Bank Foreclosed Crisis Affecting the Nevada Office Market

by Simon Lindsay on Foreclosure Crisis

The office market in Southern Nevada took a beating from the rising commercial bankruptcies and bank foreclosed properties. In the second quarter, the office market in Las Vegas posted a negative net absorption, for the sixth succeeding quarters.

According to market data, the total contracted office space reach 31.9-square-foot from April to June, a decline compared with 33.7 million-square-foot of occupied space in 2007.

Industry analysts said that many existing office buildings remained vacant because nobody would want to lease properties that are in financial limbo. They added that bankruptcies and foreclosures will continue to haunt the commercial real estate market in the area.

Adding to the growing real estate market problem is the rising unemployment rate. Data released by the Nevada Department of Employment Training and Rehabilitation showed that June unemployment rate rose by 12.3 percent, twice as much as the rate last year.

The largest job loss recorded was in the business services and professional sector which is the biggest user of the office market. For the past 12 months, the sector eliminated 11,400 jobs.

Industry analysts said that as office vacancies are approaching almost 30 percent in some areas, many office landlords will be forced to talk with their lenders about modifying their loans or end up in foreclosure as the balance of the supply and demand will not improve in the coming months.

Furthermore, they said that it will take beyond 2010 for the business services and professional sector to recover, thus putting more financial strain on office landlords.

For the second quarter, the office vacancy rates in Nevada rose to an all-time high record of 22.1 percent, an almost 5.2 percent rise from the previous year for the same period. Analysts said that the growing number of empty and vacant office spaces is due to the nearly 1.6 million-square-foot new office space entering the market since last year despite the growing company bankruptcies, bank foreclosures and increasing unemployment.

Additionally, the available office inventory grew to over 7 million-square-foot, with expected negative net absorption rate of about 500,000-square-foot this year.

But analysts noted that the reality of the economic downturn resulted to a 75 percent decline in the planned office space and 50 percent in spaces under construction. Analysts said that several opportunities await tenants in the current office market, including low introductory lease rates and short-term leases just to generate a steady income.