Industrial Property to See Continued
Investor and Tenant Demand
Published February 11, 2020
How would you best describe the state of the industrial market in Southern Nevada?
It’s very healthy. However, our perspective does differ from the larger, logistics-based developers and investors. Our tenants tend to be more granular, smaller, with lower credit. Our occupancy rate across our portfolio is around 97%, which is very favorable for return rates. We are seeing some pushback on rental increases from our tenants, but that hasn’t resulted in meaningful vacancies as of yet. That’s not to say that it may not happen in the future. As rents increase, some occupiers may start to get priced out of the market.
What kinds of properties do you and your associates target?
We’re primarily incubator and mid-bay owners. Our tenants can range from 600 feet to 30,000 feet. We tend to have smaller, mom and pop shops, as well as regional outposts for national companies.
"Because of the limited supply of true value-add properties, most investments made in today’s environment require a strong belief in continued rent growth."
What kind of value-add do you tend to implement into the properties that you purchase?
We look for properties with problems, such as vacancies, deferred maintenance, or functional obsolescence that can be fixed. More recently, those opportunities have been far and few in between, but we do continue to look for them. Because of the limited supply of true value-add properties, most investments made in today’s environment require a strong belief in continued rent growth.
"Incubator and mid-bay tenant spaces tend to yield 50 to 75 bps over the corresponding rates of big box properties."
Why has it become so difficult to find these value-add opportunities?
When we entered the Las Vegas market in 2011-2012, capital was hard to come by. Institutional investment dollars weren’t inclined to deploy capital into this market. Since then, we’ve seen increased competition with private capital and bank debt. Traditionally, this asset class has not been managed well by institutional capital. It’s operationally intensive, requiring quick turnarounds for incoming tenants, as well as lease contracts that are easy for a tenant to navigate.
CBRE's industrial real estate forecast sees
the market continuing strong through 2020.
This has changed over the last 3-5 years, as institutional investors search for yield in a saturated market. Incubator and mid-bay tenant spaces tend to yield 50 to 75 bps over the corresponding rates of big box properties. This spread has driven more institutional capital into the space. Time will tell as to how successful these buyers are, but their involvement and interest in this space is not changing any time soon.
Has the California migration affected your tenancy?
It hasn’t had as pronounced an effect on our portfolio as it has for the more logistics-focused property owners. They tend to have companies looking to re-domicile existing regional distribution centers. Our tenants tend to be local, organically grown. Where we do see relocations, it tends to be for personal reasons, such as taxation, or affordability, but these are often smaller businesses moving to Southern Nevada, or new companies that are looking to set up shop because of the favorable business climate.
"Allegiant Stadium and the ultimate development of the Station Casino site will likely result in around 2 million square feet of displaced industrial tenants."
Do you see challenges up ahead for the types of spaces that your business model targets?
It’s definitely going to be more challenging with all of the capital in the market chasing fewer deals. At the moment, I’m bullish on Strip-adjacent properties. Allegiant Stadium and the ultimate development of the Station Casino site will likely result in around 2 million square feet of displaced industrial tenants.
An aerial view of Allegiant Stadium and the adjacent industrial facilities that service Strip properties.
The Strip is a unique demand generator, with some tenants having to visit clients 20-30 times a day. We believe that companies with clientele on the Strip will be willing to pay rental premiums in order to maintain that proximity in the near and long term.
Do you foresee demand growing for industrial space at the north end of the Strip, with the opening of Resorts World and new projects taking shape in the coming years?
Definitely. In fact, in mid-2019, we purchased approximately 350,000 square feet just west of AREA15. Rents were nominally lower than similar properties that were adjacent to Tropicana or Flamingo, and the property was still close enough to the Strip for it to be strategic for servicing clients in the resort corridor. We also just purchased a 30,000 square foot project just west of the Fashion Show Mall. Even though it’s an older area, we feel that it will continue to be promising because it serves as the backdoor to the Strip.
Strip-adjacent industrial will continue to be in high demand, especially with the new developments in the north end of the Resort Corridor.
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