Convert your Office to a Retail Use

If you are a commercial real property owner in Las Vegas, Nevada and you follow the vacancy rates by property type you are probably already aware that the weakest commercial real property type or segment is offices, and in early 2014 we are still seeing a vacancy rate near 23 percent for them.  For some there exists an opportunity to take advantage of the stronger retail market with vacancy rates closer to 11 percent.  Making a full or partial transition depends on a number of factors.

Some office properties have locations with little or no arterial street visibility.  If you own an office building that is set back from the main road it may be more difficult to make a transition.  Retail buildings take advantage of their visibility and accessibility to arterial roadways and off arterial offices may simply not offer potential retail tenants what they need.

There are however many properties that have had an offices use but they have the visibility and accessibility equivalent to that needed for retail purposes.  It may be that your building was used as a real estate office, an insurance company office or possibly an attorney's office.

There are entire strip centers that got built-out for an office or medical office use, and now that the market has softened for offices and medical offices the vacancy rate in them is high.  As an owner I would rather remove medical office improvements if there is no demand for them and get the property renovated and listed for a retail use than leave the space vacant.  You have to roll with the market.

The cost of conversion is an issue that must be considered for each property, however if you have been carrying vacant office space for an extended period of time and you have a solid party ready to commit to a long-term tenancy if the changes are made, it may be a good move.

Of course being able to make a transition from an office use to a retail one also depends on your existing zoning.  Properties zoned for an office-only use may require a zoning change.  Make sure that before you spend a dollar on a transition from office to retail that a change of this type is approved by existing zoning.  Many Las Vegas zoning categories allow for both office and retail uses, but there are those that only allow one or the other.

As the landlord you will also have to consider the tenant mix.  If you have a relatively high vacancy rate in your building or buildings but the tenants that you do have will likely move if you bring in retail uses, there may be no point in trading one tenant type for another.  So it's a good idea to know how your existing tenants fee about a potential change in use.

If it's a single tenant property you don't have this concern, but you also don't want to invest money into a change simply because the vacancy rate of retail buildings is smaller, you need to advertise and advise potential tenants that a retail use is possible.

Recent brokerage data indicates that weighted average asking rental rate for office space is $ 1.97 per square foot per month (net rental area) while the weighted average asking rate for retail space is $ 1.36 per square foot per month (net rental area) in metropolitan Las Vegas.  So a transition from office space to retail space may also negatively impact the income potential that can be derived from a building. 

Glenn J. Rigdon, MA, MRICS, ASA is an experienced commercial real estate broker and commercial real property appraiser located in Henderson, NV.  Check out his commercial appraisal articles website at http://www.appraisalarticles.com or his profile on LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/  His website is located at http://www.appraiserlasvegas.com


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