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The Las Vegas office space market added a staggering 4.2-million square feet to its inventory in 2007. This is 1.2-million more square feet of new Las Vegas office space for lease and sale than was completed in 2006, and more than 3-million more square feet of Las Vegas office space for lease than was completed in 2003. Direct net absorption of Las Vegas office space for lease was healthy in 2007, but amounted to only 60% of new completions. This abundance of new supply sent vacancy rates of office space in Las Vegasto 12.2%, the highest vacancy of office space in Las Vegassince Q1, 2005. The average asking rental rate of Las Vegas office space for sale and lease in Las Vegas was $2.69 per square foot gross.

Office space for lease and sale vacancy posted a 1-point increase in Q4, 2007, rising to 12.2%. The average asking rental rate of office space for lease in Las Vegas increased as well, from $2.51 to $2.69 per square foot FSG. Vacancy of office space in Las Vegaswas 2.8-points higher than it was one year ago. The average asking rental rate of office space in Las Vegaswas $0.31 higher than one year ago. Four submarkets of office space in Las Vegashad vacancy rates higher than the Las Vegas Valley average: Las Vegas Airport office space, Henderson office space, North Las Vegas office space, and Southwest Las Vegas office space. These same submarkets of office space that have exceeded the Las Vegas Valley average for the last two quarters. Four submarkets experienced a decline in office space vacancy rates this quarter: Downtown Las Vegas office space, North Las Vegas office space, Northwest office space, and Southwest Las Vegas office space.

New completions of both Las Vegas office for lease and Las Vegas office for sale this quarter stood at 1,092,781 sf. Net absorption this quarter was 614,932 sf. New completions of Las Vegas office space for lease and sale, and net absorption both increased, though the increase in new completions was the more substantial of the two. New completions of constructed Las Vegas office for lease product have now been outpaced by net absorption of office for lease for seven quarters in a row by an average of 283,000 square feet per quarter. Net absorption of Las Vegas office space for lease in 2007 averaged 678,000 square feet per quarter. This was 50,000 square feet of Las Vegas office space higher than in 2006 and 200,000 square feet less of office space than in 2005. New completions in 2007 averaged 1,044,000 square feet of office for lease per quarter. This is 305,000 square feet higher than in 2006 and 373,000 square feet higher than in 2005. Demand for Las Vegas office space leasing and sales seems to have peaked in 2005, while construction of office space for sale has continued to grow. Forward supply of office space decreased from Q3 to Q4, dropping by 1,186,949 square feet to 5,271,043 square feet. Approximately 29% of forward supply of office space in Las Vegaswas under construction, representing approximately 4% of the existing inventory of office space for lease in Las Vegas. Forward supply of office for lease was concentrated in the Southwest Las Vegas office for lease and sale (2.7-million square feet) and Henderson office for lease and sale (1-million square feet) submarkets. Approximately 35% of forward supply of office space was Class B office space.

Spurred on by extremely high demand for office space in 2005, Las Vegas office space developers added 7.1-million square feet of new office product in the past two years. While demand for Las Vegas office space over the past two years was strong relative to 2001-2004, it simply could not keep pace with new supply. Since Q1, 2006, Las Vegas office for lease vacancy has increased by 3.7-points. Unfortunately, this deluge of new office space for lease and sale product has come at a difficult time. The local economy is struggling with a weak housing market. Office employment in the Las Vegas Valley increased by only 100 jobs in 2007. Compare this figure to 9,400 jobs in 2006, and 18,200 jobs in 2005. In fact, Q4 saw the lowest increase in Las Vegas office space jobs this decade. If the trend in office employment does not reverse itself in 2008, demand for Las Vegas office space will drop even further behind new supply of office space for lease and office space for sale and vacancy will continue to rise. More importantly, the new developments which have to date been leasing well will begin to feel the crunch.