LAS VEGAS-The overall industrial vacancy rate continued climbing slowly toward double digits in the fourth quarter. After ending the third quarter at 9.2% the market experienced 131,000 square feet of negative net absorption to push vacancy to 9.9%, according to preliminary results from Grubb & Ellis.

G&E’s analysis finds that landlords, after aggressively offering concessions rather than dropping asking rates in the first half of the year began giving in on rate as well in the second half of the year. “Lease rates are expected to remain low” in the first half of 2009 “in order for landlords to avoid large amounts of vacancy and generate much needed cash flow from their buildings,” according to the report. “In the first quarter of 2010, vacancy levels are forecasted to start a downward trend as pent up demand returns, and lease rates will likely start to rise.”

Xavier Wasiak, an industrial-focused SVP with G&E in Las Vegas tells that the overall feeling he gets from leasing brokers around town—”whose nature is to be optimistic”–is that the first two or three quarters of 2009 will be a bit of a struggle from a deal flow standpoint. On the investment side, there is “so little activity that it’s ridiculous,” he says, and no one is clear on when that will pick up again given how tied that is to the Las Vegas Strip and gaming in general in this market.

On the leasing side, Wasiak says “anything over 50,000 square feet–a subset where we do not have a lot of availability and where are market has always been somewhat challenged—we are seeing activity, a lot of LOIs and proposals,” he says. “On the downside, it takes so much longer to get deals done—lease negotiations are taking forever—and we are seeing a lot of deals fall through at the 11th hour, usually because the tenants’ lose out on a contract for which they would have needed to afford the expansion or relocation, or because they simply lose confidence in the market and decide to be more conservative.”

That having been said, given the lack of new development coming into the development pipeline—there is only one million square feet under construction, according to the report—and the general lack of supply to begin with, Wasiak says over the next two or three years Las Vegas could easily find industrial vacancy right back down in the low single digits and upward pressure on rates. “Overall, there’s still no other place on the planet I’d rather be working,” he says, “It’s still a very vibrant, entrepreneurial city and we will be fine; we just need to weather the next 12 to 24 months.”

The overall net absorption and vacancy figure for the fourth quarter masks sharper changes in certain submarkets. Significant negative absorption occurred in the Southwest (283,800 square feet), East Las Vegas (128,000 square feet) and Airport (123,600 square feet) submarkets. Those results were largely offset single-handedly by North Las Vegas, the second largest industrial market in Las Vegas, which posted 480,700 square feet of positive net absorption. Vacancy in the 30-million-square-foot market now stands at 7.9%, 200 basis points below the market average.

Pushing up on the overall market’s vacancy rate was the 12-million-square-foot Henderson market, which, while posting only 71,000 square feet of negative net absorption during the fourth quarter, has the second most negative net absorption year-to-date (349,500 square feet). Vacancy in that submarket now stands at 14.4%.

The 32.4-million-square-foot Southwest submarket, the largest industrial submarket in Las Vegas, is ending the fourth quarter with a 9.1% vacancy rate. More than 80% of the submarket’s 344,692 square feet of negative net absorption for the year occurred in the fourth quarter. Aside from Henderson, the only other submarket with a greater full-year negative net absorption figure was the 13.2-million-square-foot Airport (572,500 square feet) submarket, which ended the year with an overall vacancy of 13.1% .

The overall average asking lease rate for warehouse/distribution space stands at $7.01 per square foot per year and ranges from $6.10 in North Las Vegas to $8.14 in the Southwest submarket. The overall average asking lease rate for R&D/Flex space stands at $12.70 per square foot and ranges from $9.57 in the Northwest submarket to $14.15 in the Southwest submarket. In the Airport submarket the average asking rates are $8.11 and $14.06, respectively. The respective rates in Henderson are $6.47 and $11.17.

For now, the overwhelming feeling about 2009 is uncertainty about how bad things will be. Many tenants who leased space at the height of the market in 2006 or early 2007 are paying higher rents than those offered in the current economic down cycle. “Some tenants have chosen to downsize by subleasing a portion of their space, or by leaving the market altogether,” states the report. “Those landlords who continue to be proactive in the troubled market have offered such possible short-term solutions as one-year or month-to-month leases in an attempt to allow distressed tenants to remain in business until the market stabilizes.”