Salt Lake City - July 19, 2016 – The Salt Lake City office of CBRE has released its Q2 2016 Marketview reports. Overall, conditions within Utah’s commercial real estate market remain positive, even amid global uncertainties. Industrial leasing and construction has surged, office construction holds strong and the retail market continues to expand, attracting investor capital. See below for highlights on each market segment.
Industrial Leasing Surges, Resulting in the Strongest Market Activity Since 2013
Industrial & Logistics
Utah’s industrial market experienced a surge in mid-box space leasing during the first half of 2016. This contributed to the 1.3 million square feet that was leased during the second quarter, which brought year-to-date leasing activity up to 2.3 million square feet for the year; this represents the market’s strongest first half since 2013. Of particular note is the variety of lease sizes that make up this total.
“Historically when the industrial market has experienced a significant rise in leasing activity it is due to one or two extremely large transactions, but this has not been the case during 2016,” noted Jeff Richards, senior vice president. “So far this year we are breaking records in leasing activity, even when excluding deals over 100,000 square feet—this signifies a healthy market that encourages expansion and growth from a wide range of industrial users. On top of this, big-box users are still as active as ever. The industrial market is in a very good place right now.”
Also of significance is the amount of industrial construction currently taking place. Over 530,000 square feet broke ground during Q2 2016—replacing the nearly 570,000 square feet of industrial product that reached completion during the same period. In total, 1.6 million square feet remained under construction at quarter-end, not including the more than 800,000 CBRE Press Release square feet of planned spec product that has permits pending. This space will help meet the continuing demand for industrial product along the Wasatch Front.
1.4 Million Square Feet of Office Space Set to Deliver Before Year End
Office
The outlook for Salt Lake’s office market continues to be positive, but new supply will ultimately be the defining story of 2016. Office construction activity has remained strong and shows little sign of slowing; as of Q2 2016, nearly 2 million square feet of office space was under construction, approximately 1.4 million square feet of which is set to deliver before the end of the year. This will potentially result in the highest level of completed office construction in the post-Great Recession period.
“With such heavy construction levels occuring, it is possible that vacancy will increase in the near term, but this could actually be beneficial,” noted Marty Plunkett, vice president. “Salt Lake’s vacancy levels have been tight for several years, so an increase in vacancy would help open up the market to both existing and new tenants, assisting them in acquiring the right-sized space for their organizations.”
Retail Investment Totals Reach 842,000 Square Feet in H1 2016
Retail
Utah’s retail market has continued to hold its momentum through the first half of the year. Evolving demand has created new value-add opportunities that are appealing to in- and outof-state entities; 2016 has already seen 842,242 square feet of retail real estate sold to investors. Leasing has also remained strong; average asking lease rates increased 3.5 percent quarter-over-quarter ending Q2 2016 at $16.92 per square foot, triple net. Of these total leases, 64 percent of transactions were in service-oriented industries.
Though a great deal of renovations continue to take place at existing properties, overall retail construction levels have begun to slow. At quarter-end, both completed and under construction totals in Salt Lake were below last year’s levels; this may be the first year since 2013 where the market experiences less than 500,000 square feet in completions. However, this slowdown is not concerning, as supply and demand remain balanced.
“Though construction levels have begun to taper off, one notable occurrence in our retail market is the amount of activity taking place near growing population centers,” noted JR Moore, vice president. “Year-to-date, 88 percent of completed construction—as well as 81 percent of projects remaining under construction—corresponds with growing communities in the Southwest submarket. As Utah’s population continues to grow and spread out, we expect retail development to hold steady.”
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
