Through many real estate cycles Las Vegas has stood out as a boom-and-bust market, riding some of the highest highs when the economy is favorable, but also retreating quickly when economic conditions deteriorate. Over the past 3 years, Las Vegas has once again gained that reputation. During the height of the pandemic, migration from California, relatively loose pandemic regulation, and favorable weather drove huge demand for apartments in Las Vegas. In the past 14 months, rents in Las Vegas are down 9.5%. Occupancy has fallen 1.5% and all leading indicators are in negative territory. Looking back on the last three and a half years in aggregate, the metro has done well, as average rents began 2020 at $1,288 and currently sit at $1,547, but as long-term owner operators in Las Vegas know, to do well in this market, you must be prepared for significant volatility. While some domestic migration will continue, the pace has slowed meaningfully over the past two years. Heightened fears over access and cost of water bring additional long-term risks to the market and residents looking to relocate long term.
Traffic and Leasing
Las Vegas traffic trails the national average by roughly one tour per property through mid-July.
Traffic has decreased in most submarkets over the past year, with a few exceptions. The University submarket has picked up more than three tours per week compared to this time last year and leads all Las Vegas submarkets in traffic by a significant margin. The average property in the University submarket is getting just under 14 tours per property per week. By comparison, the second-best performing submarket is averaging less than ten tours per week.
Leasing activity is also mixed, as the average property is signing 2.7 new leases per week market wide.
The North submarket is in high demand, as properties in the area are signing nearly four new leases per week. The submarket maintains a very strong conversion ratio of 40%. It is also the fastest growing submarket in terms of new leases. Properties in the North submarket are signing 1.2 additional leases per week, compared to a year ago.
Las Vegas’ average occupancy is 93.4%, nearly a full percentage point below the national average. From its peak in August 2021, the metro’s average occupancy rate has fallen roughly four percentage points.
The East and North submarkets are reeling, each having lost 3.1% occupancy in the past 12 months. While the North submarket may be in line for a recovery given the recent leasing activity, the East submarket appears to be moving in the wrong direction. Leasing activity is weak and declining in the submarket.
Only two submarkets, West and University, have recorded occupancy gains in the past year. While the overall metro’s apartment performance is struggling, the University submarket may be
the one to watch in the coming year. Traffic and occupancy are up significantly, which should bode well for lagging indicators like net effective rent.
While occupancy has fallen across the MSA, the availability of apartments has remained on steady footing. The average community in Las Vegas has 15 units available to rent over the next 60 days, which aligns with the national average.
Las Vegas has been one of the worst performing markets from a net effective rent basis over the past year. Rents are down 6.7% since last July, and 1.9% year-to-date. The market saw very few weekly increases in rent during the prime rental season this year, and as we move into the third quarter, rents in Las Vegas may fall even faster.
Combining the impact of falling occupancy, the average revenue per available unit (RevPAU) has dropped 7.6% over the past twelve months.
Rents are down in all Las Vegas submarkets, led by the East submarket, where rents have fallen a staggering 14.1% in the past year.
The best performing submarket is the North Central submarket, where rents are down only 3.4% annually.
Not surprisingly, concessions have increased nearly 200% in Las Vegas. The university submarket is the only submarket in which concessions have dropped.
Three submarkets have average concessions of $60 or higher. By comparison, the national average concession is $24 per unit per month.
One silver lining for Las Vegas is that the market does not have the same supply issues that many other sunbelt markets are facing.
There are currently 32 projects under construction across the metro, and while these properties will likely be delivered during a market-wide downturn, the impacts of new supply should be somewhat muted. Compared to neighboring markets like Phoenix or Salt Lake City, the new deliveries are significantly fewer.
The overall pipeline, including projects still in the planning phases, totals 172 projects according to BuildCentral. Not all these projects will come to fruition, especially considering the current interest rate environment and market dynamics in Las Vegas. Yet even if all projects were delivered, the new supply pressures in Las Vegas would not be as impactful as in other markets.
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