Retail growth on a break

Price of commerial and industrial land continues to rise

These days, Mike Gleason looks at commercial and industrial development on Las Vegas' southwest side by using maxims.

He quotes a Wall Street motto -- "Never confuse brains in a bull market." A breath later, Woody Allen -- "80 percent of success is showing up."

These are words of comfort and reliability during a time in commercial real estate that has the co-owner of ROI Commercial Real Estate Inc., a 13-year-old company, a little scared, he said.

Gleason, along with partner Dan Adamson, have worked to fill shopping centers, such as the Tropicana Beltway Center, with tenants in demand by residents.

The newest project, Blue Diamond Crossing, located on the south side of Blue Diamond Road, between Arville Street and Valley View Boulevard, is held up because of the widening of Blue Diamond Road and the reconstruction of the Blue Diamond Interchange to realign Windmill Lane.

The Nevada Department of Transportation won't be finished with the project until August 2006. Meanwhile, residents in Southern Highlands and in developments near Blue Diamond will have to drive to Henderson for the nearest Target, set to anchor Blue Diamond Crossing when it opens. The nearest grocery store is found in Southern Highlands.

"We don't want to open a retail center when they're doing that. The retailers would like to be in there now," Gleason said. "Two years of road construction would put anybody out of business.

"I wish NDOT would've seen this coming and started construction two years ago. That would've been great, but they didn't. They have a lot of growth to keep up with."

To residents, it looks as if there are more than enough homes to account for a new grocery store in the area, but Gleason said commercial building is a numbers game. Supply and demand doesn't go very far, he said.

"There's not enough people to support a Target or a Wal-Mart. It's still a year or two away. They can do good business out the door instead of waiting a year for the business to be there," Gleason said. "Retailing has gotten tougher and tougher. They can't afford to open up a store that's not going to make money for a year or two. That comes with the people."

Land prices are going up, which is not only increasing the price of homes, but businesses as well. Small retailers can't afford to pay the rent on a building on expensive land.

Two years ago, commercial and industrial land in the southwest area was selling for $5 to $6 a square foot finished. Today, $10 is the norm, said Derek Rafie, senior associate with the industrial division of CB Richard Ellis.

Commercial land also is being rezoned residential and bought by homebuilders for $12 to $15 a square foot. Commercial and industrial developers are having trouble finding land for businesses, because homes can be built faster, Gleason said.

"If I can't build on the land, I don't want to own it. Homebuilders can do it differently," Gleason said. "It makes it hard to buy commercial pieces. Retail sales are not going up that much. The only variable really in development is the land price."

Because of the land price, rent is 40 percent higher. Retail sales can't make up for the increase, Gleason said.

This means residents living in newly developed residential areas won't get the amenities they were promised when they moved in right away.

"They're going to have to wait longer. (The retailers) can't do the volume to support the rents until there are more people out there," Gleason said. "It's a vicious circle that a lot of these people have gotten themselves into. The smart retailers are not going to play the game."

The high land costs are affecting industrial development as well. Companies want to be located near the burgeoning areas of Southern Highlands, Pinnacle Peak and the new Mountain's Edge, but are having trouble getting there, Rafie said.

The Las Vegas Beltway adds convenience, but commercial space is at a standstill.

"It's getting to the point where it's getting out of control," Rafie said. "With the southwest sub-market, it's getting difficult to find land that's cheap enough. A lot of the land that you see around the (Las Vegas) Beltway is higher (than $10 a foot)."

CB Richard Ellis helped to open the first phase of the Blue Diamond Business Center, located next to the future site of Blue Diamond Crossing, in March. The retail and industrial projects are being developed by Juliet Companies. Future buildings for the industrial site are planned, but developers are waiting for the demand be at a "healthy level," Rafie said.

In the first quarter of 2004, there were 6.4 percent vacancies of industrial land in the southwest, consisting of the area south of Desert Inn Road and west of Interstate 15 to Southern Highlands. For mid-bay use, approximately a 65,000-square-foot building, had a 7.5 percent vacancy rate during the same time.

"That's pretty low. That's one of the lowest percentages in all of the sub-markets," Rafie said. For all the markets in the Las Vegas Valley, there is a 9.2 percent industrial use vacancy rate. "It's good because it's an area where a lot of businesses want to be. It's close to the Las Vegas Strip. It's centrally located within the city. You're also really close to (Interstate 15), which gives you direct access to California."

While commercial and industrial developers are watching demand daily, developers of the new Southern Nevada Rehabilitation Hospital are jumping into a market in need of health care, said Chris Vito, president and chief operating officer of the new project.

Since October, two hospitals have opened in the southwest area. Southern Hills Hospital, at Sunset Road and the Las Vegas Beltway, opened in March, and Spring Valley Hospital, 5400 S. Rainbow Blvd., opened last fall. The St. Rose Dominican Hospital-San Martin campus, on West Warm Springs Road, between Durango and Buffalo drives, will be finished in spring 2006. Ground will be broken on the rehabilitation, long-term acute care hospital later this year.

"Henderson is already servicing St. Rose and Desert Springs. And the HealthSouth (Rehab Hospital) on Valley View (Drive) and Charleston (Boulevard) is already servicing MountainView, Summerlin, University Medical Center, Valley, Sunrise and Lake Mead hospitals," Vito said. "Then, all of a sudden, you have three major medical centers on the southwest side (of Las Vegas)."

The facility, designed to strengthen patients who will go home after an average stay of 16 days, is set to have 110 beds and be finished by fall 2005.

Vito is taking a positive approach to the development dismay in the southwest area. Once residential, medical and education are in place, he said he believes the rest will fall into place commercially and industrially.

"One sign that the economy is thriving is the health care is good. Good homes. Education is a big thing," Vito said. "The evolution of the southwest side, there's health care there. Now there's residential. What's going to happen is they're going to migrate that way."

For now, Gleason is sticking to his maxims: "You have to be the sucker fish and hang onto the shark."


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