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LAS VEGAS-Leasing was strong for B-, C-, and D-class office space here in the first quarter, offsetting negative absorption in the class A sector and keeping overall vacancy in the 15% range, according to a just-released Q1 market report by Richard Ellis. By submarket, the vacancy rate ranged from 11.3% (Airport submarket) to 22.64% (North Las Vegas).

Average monthly asking lease rates declined slightly during the quarter to $1.97 per sf on an overall basis. Downtown lease rates increased $0.11 to $2.58 per sf, keeping its title as the most expensive in the Valley. Lease rates in North Las Vegas, the least expensive submarket, averaged $1.54 per sf.

Just under 300,000 sf of newly completed space was added to the market in the Q1. In 2007, the quarterly average of new deliveries was 700,000 sf. The decrease in supply additions was met with the highest level of net absorption in the past year, just over 300,000 sf, helping keep vacancy at bay, according to CBRE.

The new space, however, was not what was in demand. Class A absorption was actually negative for the first time since early 2005.

“Lease-up of Class B, C, and D space enabled net absorption to rise this quarter, as these classes all posted gains,” states the report. “It appears that the trend that began late last year — of Class B and second generation leases becoming more attractive — has continued this year.”

On the development front, Construction costs stand at $175-$235 per sf, which is right in line with neighboring markets, according to the report. Los Angeles’ construction costs are in the $175-$285 per-sf range while Phoenix comes in at $140-$220 per sf.

Q1 saw 3.7 million sq. ft. of office space under construction and a total of 5 million sf in the pipeline. The bulk of the construction activity, 1.2 million sf, is occurring in the Southwest submarket, where vacancy currently stands at 16%, according to the report.

Despite a steadily increasing amount of under construction properties across the past three quarters, CBRE says space is being completed at a slowing rate. The 300,000 sf delivered in the first quarter was the smallest quarterly addition since 2006, according to the report.

As of the end of March, several class A office properties were being marketed for sale, including the 119,000-sf Centennial Corporate Center in Northwest Las Vegas, for $54.6 million; the 127,000-sf Acuity Financial Center near Summerlin, for $19 million; and the 51,665-sf Siena Office Park in Henderson, NV, for $18.2 million. City Center West, a 106,000-sf office building in Summerlin that was listed for $36 million is reportedly under contract. The prices represent capitalization rates in the 6% range.

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