Viva Las Vegas Retail? Investors Say Maybe but Retailers Are All In
Investors see red flags in the Las Vegas retail market, spooked by economic uncertainties, but retailers see a land of opportunity, brimming with new residents and a healthy job market. As professionals from around the world plan to converge at commercial real estate’s largest gathering, ICSC LAS VEGAS, from May 19 through 21, both things are true at once. Capital markets turmoil has investors less willing to gamble on retail space in Las Vegas, but retailers are eager to add stores in the market, drawn to booming household creation and employment trends.
Investment Sales Slow
Retail property sales in the Las Vegas metro area declined a whopping 43.7% year over year during the first quarter to about $110 million, according to CBRE. The number of retail property transactions were the weakest since the second quarter of 2020. CBRE researchers pointed to uncertainty about interest rates as the culprit. “The recovery will only begin after the first cut is delivered,” CBRE said.
The largest sale during the quarter was $14.3 million for an 86,098-square-foot store leased to Kohl’s at Galleria at Sunset. The Southeast submarket had the highest sales volume, $24.7 million, followed by the Northeast’s $18.2 million. The median price per square foot of metro area retail properties sold during the quarter was $319.20, up 12.4% from the fourth quarter of 2023. A lack of available space in the most desirable areas is driving up prices, CBRE reported.
A noteworthy trend is the increase in owner-user sales, which have grown for two quarters and which reached $9.9 million in the first quarter of 2024, according to CBRE.
Strong Leasing Demand
At the same time, leasing demand is turning around from a slow 2023. Retailers absorbed 146,168 square feet in Southern Nevada during the first quarter, driving vacancy to a post-pandemic low, according to Colliers.
And space for those retailers is coming. Under construction is 157,940 square feet, and 465,024 square feet is scheduled for completion over the next four quarters, the firm said. Barring a larger economic meltdown, Las Vegas should see strong net absorption in 2024, as 68.2% of that space is pre-leased.
The pace of new development is slow and deliberate. The area’s retail inventory actually decreased by 170,896 square feet during the second quarter of 2023, according to Colliers. In the first quarter of 2024, developers completed 72,480 square feet, and they plan to complete 44,934 in the second quarter. Of these projects, 73.9% were pre-leased.
Slow development and active retailer expansion are some of the reasons Las Vegas retail vacancy decreased to 4.2% in the first quarter, 10 basis points lower than one year ago and near the lowest since before the Great Recession, according to Colliers. Neighborhood centers had the highest vacancy rate, 5.4%, at the end of the first quarter, and freestanding retail had the lowest, 2%.
What kinds of retailers are betting on Vegas? Of the number of new and renewal leases done over the past four quarters, according to Colliers, miscellaneous retail accounted for 21.6%, eating and drinking places for 13.4%, amusement and recreation for 9.7%, cannabis for 8% and personal services for 6.4%.
Eating and drinking places were the second-most active occupiers of retail real estate in metro Las Vegas over the past four quarters. Whataburger, for example, opened its first store in the state. The location adjoins the Waldorf Astoria Las Vegas and co-locates with Parry’s Pizzeria & Taphouse in two floors facing the Strip. It will be open 24/365.
Boot brand Ariat, cosmetics label Agora, upscale restaurant Ocean Prime and discounter Ross Dress for Less all have opened in the Strip’s 243,000-square-foot 63 Las Vegas since last year’s ICSC LAS VEGAS. Meanwhile, craft retailer Michaels plans a store in Downtown Summerlin, Five Below is adding two new stores in the Las Vegas metro, and at The Arroyo Market Square, Macy’s will open one of the first of its smaller, 30,000-square-foot stores in September.
Adidas, H&M, Puma and ABC Stores have signed on to open in the Strip’s 400,000-square-foot BLVD Las Vegas. The development, replacing the former Hawaiian Marketplace, is expected to open in late 2024.
Broadening Vegas’ Appeal
Las Vegas is no longer just a gambling and entertainment destination. T-Mobile Arena opened in 2016 and is home to the NHL’s Golden Knights, and Allegiant Stadium, which houses the NFL’s Raiders, opened in 2020. The MLB’s Oakland Athletics will move to the city in 2028 and will play in a stadium replacing the Tropicana Las Vegas Hotel, which closed April 2. The sports-destination momentum doesn't stop there. The city will host its second Formula 1 Las Vegas Grand Prix race in November. It adds up to a year-round influx of sports fans, a prime target market for the area’s expanding retail scene.
Also underway is a $600 million upgrade of the Las Vegas Convention Center, home to ICSC LAS VEGAS. The 2025 completion of that project will boost the venue’s ability to attract and accommodate bigger conventions and trade shows.
Sports Are Sparking Retail Development in Salt Lake City and in Philadelphia, Too
Smith Entertainment Group, owner of Utah’s new NHL team, will build its permanent practice and training facilities and offices on 111 acres at Pacific Retail Capital Partners’ Shops at South Town in Sandy, Utah, near Salt Lake City. JCPenney and HomeGoods anchor the 1.3 million-square-foot property. The rinks will be used for youth events and amateur games and will feature a team store. The project is expected to open before the 2025 NHL season. On Wednesday, Smith opened a bracket-style survey to name the new team.
