Retail construction in the Las Vegas Metro area is still growing at a rapid pace. During this year’s first quarter, the area expanded by 1.8 million sf, increasing total inventory to 46.2 million sf, according to a report by local research firm Applied Analysis. Vacancy rates fell to 2.5%, from 2.7% during the last year’s Q4. And there is more to come, with 4.8 million sf currently under construction and a significant amount of space, nearly three times that much, in developers’ pipelines for projects all around the area. Brian Gordon, a principal at Applied Analysis, spoke with GSR Ticket about what’s happening in the vibrant market.
GSR: What is unique about the Las Vegas area retail-wise as opposed to other parts of the country?
Gordon: The most significant difference from other major metropolitan areas is the level of growth that we’re experiencing here in Las Vegas. We’re welcoming somewhere between 80,000 and 90,000 new residents every year, and that has residential-development activity remaining relatively healthy.
That’s continuing to press development activity out to the boundaries of the Las Vegas valley. That has retail developers looking to acquire and develop retail sites out in these emerging parts of the valley. I think the level of expansion that we’ve experienced here is different than most other major markets, given the fact that we always tend to rank in the top three in terms of growth for major metropolitan areas around the country.
GSR: What retailers are entering the market right now?
Gordon: We’re seeing expansions by some retailers that are already here. Kohl’s and retailers catering to multiple levels of consumers, or the full spectrum of consumers, but we’re also seeing fairly decent expansion by grocery-anchored centers. Albertsons is making significant expansions here in the some of the newer retail centers. We also have Tesco, which is a more convenient, gourmet-type of grocer that is targeting 15 sites in Las Vegas and expects to move forward with those over the next couple of years.
A diverse mix of retailers are identifying Las Vegas as a market that they should be targeting now that we’re expected to exceed two-million residents by the end of next year. We may be hitting that water mark where we’re now on the radar for many of these retailers that are not on the market today.
GSR: What are some of those?
Gordon: There’s probably a diverse mix of retailers that tend to be more concentrated on the East Coast and Midwest that just haven’t made their way to the Las Vegas region. Some more regional retailers that cater mostly to markets in California as well. Tesco is the latest one that has really made a splash here in the marketplace over the last six months or so.
GSR: What kind of impact will Tesco have on the grocery market there?
Gordon: They’re really taking a different approach to the neighborhood, grocery-anchored retail center. They’re developing smaller sites that tend to be more convenient for the consumer on the way home from work. They may just pick up one or two meals or enough groceries for a day or two, rather than a weekly shopping outing.
They’re targeting these buildings similar to a Walgreen’s or a CVS that may sit on the corner of an anchored center. They’re looking to really capture that visibility off the corner of most of the neighborhood centers that they’re going into. It’s a different business model that we haven’t seen here in Las Vegas. Retailers as well as developers identify unique and different development opportunities in a way to capture the interest of consumers.
GSR: Are there any new types of retail developments that you’re seeing?
Gordon: There are a handful of regional destination-based types of retail centers that are in the works. We have Town Square, major retail and office complex down on the South Strip by I-15 and I-215, two major interchanges. That project is being developed jointly with Turberry & Associates and Centra Properties. They’re going to have high-end-type, boutique retailers in there.
We also have the Village at Queensridge, which is completing site work in Summerlin, the northwest portion of the valley. They’re targeting higher-end, boutique-type retailers that are going to focus on the above-average demographics in that area.
The Shops at Summerlin in the northwest is a major mixed-use development that is expected to have major outlets, like Macy’s and other department stores, as well as more unique boutique retailers. There is a diverse mix of these large-scale projects scattered throughout the valley. We’ll see a majority of those come to fruition over the next two or three years.<p?GSR: Will where the growth be a few years out from now?
Gordon: What we’re looking at right now is year-over-year population growth of about 4%, and that’s pretty much what we were over the last few years. That really is based on the timing of major resort-casino project openings. If we look over time in history, as we see major projects come online on the Las Vegas Strip, that spurs additional population and employment growth, whether it’s the four mega resorts that opened in the late 90s – the Venetian, Bellagio, Mandalay Bay and the Paris – we do see these spikes in population and employment growth.
The last major openings we saw were the Wynn project on the Las Vegas Strip and Red Rock Resort, a hotel-casino that cost nearly $1 billion opened about a year ago. We’re coming off of that peak, but what we have right now is about $30 billion worth of resort and investment activity scheduled over the next five years.
With that, major projects are coming to the market, whether it’s the second phase of the Venetian, Encore at Wynn, Trump’s project, CityCenter, Echelon Place and several others that are planned over the next few years. That is going to generate employment opportunities both from the construction sector and, once they’re open, service employees and management teams. We’ll continue to see strong population and employment growth over the next five years. That should continue to generate demand for housing and then the consumers in those homes will demand retail services. We will see some continued development activity in the retail sector.
GSR: Is there anything changing with casino retail? Are they adding more than shops in those developments?
Gordon: Clearly retail is going to be a part of any major resort development. Several retail malls have been extremely successful in Las Vegas, whether it’s Forum Shops at Caesars or the Grand Canal Shops at the Venetian or Fashion Show Mall. We’re seeing some retooling going on at Desert Passage at what was the Aladdin and is now being rebranded as Planet Hollywood. A lot of these retail outlets have done extremely well historically.
What we have now are additional retail outlets being programmed into many of these projects. CityCenter is expect to have over a half-million sf of high-end, luxury outlets in a project that’s between the Bellagio and Monte Carlo. That’s a function of what consumers are demanding, that full breadth of amenities: retail, entertainment and restaurants. It’s to provide the visitors with a broad range of amenities.