• Sat. Apr 20th, 2024

Las Vegas Development Sets Stage for Office Market Off the Strip

Bynewsmagzines

Jun 20, 2023
Matter Real Estate Group began mapping out its plans for the UnCommons site in southwest Las Vegas nearly five years ago. (Matter Real Estate Group)

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Most of the gambling in Las Vegas is done along the city’s glittering Strip thoroughfare, but Matter Real Estate Group’s Jim Stuart is making an $850 million bet more than 10 miles away.

The partner at the San Diego-based development firm is spearheading a mixed-use project geared not toward the predominantly tourist population the real estate market has largely concentrated on, but to often-overlooked locals willing to pay top dollar to lease a space of their own. Other developers are following suit in the southwest part of greater Las Vegas outside its renowned recreational epicenter.

“This property is meant to create a mixed-use workplace community that centers on food and lifestyle in an urban, stylized and walkable environment,” Stuart told CoStar News. “Our thesis going in was to create a modern workplace experience with the best attributes from a mix of uses to a culinary scene, from activation and walkability and livability, and to truly execute the type of project that exists in other markets, but never did in this town.”

That shortage of mixed-use developments in Las Vegas has led to UnCommons, Matter’s multiphase project complete with fully preleased office space, more than 800 high-end apartment units, an entertainment venue with a full calendar of events, and a lineup of restaurants and cafes helmed by top West Coast-based chefs.

UnCommons is unique in that, while Las Vegas has plenty of retail, hospitality and other office space scattered across the region, it has been developed as separated components, rather than on one site under a single development firm.

All of it is spread across about 40 acres surrounded by, at least up until a couple of years ago, more vacant land.

Within a few months of opening the first few retailers, and despite its barren surroundings, UnCommons is already a bustling hub. On a recent afternoon, visitors milled about the shaded courtyards and outdoor lounge areas. The line at Los Angeles-based favorite Urth Caffe snaked almost out the door through lunch hours as people met over coffee or worked in front of laptops.

The project recently completed its first phase of office space and is now welcoming big-name tenants such as accounting firms Deloitte and BDO, fantasy sports betting startup DraftKings, financial giant Morgan Stanley, real estate brokerage CBRE and the auction house Sotheby’s. It has been a litmus test not only for its removed location at Durango Drive and the Bruce Woodbury Beltway, a 50-mile route circling three-quarters of the Las Vegas Valley, but also for its ability to fill top-tier space.

Phase two at the UnCommons project will add two four-story office buildings totaling 180,000 square feet along with an additional parking structure. (Katie Burke/CoStar)

Until now, the core of Las Vegas’ office market has been largely centered on the Howard Hughes Center, a campus owned by Los Angeles investment firm EQ Office parked just a block from the city’s high-profile Strip. It has housed most of the city’s major office tenants in the past, CoStar Director of Market Analytics Michael Petrivelli said, but commuting to the property has been a worsening pain point for most employees because of traffic, construction road blocks and large events.

“Locals try to avoid the Strip at all costs,” Petrivelli said, adding that the shifting traffic pattern has gradually pushed offices farther from the city’s central tourist and convention district. UnCommons has been a “landmark project for this movement and serves as a central location for white-collar workers.”

While the Las Vegas office market has benefited from a stable base of real estate, hospitality and financial tenants, the damage caused by the Great Recession meant developers have been wary to add much new space to the city’s supply, especially in unproven areas.

With just shy of 63.5 million square feet of office space, Las Vegas is on par with second- or third-tier markets across the country such as Memphis, Tennessee; Richmond, Virginia; Jacksonville, Florida; or Stamford, Connecticut. By comparison, New York — the nation’s largest office market — has more than 975 million square feet of space, according to CoStar data.

For Stuart, plans for UnCommons were more of a calculated bet based on two factors: where he saw residents moving and what he saw lacking in order to serve them.

In beginning to analyze the future UnCommons site back in 2018, “we knew the vehicular patterns were shifting and knew what the demand in the southwest part of the city was and was going to be. We had to ask ourselves, ‘what’s missing’ and ‘why aren’t the Hughes center tenants moving out?’ We eventually realized it was because there was nothing for them to move to.”

All of the available office space in the first phase of the UnCommons mixed-use project in Las Vegas was preleased before finishing construction in late 2022. (Katie Burke/CoStar)

The gamble paid off, because months before the initial UnCommons office space was completed, Matter had already preleased the entirety of the 145,000 square feet of space, most to tenants either relocating Las Vegas offices to the development or choosing the project for its first outpost in region. DraftKings, for example, is planning to open a 90,000-square-foot office later this year that will serve as the company’s North American headquarters.

That’s not to say the project hasn’t hit its fair share of hurdles. The first phase of work was set to kick off in the summer of 2020, Stuart said, with the groundbreaking scheduled “about 10 days before the entire world shut down” from COVID-19.

“We’ve had our share of misery thrown at us,” the Matter partner said, but despite supply chain issues, price escalations and “plenty of other horror stories” in building out the space, it was still enough to prove that Las Vegas’ appetite for high-end office space was only getting stronger.

