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LAS VEGAS-Vacancy in the retail market here jumped to 5% in the first quarter from 3.8% at the end of the year, according to a new report from Applied Analysis, a locally based business research and advisory firm. The increase is due to both new supply outstripping demand and store closures by retailers affected by the local residential market, according to Applied Analysis principal Jeremy Aguero.

The retail market here expanded by 1 million sf in the first quarter, while market demanded (or absorbed) 371,000 sf of space. In addition, recent market conditions, including the performance in the residential sector, prompted the closing of various regional and national outlets throughout the valley, including CompUSA, Levitz Furniture and Rite-Aid stores. Additional closures are likely for retail centers that are currently occupied by Wickes Furniture, which is in the process of winding down their operations, according to the report.

“It is clear that retailers, particularly those tied to the residential market, have been impacted by the latest slowdown in the overall economy,” Aguero says. “Not only do taxable sales activity reports confirm the current performance, but recent retail outlet closures are a clear signal of instability. Consumer spending levels are coming off unsustainable highs, propped up by home equity extractions and record-low home interest rates. Retail inventory growth was tracking this trend, and the combination of high residential vacancies and reduced consumer spending is an unfavorable condition for retailers and retailer space developers.”

Retailers have been quick to react, Aguero says, and will be much more cautious with expansion plans in the near-term, awaiting signs of improvement in the core fundamentals. “High levels of pre-leasing and quality-credit tenants will be required at many planned retail sites before lenders are willing to fund construction in emerging areas within the Las Vegas valley,” he says.

Meanwhile, construction continues. By the close of the first quarter, the market reported 2.5 million sf of anchored space under construction—mostly in the Southwest, North Las Vegas and Henderson submarkets—with an additional 12.8 million sf in the development pipeline. Recent completions include the Sam’s Club- and Lowe’s-anchored Cannery Corner across from the Cannery Hotel and Casino in the north portion of the valley and additional space at Arroyo Market Square along Interstate 215 in the southwest portion of the valley.

By property type, the lowest vacancy rate was in power centers (2.7%) and the highest rate was in neighborhood centers (7.2%). Average asking rents for shop space averaged $2.62 per sf in power centers and $2.08 in neighborhood centers.

By geography, according to CB Richard Ellis, the lowest vacancy was in the 4.5 million-sf Northwest submarket (2.55%) and this highest was in the 5.3 million-sf Southwest submarket (10.6%). The submarket that saw the most leasing activity in the first quarter was the 5.25 million-sf North Las Vegas submarket, which posted nearly 400,000 sf of net absorption, according to CBRE. The 7 million-sf Central East submarket posted the highest amount of negative net absorption, 110,000 sf, taking its vacancy rate to 6.86%.

The largest submarket, the 13.5 million-sf Henderson area, posted 23,000 sf of positive net absorption and an overall vacancy rate of 6%. The next largest market, the 8 million-sf Summerlin market, posted nominally negative net absorption and a 3.93% vacancy rate. CB Richard Ellis’ first quarter report on the retail market here puts the overall market vacancy rate slightly higher than Applied Analysis at 5.39% but also puts the year-end 2007 higher at 4.76%.

“Although this rate is an eight-year high for Las Vegas, the increase in vacancy rates should not be viewed with alarm,” states the report. “[The rate] is well within equilibrium range and, in fact, allows potential tenants a wider variety of choice as they negotiate leases.”

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