Las Vegas apartment market ranked near bottom

Las Vegas ranked next to last in a national apartment index compiled by real estate investment firm Marcus & Millichap.

Gradual recovery in the gaming industry will strengthen apartment operations this year, but elevated vacancy rates and modest rent growth kept Las Vegas at No. 43 near the bottom of the index, the firm said in its 2011 national apartment report.

"As the national economy recovers, stronger consumer spending will help elevate tourist activity in the metro (area)," the report said.

An increase in the number of visitors to Las Vegas in 2011 will support a 3 percent gain in the leisure and hospitality sector, a key driver of apartment demand.

Apartment vacancy will retreat 80 basis points during the year to 9.1 percent, Marcus & Millichap projected. The rate fell 130 basis points in 2010 as a result of pent-up demand for multifamily housing.

Average rent will increase 0.5 percent to $808 a month, the first increase in three years. Effective rents, taking out landlord concessions and specials, will climb 0.9 percent to $756 a month.

Construction of new apartment units is expected to decline to 900 units, or 650 fewer than last year, raising the inventory by about 0.7 percent, Marcus & Millichap reported.

Las Vegas-based Applied Analysis business advisory firm showed apartment occupancy at 91.6 percent in the fourth quarter, a slight decrease from 91.9 percent in the previous quarter and up from 90.1 percent a year ago.

Average asking rent was $756 a month, compared with $760 in the third quarter and $770 in fourth quarter 2009. The highest rent of $906 a month was found in the southwest submarket, while the lowest of $628 was in the northeast.

Occupancy and rents continue to suffer from the local economy's contraction. Las Vegas lost 13,100 jobs last year, including 10,700 in construction. The leisure and hospitality sector added 1,100 jobs, Applied Analysis reported.

"Low levels of demand in the labor market will continue to put pressure on multifamily communities," Applied Analysis project manager Jake Joyce said. "As long as the 138,700 jobs removed the recession remain lost, a fundamental imbalance will continue putting pressure on pricing and occupancies within the sector."

Apartment complexes in Las Vegas have changed ownership at extremely sharp discounts over the past several quarters, making banks hesitant to consider moving troubled properties off their books, Marcus & Millichap reported.

However, stabilizing conditions and low interest rates will draw investors to the market, helping to close the expectation gap between buyer and seller and encouraging lenders to list assets that qualify for syndicate financing.

A limited portion of the $140 million in distressed apartment properties will become available this year. Apartments around the University of Nevada, Las Vegas, will be sought the most because of steady demand from students and nearby casinos such as The Cosmopolitan of Las Vegas, which generated 5,000 jobs when it opened in December.

According to U.S. Census data, multi-
family housing starts of five or more units increased to 20.4 percent in December, compared with 13.5 percent in December 2009.

Furthermore, building permits for five-plus units jumped to 27.1 percent of all permit activity in December from 21.3 percent a year ago.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.