Sports is becoming a key component of development in downtown Philadelphia, too. A $2.5 billion expansion of the Sports Complex in South Philadelphia is proposed. And in Milwaukee, a stadium for a proposed men’s pro soccer team is advancing toward a 2026 opening. It will be part of a larger, mixed-use complex called the Iron District. The Marquette University soccer and lacrosse teams also will use the stadium.
FROM C+CT: New Sports Venues and the Master-Planned Districts Growing Around Them
REITs Up Their Multitenant Retail Acquisition Game
REITs got more active in the multitenant retail sector in the first quarter. A couple multimillion-dollar deals made a big impact, according to Northmarq. Of the $11.5 billion of U.S. multitenant retail real estate that traded in in the first quarter, REITs bought 27%, a bigger portion than they have purchased in the past 10 years.
Examples of REIT purchases of multitenant retail properties during the first quarter include Whitestone REIT’s acquisition of the 107,000-square-foot, Aldi-anchored Garden Oaks Shopping Center in Houston, above; KM Realty’s purchase from Cavalier Property Management of 17 unanchored shopping centers in El Paso, Texas; and CTO’s $68.7 million acquisition of the 318,000-square-foot Seminole Towne Center in Orlando.
The uptick in REITs’ share of purchases also owes to a pullback by institutional investors, which accounted for only 3% of multitenant retail transactions. Crossborder investors also ramped up U.S. activity in the first quarter, making up 10% of the activity, according to Northmarq.
Private investors remained the most active buyers of U.S. multitenant retail, driving more than half of the first quarter’s activity, and they were active in diverse geographies, property types and price points.
The $11.5 billion of first-quarter investment in U.S. multitenant retail was 7.8% higher than the previous quarter but 17.7% lower than the same quarter a year prior.
Projected CRE Valuations
Though retail property values are likely to decline by 8% during the next 18 months, according to Moody’s. Valuations across all commercial property types probably will slump 10% peak-to-trough during the next five quarters, office expecting the largest decline at 26%. Industrial properties are likely to suffer a 5.7% setback in valuations during the period and warehouses 6.6%. An increase in loan maturations has paired with rising vacancies and uncertainty around interest rates to lower values.
Simon Divests from ABG but Remains Involved in Retailer Rehab
Simon sold its remaining 10% stake in brand licensing firm Authentic Brands Group for $1.2 billion during the first quarter. But the mall landlord isn’t getting out of the business of turning around troubled retail tenants. Simon still holds a 33% stake in a joint venture with ABG. Called SPARC Group, the JV’s portfolio includes Brooks Brothers, Aeropostale, Forever 21 and Eddie Bauer, all tenants at Simon properties. And Simon, ABG and Brookfield co-own JCPenney.
Meanwhile, Simon will contribute its expertise to a consortium of investors led by WHP Global. The consortium plans to acquire Express out of Chapter 11 bankruptcy. Simon plans to help the apparel retailer renegotiate leases, reformat its real estate portfolio and operate as it emerges from restructuring. Mall tenants like Aeropostale and Forever 21 have benefited from being under Simon’s wing, and so would Express, if the bankruptcy court approves the plans. “They saw what we had done historically both with ABG and SPARC and offered us to participate with no capital,” Simon president and CEO David Simon said. “We are comfortable that Express is a good company and a great brand and we can add value to it. We see it as a win-win situation with no capital.”
During restructuring, RCS Real Estate Advisors will help Express rightsize its real estate portfolio.
More from C+CT on Simon’s Work with Tenants
In 2016: Landlord Deals to Keep 400 Aeropostale Stores Open
In 2019: Simon Says Investing in Tenants Is Good Business
In 2020: Simon Will Add Brooks Brothers to Stable of Brands
In 2020: Mall Owners Take Control of JCPenney’s Future
Retailers Help Uncover Another Organized Retail Crime Operation
Retailers, law enforcement and prosecutors uncoverrf an organized retail crime operation in New York City. Manhattan District Attorney Alvin Bragg indicted two New Yorkers for possessing more than $1 million in stolen goods and reselling them from a Midtown Manhattan storefront. The merchandise was stolen from such chains as Bath & Body Works, CVS, Duane Reade, Rite Aid, Macy’s and Victoria’s Secret, which have been vocal about the trouble ORC is causing their businesses. C+CT last month shared similar news from Washington.
Project REAP’s Silver Jubilee
Project REAP’s Silver Jubilee celebrations began last fall, and they made it to ICSC’s office in Manhattan this month. The NY/NJ/CT contingent celebrated the organization’s 25th anniversary at ICSC’s Midtown headquarters on May 1. Among the attendees were Infinite Horizons co-founder and CEO Randall Powell, at left, the NY/NJ/CT REAPer of the Year and a 2019 alum. Center is Microsoft site acquisition and portfolio director Katrina Rainey, a 2006 alum and current REAP board secretary. Joining them is REAP chair Michael Kercheval, former president and CEO of ICSC.
By Brannon Boswell
Executive Editor, Commerce + Communities Today