Office Properties

Convert your Office to a Retail Use

If you are a commercial real proeprty 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.

Are Expenses Increasing for Commercial Properties?

It's common sense if you think about it, rental rates have decreased dramatically over the last several years in Las Vegas, Henderson and Clark County, Nevada in general and expenses have continued to creep up.  So even though they may not have increased substantially commercial building expenses now take up an even larger share of the gross income that is typically derived from a commercial building.

What is a Class A Office?

Agents in each market differentiate buildings into types that are described as Class A, Class B and Class C.  Since each market is different the properties that fall into each category or type can vary considerably from one market to another.  Thus the types are somewhat subjective, and at times, as an agent, you view an office building that has been described as Class A that really isn't except in the mind of the owner and / or the listing agent.

Leases, Economic Rent and Reality

Looking at the various leases in place for a relatively large Las Vegas neighborhood center and its actual rent roll it struck me just how few of the tenants on the list were actually meeting their contract obligations.  Many businesses negotiated new rental rates when their leases came up for renewal over the last few years, but a number of other tenants (in some centers) just stopped paying rent (some are being evicted) while others decided on a rent that they could afford themselves and just started paying 30% to 50% of their original contract rate.  

Office Buildings and their Replacement Cost

After looking at the available data on current Las Vegas office buildings sales and offerings, with most not being new construction, I'm seeing an average asking prices of about $ 140 psf and actual sales prices averaging about $ 75 psf.  The average age of the offices offered was about 22 years and the average age of the sales was about 19 years.  Using my magic depreciation estimator I concluded that the sales should be adjusted upward to about $ 90 psf to offset their depreciation.

How Long Will it Take to Sell my Commercial Property?

Marketing time, or the number of days a property remains on the market until sold, varies from market area to market area and from one property type to the next.  So you may have a strong commercial market in Las Vegas and a weak commercial market in Reno, and within the Las Vegas market retail buildings may be strong while the office sub-market may be weak.

Do Tenant Improvements Add Value?

The easy answer to the question "Do Tenant Improvements Add Value?" is maybe.  Some tenant improvements, although costly when they were added by the tenant or the landlord to secure the lease, may no longer add value after time because market conditions have changed.  If there was $ 100,000 paid for the improvements to secure a dentist, and there is no demand for dental offices when the property is vacated, just how valuable are those improvements?