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Following extraordinary residential growth, retail is now among the hottest games in Las Vegas real estate. And it is being played not only along the strip, but also perhaps more significantly in the suburbs, particularly within rapidly proliferating master-planned communities.

According to the US Census Bureau, 2004 marked the 18th consecutive year in which Nevada led the nation in population growth. The bureau also says that Nevada could have a 25% decrease in population and still maintain its lead. The population in the Las Vegas MSA has grown 117% since 1990.

Retail is catching up with the residential boom. The areas of Henderson in the southeast started the retail roll, which has now moved to Summerlin in the southwest and to the north, according to Andrew Van Tuyle, senior managing director of acquisitions for Los Angeles-based SCI Real Estate Investments.

During the first quarter of this year, “all of the retail space under construction (834,425 sf) was located in the Henderson, northwest and southwest submarkets,” says David Grant, VP of the retail division of Colliers International’s Las Vegas office. “And all of it was either community center or neighborhood center space,” he adds. “The majority of planned space (just over two million sf) is in the North Las Vegas submarket, likely to serve the Aliante master-planned community,” Grant says.

Competition for retail properties is intense, “hectic,” according to Van Tuyle and others. SCI owns 13 retail properties throughout the Las Vegas Valley, and it has proven to be a lucky number. “We’ve gotten some really nice appreciation since 2001,” he tells GSR. As a result, the company is now ready to cash in some of its smaller chips to invest in “stabilized, institutional grade properties with quality locations and stable tenancy,” he says, in Las Vegas and nationwide. The company plans to dispose of between three and five of its Las Vegas-area properties within the next six months, Van Tuyle says.

Pacific Castle, another Southern California retail property owner, plans to dig deeper into Las Vegas real estate, “but the barrier to entry is high,” says Rod Astarabadi, EVP. It got its foot in the door with the acquisition of Charleston Auto Plaza, a 40,000-sf center in the Summerlin community in 2002 while it was under development. It is the smallest property in Pacific Castle’s portfolio, “but it fits with our growth strategy,” Astarabadi tells GSR. The master-planned Summerlin community has experienced a population growth of 251% over the past decade and has one of the highest household income levels in the state.

“The auto element,” Astarabadi says, referring to Charleston Auto’s Jiffy Lube, Midas and Big O’ Tires tenants, “supports good traffic for the other tenants,” which include Papa John’s, Quiznos, and others, including a hair salon. “We definitely want to acquire more properties in Las Vegas,” he says, adding, “we’re interested in master-planned communities where the retail landscape is already defined, but is not yet spoken for.”

That won’t be easy, he admits, agreeing with Reza Etedali, founder and principal of Reza Investment Group, a west coast retail investment advisory firm. “Five years ago a limited number of investors were interested in Las Vegas,” says Etedali. “They considered it too narrow a market. Now, retail growth in Las Vegas is exploding,” he says. “Las Vegas has transformed itself into a world class city with mixed-use, live, play and work communities to the left and right. Retail properties are pre-leased before they’re even built.”

In the opening quarter of this year, “(retail) developers continue to position themselves to capture the emerging southwest and North Las Vegas residential markets,” says John Restrepo, principal of Restrepo Consulting Group, Las Vegas, who partners with Colliers in retail market surveys here. “Together, these two submarkets had 57.5% of the Valley’s future retail space at the end of the quarter,” he says.

The overall retail vacancy rate in Las Vegas Valley decreased to 4.8% during the first quarter of this year, according to Restrepo and Grant. “All of the retail space under construction in the quarter represented 2.4% of the Valley’s existing retail inventory of 35 million sf,” says Grant. “In contrast to the past three years,” he adds, “several retailers are planning to expand in the Valley this year. They include Wal-Mart, which is opening three Wal-Mart Neighborhood Markets, Costco, Target, JoAnn’s Fabrics and several furniture retailers. Best Buy is also looking to expand in the northwest part of the Valley.”

According to Marcus & Millichap, developers are expected to deliver 1.4 million sf of retail in 2005, on top of 2.1 million sf completed in 2004. “Much of the construction will be concentrated in the Henderson and southwest Las Vegas submarkets and will include a mix of neighborhood and big box retailers.” The retail focus is toward neighborhood centers and strip retail. “These suburban centers, which are often anchored by national and regional tenants, and located near new residential communities, will realize the greatest increase in value over the year,” Marcus & Millichap predicts.

Despite its growth, Las Vegas remains affordable, Van Tuyle points out. “Therefore, people who migrate there, particularly from the west coast, gain more disposable income and retailers benefit from the excess,” he says. According to Grant, taxable retail sales between November 2004 and January 2005 in Las Vegas Valley totaled just over $8 billion, an increase of 16.8% compared with the same timeframe a year ago.

In Las Vegas Valley as in much of the west, retail rental rates are measured by the month, rather than by the year. The average for the entire MSA, according to Restrepo, is $1.64 per sf a month. The highest average, $2.10 per sf, occurs in Henderson, followed by $1.89 per sf in the northwest, $1.88 per sf in North Las Vegas, and $1.87 per sf in the southwest.

Although rapidly expanding Las Vegas Valley is not your Granddad’s old Las Vegas, it’s still a nice place to visit. Visitors also shop. John Piet, senior research analyst at Las Vegas Convention and Visitors Authority anticipates 38.2 million visitors this year. Of the total, 63% shop while they’re in Vegas, he tells GSR, and in 2004, the average tourist shopper spent $124 per visit. Given the odds, it’s small wonder more retailers are stepping up to the table.

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