It was also enough for the development firm to feel confident with phase two, which began construction about a year ago and is already more than 50% preleased with tenants including real estate services provider Berkadia and EY, the accounting firm formerly known Ernst and Young. Combined with the third and final phase, UnCommon’s office footprint will span upwards of 500,000 square feet.

“UnCommons has had impressive leasing activity given the current sentiment around office buildings, proof that Las Vegas can sustain higher-end office buildings in the right location,” CoStar’s Petrivelli said. “The mixed-use element with retail and multifamily does make it unique as there haven’t been many projects of this ilk here.”

And Matter isn’t the only name betting on the outskirts of Las Vegas.

Sansone Cos. recently put the finishing touches on its 80,000-square-foot, high-end office property about 2 miles east of UnCommons. The $30 million Axiom project was more than 50% preleased long before construction was complete, and the firm is getting to work on the second phase.

Another short drive away, developer Joe Sorge is building Evora, a $500 million, 42-acre mixed-use project that will ultimately include 240,000 square feet of office and commercial space as well as more than 1,300 multifamily units.

Those projects combined has meant the area south of unincorporated Spring Valley in Clark County is transforming into a new center of gravity for the Las Vegas office market, Petrivelli said. Companies are scooping up the newer, higher-quality space, and white-collar workers are looking for housing options nearby.

The new construction has pushed office rents to a record high, with rates in the area about 50% more than they were about a decade ago, according to CoStar data.

Plenty of headliners perform nightly along the Strip, but at UnCommons, some big names are signing up to fill the retail space.

Michelin-starred chef Michael Mina, reality show “MasterChef” judge Joe Bastianich and California juice favorite SunLife Organics have led a cohort of other trendy retail tenants to anchor the project’s ground level and boost its aim of creating a true live-work-play environment.

It was a bet for the tenants as well, given how they were lending their reputations to a development that — from an outsider’s perspective — looks like it was dropped in the middle of nowhere. For San Francisco-based Mina, whose global restaurant portfolio already includes several outposts along the Strip, it was clear that nowhere else in the region was evolving as fast.

Mina told CoStar News he agreed to run The Sundry, UnCommon’s food hall concept that includes a handful of James Beard Award-winning chefs making their Las Vegas debut, partly because “there was nothing else like it.” UnCommons “attracted the businesses, built the environment and already figured out all the problems. It’s a no-brainer to be here, and it’s clear everyone else wants to be here, too.”

Projects such as UnCommons and others that have started popping up outside the Strip have benefited from the growth that has spilled over from suburbs such as Summerlin, a master-planned residential community along the eastern edge of the Spring Mountains. The area has ballooned in recent years alongside a massive population growth spurt, pushing rents up by nearly 50% over the past decade.

The Sundry is a more than 16,800-square-foot food hall at UnCommons that includes a lineup of respected chefs from across the country. (Matter Real Estate Group)

Since completing the white-box retail space in mid 2022, UnCommons has attracted plenty of heavyweight names to fill the shop and restaurant space. However, Matter has also leveraged the retail to make it so the site is as inclusive as possible. The firm hired a slew of consultants including psychologists, artists, specialized architects and diversity experts, and even established a full-time director of community and belonging position to help it make decisions such as eliminating some financial requirements for tenants to open the space for more minority-owned businesses.

“It’s really hard,” Stuart said. “On the one side, you’re trying to run a commercially viable project, but then you’re also balancing it with our human desire to give a leg up to those that deserve or need it. It’s an everyday, hard conversation, and we’re often asked whether we’re a ‘woke’ corporation now. This isn’t about politics, we’re just trying to do our part and make an impact, and along the way, it can get a little messy.”

Even with the mess, however, Stuart said the goal is all part of Matter’s UnCommons ethos: creating a project for Las Vegas locals. All of them.

“Do we have the answers? No, but do we have the intention? Absolutely,” he said.

While most of the area surrounding the UnCommons site doesn’t look like much now, it is slated for a complete transformation over the following years, keeping up with demand for all sorts of additional space to support an anticipated population spurt.

Already, the $750 million Durango Resort and Casino across from the mixed-use project is under construction and slated to open later this year. The locals-focused casino chain is down the street from dozens of new single-family residential developments, and residents said the neighborhood is unrecognizable compared to what it had been less than a year ago.

Residents at Vestra at UnCommons, a 352-unit apartment complex, pay a significant premium above the average rental rate across greater Las Vegas. (CoStar)

In another testament to the suburb’s growing appeal, the Vestra at UnCommons multifamily complex leased about half of its 352 units within the first 30 days of opening the property in early May, Stuart said.

“Wouldn’t you move in if you had Michael Mina for your next-door neighbor?” he said. “Yeah, I’m not worried about the apartments.”

Rents at Vestra average more than $1,960 per month, according to CoStar data. By comparison, Las Vegas’ multifamily average is less than $1,450 a month.

All told, developers such as Stuart are confident that Las Vegas’ growth over the following decade will concentrate in the city’s southwest valley area. The key to ensuring that future, however, is developing the type of spaces they want to be in and for which tenants are willing to pay top dollar.

Projects like “UnCommons and Axiom are game changers,” Petrivelli said. “They prove there was an underserved high-end market for centrally located office space.”

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