With economic uncertainty and more people working from home since the pandemic, people in my profession are seeing a steady stream of ominous headlines about the future of office space.
While it’s one of the biggest issues facing the commercial real estate industry nationwide, I agree with our local experts from NAIOP Southern Nevada in suggesting that such fears might be overblown here.
Reed Gottesman
Widespread adoption of hybrid work schedules has created a structural shift in the office market nationwide, reducing demand for office space and propelling the overall vacancy rate to a 30-year high of 17.3% as of the fourth quarter of 2022.
During the first quarter of 2023, the vacancy rate in office buildings nationwide was at 12.9%. The availability of space was at 16.4%. Both are record highs, according to a 2023 report from CoStar.
Although U.S. office-using employment has steadily increased during eight of the past 10 quarters and is 5.4% above pre-pandemic levels, occupied office space has remained relatively stagnant. Office demand has been most affected by hybrid work arrangements, as well as corporate cost containment and economic uncertainty caused by rapidly rising interest rates. Despite more office-using jobs today, occupied office space is 3.5% below pre-pandemic levels. Amid a flight to quality under these tenant-favorable conditions, newer space has generally benefited while older space has suffered.
Throughout the pandemic, Northeast and Pacific coastal markets had a slower return to office than Southwest and Midwest markets. This corresponded with a rise in remote and hybrid working that fueled worker migration away from more crowded and expensive major urban areas to less dense and more affordable secondary markets—such as Southern Nevada. This likely was the main reason for occupiers utilizing less office space in the Northeast and Pacific regions.
If workers continue to work remotely at the rate they’re doing in the largest cities, it will further disrupt the ecosystem of restaurants, bars, clubs, gyms, stores, hair and nail salons and an array of other businesses in these cities. Without the steady traffic of people into our nation’s largest cities and downtown areas, mom-and-pop shops and other businesses will close, since they won’t have enough customers to keep them afloat.
As locals, we like to say that Las Vegas isn’t like any other city. That rings true in the office market. Las Vegas is actually doing pretty well when it comes to workers returning to their offices since the pandemic began to subside—especially when compared with larger cities like New York, LA and San Francisco.
According to Colliers research, Southern Nevada’s office job market added 15,500 jobs between February 2022 and February 2023. Southern Nevada added 404,623 square feet of office space to its inventory during the first quarter of 2023, including 367,184 square feet of Class A office space. In another sign of the overall health of the local office market, most of this new office space was pre-leased before the buildings opened. As of the first quarter of this year, there was another 230,800 square feet of office space under construction here.
Demand for local office space rebounded in the first quarter, with occupied square footage increasing by 200,980 square feet. Almost all positive net absorption during this quarter was in Class A space, primarily in the most recently completed developments.
Of course, Las Vegas is a much younger city that has grown faster than cities like New York, Chicago and San Francisco. As such, our office buildings are generally newer, with more of the modern amenities that workers want. This helps lure more local workers to the office.
In addition, we benefit from a more suburban landscape. This has proven to be a tremendous advantage in a post-COVID world, rather than the more traditional central business district.
For instance, NAIOP and industry leader Cassie Catania-Hsu, the managing director of the CBRE office in Las Vegas, recently pointed out that CBRE’s Las Vegas office now has an average utilization rate of more than 50% each week, “with peak utilization around 70% most days. Of note, our previous Las Vegas office had a 36% average utilization before we relocated in the summer of 2022 to UnCommons [a new office and mixed-use development near the 215 Beltway in the southwest part of Las Vegas].”
By comparison, data from a security operations company that tracks card swipes in office buildings, recently reported that an average of 49% of office workers in the 10 large U.S. cities it tracks were actually working from the office. This has been the case since the pandemic, with Kastle reporting the average office occupancy has been below 50% in these top 10 markets during the past three years.
Add it all up, and there’s still a place—and a need—for offices in Southern Nevada.
Reed Gottesman is the 2023 president of NAIOP Southern Nevada and works as a senior vice president and Las Vegas regional manager of Schnitzer Properties.
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