The Las Vegas multifamily market — while it remains demographically sound — is dealing with inflationary-based pricing concerns and fundamental characteristics dampening investor appetite.

Amongst all the noise and negatively skewed fundamentals, Las Vegas’ economy continues to grow.  A report released by the Federal Funds Information for States ranked Nevada as #1 in the nation for economic growth and momentum last year. The measurement considers a wide array of key economic and demographic indicators, including population, personal income, and employment growth.

While California continues to reel from a declining population, both Nevada and Arizona are benefiting from a surge in net migration. The population of Las Vegas is expected to double by 2060, which would add an additional 2 million residents to the MSA, per Woods and Poole Economics.

Las Vegas residents generally prefer to rent compared to owning, with the metropolitan area reporting the lowest homeownership rate in the country. About 43 percent of properties in the metro area were reported as renter occupied. This provides considerable opportunities for multifamily investors and developers.

Interest rate hikes have also put pressure on single-family home purchases across the Valley. The average 30-year fixed rate mortgage in Las Vegas increased to $2,214 per month, while a 15-year fixed rate mortgage reached $3,385 at the end of 2022. The simultaneous increase in rental rates and mortgage costs should have a net benefit for the multifamily market.

There are roughly 229,000 multifamily units across the Valley. Of those,

• Class C properties make up just 15 percent avg. $1,173/m,
• Class B compared to avg. $1,497/m, and
• Class A units $1,741 per month

This is a spread of more than 48 percent. The market suffers from an extreme dearth of Class C units compared to its total inventory, which is pricing many would-be renters out of the market.

Class A buildings appeal to the masses and will usually have very low vacancy rates.

Class B and C properties usually attract tenants who earn less and have lower credit ratings causing more variable occupancy levels.

Unlike other major metropolitan areas across the nation, Las Vegas isn’t dealing with a construction boom, but rather a pricing issue as real wages continue to decline, impeding occupancy rates.

Developers completed almost 1,100 units in the first quarter of 2023, or 2,981 units over the previous year. This represents a 1.3 percent expansion in total inventory. There are currently 9,256 units under construction with another 5,441 units in the planned/planning phase. Development is spread across the Valley, as Las Vegas benefits from its expansion and diversification in the sports and entertainment industries, hospitality, industrial growth, and business sector migration.

Overall, there are ample investment opportunities across the metropolitan area. Strong demographics, net migration, and a diversified economy will facilitate continued growth across all sectors.

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