Commercial construction nears standstill in Vegas
LAS VEGAS (AP) – The struggling economy should bring commercial construction to a virtual standstill around Las Vegas next year, according to a Las Vegas research firm.
Applied Analysis says nine major commercial projects are under construction in southern Nevada, and development will essentially cease once most of them wind down early next year.
Jake Joyce, an analyst with the firm, said that’s in sharp contrast with 2007, when commercial development was booming and there were 75 to 100 projects under construction.
“With limited projects remaining under construction, the build-it-and-they-will-come mentality has gone the way of pillbox hats, Benny Goodman and your grandmother’s dance card,” Joyce told the Las Vegas Sun. “Essentially, commercial is following the same path as tourism. It is about supply and demand.”
Analysts said they don’t expect another major casino project on the Strip for another decade after completion of most of the $8.5 billion CityCenter casino development in December.
With commercial vacancy rates at record levels, weak demand because of the ailing economy and credit hard to obtain, the chance for new projects is low, they added.
Las Vegas now has the same amount of space occupied as it did in 2006, and there has been millions of square feet added since then.
“It will be pretty bad,” said John Restrepo, principal of Restrepo Consulting. “We are going to have a drought of commercial construction for a number of years until we burn through this inventory.”
The office market has 11.2 million square feet of empty space, with a vacancy rate of nearly 23 percent. That equates to about five years of inventory, Joyce said.
With the unemployment rate in Las Vegas at 13.9 percent and rising, there won’t be job creation to spur demand for office and industrial space, Joyce said.
The industrial real estate market is hurting too, with 13 million square feet of vacant industrial space, which is about two years of inventory.
The retail sector has 5.1 million square feet of vacant space, a supply of about two years, Joyce said.
With foreclosures expected to increase in 2010, the value of vacant commercial space will slide and make it more difficult for developers to build anything that can be competitive, analysts said.
Nevada leads the nation in the rate of foreclosures and bankruptcies. The casino industry, the economic engine that drives the state, has been battered by reluctant tourists and gamblers pinching their pennies.
It has been quite a comedown for a region that had twice as many construction workers as the national average. No one ever expected a slowdown of this magnitude, Restrepo said.
Steve Holloway, executive director of the Associated General Contractors of Las Vegas, said it may be another two to five years before commercial construction picks up in the private sector and that hope for the near term is expanded government spending.
The slowdown has prompted an exodus of construction workers, he said.
“Once CityCenter is done, that is going to be it for a while,” Holloway said. “It is going to be ugly. There is so much supply that it will remain idle for a while.
“Unless some huge project magically takes off, I think southern Nevada is going to remain in this recession two to five more years,” he said.