Report: Wasatch commercial real estate booming in most major sectors
The Salt Lake City office of commercial real estate firm Newmark Grubb ACRES and investment company Mountain West Commercial have released their joint midyear market report. The report includes analysis from the industrial, office, retail, investment and land real estate sectors for the Wasatch Front sub-markets.
Industrial
Salt Lake County
Overall direct vacancy hovers near historic lows at 3.3 percent for midyear 2018. The Salt Lake County industrial market experienced 1.1 million square feet (SF) of positive net absorption by midyear 2018, overcoming a slight negative net absorption number in the first quarter (Q1).
Relative to previous years, Salt Lake County has been experiencing explosive growth. The pipeline of new construction remains impressive with 21 projects currently underway, comprising approximately 5 million SF where 52 percent is pre-committed for occupancy when delivered. Just under 1.9 million SF in 14 different buildings have delivered so far in 2018.
Utah County
The speculation that too much industrial product is being built in Utah County has been dispelled. Over 900,000 SF of industrial space delivered in 2017 with another 300,000 SF already delivered in 2018. With numerous industrial tenants looking for space to grow and expand, Utah County is on pace to maintain low vacancy and high absorption rates even when the influx of new buildings hits the market.
Office
Salt Lake County
by Casey Mills
Net absorption for Salt Lake County picked up during the first half of 2018 at approximately 572,933 SF, an almost 20 percent increase from the first half of 2017. It is anticipated this will continue to remain positive as around 500,000 SF is currently under construction and set to deliver before the end of 2018.
The direct vacancy rate for all building class types stands at 8.3 percent compared to 9.2 percent at the end of 2017. Overall, achieved average lease rates increased from $23.60 full-service (FS) at year end 2017 to $24.19 FS at midyear 2018. The most significant rate jump occurred for Class A space, increasing by roughly 6 percent during the last six months.
Tech Corridor
by Nick Teseros
The tech corridor has had remarkable growth and momentum the last few years with 2018 continuing that trend. Large companies that call the tech corridor their home include Adobe, Goldman Sachs, Instructure, Young Living and Alliance Data Systems.
The submarket has remarkably low direct vacancy at 3.7 percent. In the first six months of 2018, net absorption is at an all-time high of 1.1 million SF for the first half of any year. Since midyear 2017, 1.5 million SF went under construction with just under 1million SF delivered.
Utah County
by Ben Richardson
Central and southern Utah County recently welcomed companies such as LogMeIn, Clearlink and Instructure. Developers are looking to expand more south of Lehi with projects such as Mountain Tech Center, Freedom Plaza and Valley Grove.
Although Utah County had positive absorption for 2017, it was relatively low (89,128 SF). However, for midyear 2018, Utah County net absorption is already at 417,854 SF — 4.5 times more than the entire 12 months of 2017. It is anticipated that Utah County will have another record year.
Davis and Weber Counties
by Chris Falk
Davis and Weber counties show characteristics of a tightening market over the past six months as direct vacancy decreased, net absorption is positive and overall lease rates continue to climb. Class A product continues to be a prized commodity and glaring need. With the market performing well, it will be interesting to see if developers take a chance with speculative construction or if existing properties undertake renovation designs to leverage the market opportunities being presented.
Retail
by Amelia Yates
The Utah retail market remains strong and stable along the Wasatch Front. Retail leasing and owner-user sales are up year-over-year. Some of the notable transactions that took place during the first half of the year include both Jo-Ann Stores and DownEast Outfitters opening locations in Millcreek Center and Planet Fitness at the Valley Fair Mall in West Valley City.
There was a staggering increase from $181.2 million in investment transaction dollar volume for the second half of 2017 to $331 million so far in 2018. The sale of the Shops at Fort Union (666,320 SF) is a major factor in the transaction volume jump but there were also a handful of other larger transactions that pushed retail investment transactions close to record-breaking numbers.
Investment
by Bryce Blanchard
As of midyear 2018, Utah’s commercial real estate investment market showed not only resilience against challenges in the national economic scene, but reached all-time high transaction volume levels — 33 percent higher than the highest previous midyear benchmark ($1.17 billion midyear 2017 compared to $1.6 billion midyear 2018).
Interest rate increases (two so far in 2018 and seven since the end of the Great Recession in 2009) occurred with a likely result being a counter-balance to the exuberance in the real estate sector. However, as rates went up, investors simply absorbed the tightening spread as they remained bullish on property-level fundamentals and Utah’s economic story. This helped prop up investor confidence to bet on net operating income growth and expansion for tenants.
Land
by John G. Taylor
Salt Lake County land sales are pushing new limits so far in 2018. Year-over-year data shows an 83.7 percent increase in number of transactions, a 210.5 percent increase in acres sold and a 36.4 percent increase in total transaction dollar volume. Demand is strong in all property categories with industrial and multifamily uses leading the way.
Multifamily land sales have been increasing over the past few years and led total dollar volume at $37.4 million, making up 38 percent of the total volume ($97.7 million). The Utah industrial market overall is extremely healthy with increasing rents, declining vacancy and robust absorption. This encourages developers and lenders to pursue sites to build new projects.
The full midyear report is available at https://www.ngacres.com/2018-midyear-utah-market-report/.