In the fourth quarter, this vicious cycle pushed vacancy to 9.9% from little more than 6% at the end of September, according to the latest data from CB Richard Ellis., and the situation has only worsened in the first six weeks of 2009. Circuit City last week announced the imminent closure of all of its stores, which include five locations in the Las Vegas Valley. The struggle for big national tenants also is negatively affecting many smaller in-line tenants who have relied on anchor traffic generated to sustain their businesses.

"Waning consumer confidence, a depressed housing market, and a deteriorating job market have all put downward pressure on consumer spending. Taxable retail sales activity has dropped from record highs to new lows during the past decade when computed on an inflation-adjusted, per-capita basis," says Jeremy Aguero, a principal with Applied Analysis, a business research and advisory firm that tracks the local market. "These types of swings create significant operational challenges for retailers, ultimately impacting the commercial retail real estate market. The state of the industry today creates concerns as additional employee layoffs and store closures are likely."

With spaces rapidly going vacant by way of bankruptcies and non-renewals, pricing will be affected, further diminishing cash flow, affecting additional owners' ability to meet debt payments or debt-coverage requirements, continuing, if not accelerating, the vicious cycle. With fear and caution having beaten back excitement and growth, healthy tenants that can drive traffic and help maintain or boost a center's occupancy will be able to pick their location and obtain concessions not previously available.

"While not common [for smaller operators], retailers negotiating deals on new space should try and consider some form of co-tenancy clauses that provides an exit strategy should the anchor leave," Aguero says. "We expect vacancies to remain at this newly-established level for more than 24 months, while only a few projects move from land planning to actual construction."

Unemployment in Nevada stands at a 25-year high. Retail space under construction is off 20% from last quarter, with project completions having little to do with it, and planned projects fell by about 35%. The two-million-square-foot Summerlin Centre project was put on hold during the fourth quarter and two other projects--the Clock Tower at Spanish Hill and Clock Tower at Seven Hills projects--were cancelled altogether. The planned South Square Marketplace (388,755 square feet) and Lake Mead Village (101,612 square feet) were cancelled in the fourth quarter. In November, for lack of funds to reorganize, a judge dismissed the six-month-old Ch. 11 bankruptcy for the planned one-million-square-foot City Crossing project in Henderson.

Each of the region's nine retail submarkets experienced rising vacancy rates in the final three months of the year. Net absorption for the quarter was a negative 627,000 square feet, shrinking year-end net absorption to a nominal 65,000 square feet. "Demand during 2008 represented the lowest net total since we began tracking the market in the mid-1990s," states Applied Analysis in its year-end report.

The Southwest submarket posted the highest vacancy rate at 14.82% while the Summerlin and Nellis submarkets posted the lowest, each coming in at approximately 5.3%, according to CBRE. Henderson, the largest retail submarket with 14.7 million square feet, posted a vacancy rate of 12.8%. It must also be noted that CBRE's numbers don't include shopping malls or stand-alone stores smaller than 20,000 square feet such as Rite-Aid.

Asking lease rates are on the decline but not as much as expected, in part because advertised rates don't mean much in a market like this. While asking lease rates have declined by anywhere from $0.06 to $0.36 per sf per year, "actual negotiated lease rates have tended to be significantly lower than asking rates," CBRE reports.

Power centers had the lowest vacancy rates during the fourth quarter at 4.6%, according to Applied Analysis, though Circuit City's shutdown should raise that percentage going forward. The highest vacancy rate was in neighborhood centers, which posted an average vacancy rate of 10%, according to Applied Analysis.

On the investment front, only a handful of retail properties have changed hands since July 2008, all of them smaller than 25,000 square feet, according to Real Capital Analytics. Two properties currently being marketed for sale are Eastwind Center, a 45,240-square-foot retail center shadow anchored by grocery and drug stores, and Shoppes at Canyon Pointe, a 25,048-square-foot multi-tenant retail center that is 80% occupied. The asking prices are $15.8 million and $10.7 million respectively. The cap rates are 7% and 6.75%, respectively.

"Overall, the mood of Las Vegas retail going into 2009 is one of caution," states CBRE. "We are confident, however, that Las Vegas remains an attractive place to do business, live, and visit, and that the retail market here will weather the recession and rebound."

Instant Insights /

Punch-Drunk Vegas Retail Market Staggering

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