Salt Lake City’s Q1 Commercial Real Estate Report

Salt Lake City's commercial real estate sector is surprisingly healthy, compared to neighboring markets like Phoenix and Las Vegas, which should allow for a quicker recovery from current economic woes.

The Salt Lake retail market saw a slight increase in vacancies during the first quarter 2009, to 8.69 percent, but is still surprising healthy, according to data released Monday by commercial real estate broker Commerce CRG.

While national retailers announced closures, local and national retailers took advantage of aggressive deal-making by landlords. Meanwhile, asking lease rates declined slightly in the first quarter, but transactions were done at a discount, and retailers have been actively renegotiating rates on existing leases. Lower retail sales numbers resulted in lower transaction numbers-particularly among national retailers.

Office Sector at a Glance:

Vacancies increased slightly over the fourth quarter 2008, with class B and C space seeing the highest rates.

Class A spaces is still performing relatively well, with a 9.46 percent vacancy rate.

The central business district saw a slight uptick in absorption that was offset by a decrease in the periphery and suburban markets.

Rental rates are finally coming down, and landlords are being forced to make concessions to existing tenants to keep them happy.

2009 construction completions will be the lowest since 2006, with just nine new office buildings and 773,000 square feet expected. Two were finished in the first quarter, 2009. Salt Lake's downtown will see its first high-rise completion in 10 years when 222 South Main comes on line in November. Subleases rates continue to rise, which should continue through the end of the year.

Investment Sector at a Glance:

As expected, most investments showed a slowdown in activity due to the condition of the broader economy.

Transaction volume dropped, with many completed sales involving assumptions of existing debt.

Limited financing options and the need to refinance maturing loans added uncertainty to an already shaking situation.

The apartment sector was the one bright spot. Although transaction volume dropped, transaction value saw a slight increase.

Capitalization rate data is not what it appears at first glance. In reality, all sectors have seen an increase, driven by growing inventory and high and investor caution.

Investor perceptions are that prices are still too high, leading to an inventory increase. Commerce CRG says market participants seem to be waiting for price corrections, more distressed properties, and lender foreclosures to present opportunities at better prices.

Looking ahead, Commerce CRG expects to see better transaction volume in the second quarter 2009, as inventories increase and financial institutions seem to be stabilizing.

Industrial Sector at a Glance:

Despite the economic downturn, local and regional tenants in Salt Lake County expanded, albeit at a slower rate, in the first quarter 2009 and are expected to continue on that pace.

After four years of rate increases, lease rates are expected to hold or decline slightly through 2009.

Big box construction is particularly healthy. However, speculative construction of structures smaller than 50,000 square feet has come to a standstill, with a few exceptions along I-15.

Over 1.2 million square feet of new space is under construction, with completion dates expected from June through September.