700,000 SF of Retail Under Development

Montecito SVP and development director Nick Hannon tells GlobeSt.com that the company accumulated most of its development land more than a year ago, which means it hasn't been affected as much by the run-up in land prices over the past 12 months, only the run-up in construction prices. Currently, thanks in part to single-digit vacancy rates across the region, triple-net lease rates at his properties typically end up between $2 and $3. Hannan says those who are starting to develop retail on land acquired more recently will need to achieve rents above $3 per sf to cover their increased costs."I think we will see a 20% to 30% increase in rental rates over the next 24 months, which exactly mirrors the same increase we've all had on land and construction costs," he says. "So if the average is $2.50, it will be at $3.25."The furthest along of Montecito's projects now under construction is Montecito Marketplace, a 215,000 sf multiphase community center that is 90% percent preleased. The center is located on 19.2 acres at the southeast corner of Durango Drive and Elkhorn Road. Tenants include T.J. Maxx, FedEx Kinko's and Starbucks. Phase I includes 111,000 sf of retail space anchored by a 65,000-sf Smith's Food & Drug. The $48-million first phase is complete, and stores are starting to open.

The largest is Montecito Highlands, a 250,000-sf retail shopping center that will be situated on the northwest corner of Horse Drive and US 95. The center will include grocery-anchor, junior anchor, home improvement, retail, office and restaurant pads. Montecito Highlands is scheduled to break ground in the fourth quarter of 2006. Anchor leasing is now under way.

Also scheduled to break ground in the fourth quarter is Montecito Pavilion, which likely will include 175,000 sf of retail space and a 12-acre mid-rise residential development. The 30-acre development site is off the northwest corner of Tropical Way and Lamb Boulevard in North Las Vegas. Preliminary plans include a grocery anchored shopping center consisting of seven retail buildings and eight stand-alone pads. The $75-million project is slated for completion sometime during the third quarter of next year.

Already under construction is Cheyenne Pointe, a 90,000-sf retail power center that will be located on the southeast corner of Cheyenne Avenue and Civic Center Drive in North Las Vegas. Montecito officials say the $18-million project is the first large-scale retail redevelopment within the City of North Las Vegas redevelopment area. A 30,000-sf Mariana's Supermarkets will anchor the center along with three junior anchor tenants.

According to locally based Applied Analysis, the Las Vegas region's 2.5% retail vacancy rate at the end of March--unchanged from the start of the year but down 100 basis points from this time last year--equates to about 1.1 million sf of available space. Net absorption for the quarter was 481,000 sf, up from 373,000 in the fourth quarter and 279,000 sf in the first quarter of 2005. Power centers had the lowest vacancy rate at 1.8%. Neighborhood centers posted the highest vacancy rate at 3.4%.