Tech Corridor Experiences Highest Office Lease Activity, Though Office Absorption Lags; Industrial Market Achieves Mid-Year Leasing Levels of 2.5 Million Square Feet+ For 3rd Consecutive Year

CBRE has released its Q2 2019 MarketView reports for the Office and Industrial markets which show that the industrial market continues to perform at elevated levels and, although office market absorption halted this quarter, Salt Lake’s market fundamentals remain strong and are expected to rebound slightly throughout the remainder of the year. Click here to download full copies of each report.

TECH CORRIDOR AND CENTRAL BUSINESS DISTRICT (CBD) DOMINATE OFFICE LEASE ACTIVITY, THOUGH OVERALL OFFICE MARKET MOMENTUM HAS SLOWED

Office leases signed in the Tech Corridor during Q2 2019 accounted for 55% of total lease activity for the quarter and equated to 625,161 square feet. The CBD, which accounted for the second-largest lease total at 23%, achieved 263,812 square feet of leases during the quarter—68% of these were new leases. Despite steady leasing activity, absorption—the change in vacant space—was negative for the first quarter since Q1 2010. In addition to new space becoming vacant, a lull in preleased deliveries and new, vacant sublease space coming to market also contributed to the reduction in absorption. Absorption should rebound slightly during the second half of the year once the preleased tenants commence occupancy.

“For the past several quarters, the Salt Lake City-Provo office market has continued its slow, steady growth, but in recent months the market has experienced a softening,” noted Kreg Peterson, first vice president. “Anecdotal evidence of a softening has been evident for several quarters, but the first half of 2019 is really the first time the numbers reflect the general sentiment that—although fundamentals are still positive—market activity has begun to gradually slow. Still, it should be noted that overall demand in the market remains healthy. Softness in the last quarter can largely be attributed to a particular tenant consolidating space into an owner-user property—a type of property that is not tracked in market-availability statistics.”

INDUSTRIAL GROWTH CONTINUES, WITH NEW LEASING AND SURGING DEVELOPMENT

Steady leasing levels resulted in the third consecutive year of at least 2.5 million square feet of leased industrial space by mid-year. Though industrial growth—leasing, construction and sales—has been uniquely robust in recent years, the industrial market has experienced an overall positive growth trajectory for the past 20+ years. Recent leasing levels have resulted in a burgeoning pipeline of development and a historic number of active developers, which helped push active construction over 5.0 million square feet during Q2. However, primary indicators show that Salt Lake’s industrial market has maintained balance amid high levels of construction and that the segment is not being overbuilt.

“Historically, Utah’s industrial market has performed well. Even in the midst of the Global Financial Crisis, Salt Lake City was not hit as hard as other major cities; in fact, it was the first market in the country to announce a speculative project post-recession,” noted Tom Dischmann, senior vice president. “Local city and state economic fundamentals have assisted in the industrial market’s ability to absorb cyclical shifts and hold its positive, steady performance for decades, which has contributed to the historic growth we’ve experienced in the past five years.”