Healthy economic fundamentals and substantial population growth signaled a strong year for Las Vegas. The novel coronavirus, however, has turned the metro’s strengths into woes. According to Yardi Matrix data, Las Vegas currently has the highest percentage nationwide of jobs in at-risk sectors such as leisure and hospitality, retail and construction, with the pandemic pushing the metro’s unemployment rate to historic highs.
To get a sense of the current retail landscape in Las Vegas and what to expect, Commercial Property Executive reached out to LOGIC Commercial Real Estate Vice President Deana Marcello and Director Adam Malan, who revealed how landlords and tenants across Nevada are adjusting to the new economic climate.
The retail sector has been hit by widespread store closures and major retailers have filed for bankruptcy. How has this current affected Las Vegas?
Marcello: Retail has absolutely been impacted by the stay-at-home orders put in place. However, many of the companies we hear about closing have been on the watchlist for quite some time, including J.C. Penney Co. and Pier 1. Most landlords who have these companies as tenants have been preparing for this announcement.
Stand-alone businesses in Las Vegas had the option to reopen on May 15, though with strict safety guidelines and a preference for curbside pick-up or delivery. How quick were retailers to adjust to the new situation?
Marcello: Unfortunately, the announcement came with less than 48 hours’ notice, which left retailers scrambling a bit, but most of them seemed quite resilient in finding creative ways to service their customers. Utilizing existing delivery apps and announcing their curbside options via social media allowed businesses that embrace technology to have a quicker turnaround in complying with the new restrictions.
LOGIC Commercial Real Estate manages more than two million square feet of retail space. What are some of the measures you’ve implemented to ensure a safer environment?
Malan: Our property management division did an excellent job of educating every tenant and landlord on best practices outlined by the Centers for Disease Control and Prevention, by providing them with a detailed letter about prevention, including informative links to official health websites. They also provided all tenants with two information sheets that can be posted throughout their suite/business and restrooms to remind everyone of proper procedures and actions to take to lessen the spread of the illness. All tenants were directed to reach out to LOGIC management if there was a confirmed case, so that we could implement remediation and notification if needed. Luckily, no such cases have occurred thus far.
Employees of LOGIC are required to follow CDC guidelines when conducting tenant or vendor meetings, including wearing masks and gloves. More specific or comprehensive changes to cleaning and safety protocols, however, have been directed by individual landlords, as they would need to approve and assume the cost.
Have retail tenants paid their rents in the past few months?
Malan: Retail landlords in Las Vegas have been dealing with an unprecedented amount of rent abatement and deferral negotiations, much like the rest of the country, with most landlords reporting average rent collections during April and May ranging from 40 to 70 percent. With the Las Vegas unemployment rate nearing 33 percent, compared to the national average of 14.7 percent, we expect occupancy rates in certain submarkets to match or exceed the national average.
What can you tell us about the investor sentiment in Las Vegas?
Malan: The retail investment market was off to a strong start this year, with around $190 million sold throughout the first four months, at an average cap rate of 5.6 percent, with an average discount from asking to sale price of 3.1 percent.
Debt availability and transaction volume for multi-tenant retail have all but vanished since the early stages of the pandemic. However, the single-tenant net-leased sector has remained relatively active, with 1031 exchange investors focused on well-located assets with long-term leases and corporate guarantees, highlighted by the recent sale of a newly constructed El Pollo Loco. Our team brokered this transaction on May 15, at a record low cap rate of 4.36 percent.
Southern Nevada started the second phase of reopening on Friday, May 29, while hotel/casinos on the world-famous Las Vegas Strip reopened on June 4. We remain optimistic for a swift recovery and feel confident in the resiliency of the great companies and the hardworking residents that call southern Nevada home.
What type of retailers have better prospects for a quick recovery?
Marcello: Restaurant retailers seemed to be the most buoyant in the recovery process by quickly adapting to delivery, to-go and curbside pickup. It seems big-box retailers, who were not considered essential and did not implement successful online strategies, struggled to adapt.
What are your predictions for the Las Vegas retail sector?
Malan: Retail is one of the most essential parts of commercial real estate and having it disappear is unrealistic, but there will be an evolution of retail and tenants’ needs will continue to shift as they become comfortable with the current environment. Many restaurant tenants might only seek drive-through options going forward or big-box stores might shrink footprints with more satellite stores for curbside pick-up and focus on additional distribution warehouse for delivery. As far as impact on Las Vegas, we believe Las Vegas is resilient and will bounce back strongly.