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LAS VEGAS-The Las Vegas retail market absorbed 545,100 square feet during the third quarter, halting three quarters of negative net absorption and lowering overall vacancy by 20 basis points to 9.9%, according to a new report by Applied Analysis, a locally based business research and advisory firm that tracks the commercial real estate and gaming markets.

The total retail market in Las Vegas now totals approximately 51.8 million square feet, including 516,300 square feet added during the third quarter. The additions included several pre-leased, user-specific buildings–including two Target stores, a Glazier’s Food Marketplace store and a The Home Depot store—that contributed to the overall positive net absorption, according to AA. An additional 810,000 square feet is actively under construction—including a Lowe’s-anchored center in the northwest and Tivoli Village at Queensridge–while 7.5 million square feet remains on the drawing board. Several projects have been delayed.

“Following the Federal Reserve Chairman’s statement that the recession is ‘very likely over’ and continued contraction in the Las Vegas economy, many are questioning whether any meaningful recovery has actually taken hold in southern Nevada,” AA principal Brian Gordon says. “While economic output may ultimately report growth at the national level this quarter, pullback in consumer spending, construction activity, overall employment and consumer confidence at the local level suggests the region will continue to experience a rough ride well into 2010. Retailers are on the front lines as residents and businesses have shifted their mindset and monitor every dollar they spend. This trend is expected to continue, translating into relatively weak demand for commercial retail space for the next several quarters.”

Although overall vacancy is back below 10%, it remains 330 basis points above the 6.6% availability rate in the same year-earlier period, which itself is well above the market’s 10-year historical average of 3.9% for anchored retail centers. The lowest average vacancy by product type was power centers (6.8%) while the highest average vacancy was found in neighborhood centers (11.9%).

The elevated vacancy level continues to put downward pressure on pricing, according to the report. The lack of demand for speculative space and a shift in the mix of properties available for lease are reportedly impacting posted prices. Unemployment in Vegas stands at approximately 13.4%, up from 7% one year ago.

Average asking retail rents–which rarely reflect effective rents on completed lease transactions–fell to $1.95 per square foot per month in the third quarter from $2.16 at this time in 2008. The 9.7% decline represents the largest historical price adjustment since the latest recession began, according to AA.

“With a new market dynamic in place, retailers will be squarely focused on cutting costs, stabilizing their balance sheets and right-sizing their business structure,” says AA project manager Jake Joyce. “These adjustments will result in further price adjustments, and landlords will become more creative to partner with potential sources of revenue. While near-term demand remains uncertain and over-correction may prevail, a return to decisions based on fundamentals will benefit all.”

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