Commerce Real Estate Solutions, an independently owned and operated member of the Cushman & Wakefield Alliance, released its 2012 forecast for the commercial real estate markets within the largest counties of Utah.
The annual outlook for each market sector is published within the firm’s annual report and features 2011 analysis and 2012 forecasts for Salt Lake, Utah, Weber, