Nevada, demand for office space softened but has since returned to 2019 levels.
At the end of 2019, the Southern Nevada office market recorded a vacancy rate of 14.4 percent, the lowest mark since 2007. With the combination of the pandemic and the shift to remote work, the vacancy rate climbed to 16 percent by the end of 2020. The vacancy rate stabilized through 2021 and improved to 15.3 percent by the end of 2022. In early 2023, the vacancy rate has declined further to 15.1 percent, suggesting that the work-from-home trend has peaked in Southern Nevada. While other markets across the country are still experiencing elevated office vacancy rates, local developers believe in sustained demand for traditional office space as illustrated by the nearly 1 million square feet of new space under construction.
For the Southern Nevada retail market, neither the pandemic nor the shift to online shopping resulted in significant long-term effects. Prior to the pandemic, the retail market’s vacancy rate of 7 percent in 2019 was at its lowest point in 12 years. By the end of 2020, the rate rose to 7.3 percent before peaking at 7.4 percent in early 2021. Since then, the vacancy rate has steadily fallen as the economy reopened and consumers began to shop in stores once again. Despite some well-known traditional brick-and-mortar stores closing in recent years, including Sears and Toy ‘R’ Us, the Southern Nevada retail vacancy rate declined through 2022 and closed the year at 6.3 percent, the lowest level since 2008. Much of that momentum has continued into 2023 as vacancy sits at 6.1 percent with nearly 450,000 square feet of new space under construction.
While the broad-based economy struggled with the social limitations of the pandemic, the industrial market flourished in Southern Nevada as warehousing and logistics demand accelerated due to the surge in online shopping. Nationally, e-commerce retail sales leapt 38.1 percent from $569.9 billion in 2019 to $813.1 billion the following year. The online boom was even more pronounced in the Silver State as sales at nonstore retailers (i.e., internet-based sellers) nearly doubled from $2.3 billion in 2019 to $4.4 billion in 2020, and today annual nonstore retail sales surpass $5.5 billion. Capitalizing on this trend, the Southern Nevada industrial market utilized its geographic proximity to markets on the West Coast and Intermountain West by doubling down on online fulfillment warehouses.
The addition of new industrial spaces designed for distribution coupled with increased demand has helped vacancy to continuously decline for the Southern Nevada industrial market. In 2019 the market’s vacancy rate stood at 6.6 percent, and it spiked to 7.6 percent at the end of 2020. That spike was short-lived, and in 2021 the vacancy fell rapidly to 4.6 percent. In 2022 the vacancy rate continued to fall to 3.8 percent, the lowest rate since the mid-2000s. In early 2023, vacancy sits at 3.9 percent with over 15 million square feet of new space under construction.
Aside from some shake-ups early in the pandemic, all three of Southern Nevada’s commercial real estate markets find themselves in a relatively stable position with the potential for further expansion.
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Photo: City of Las Vegas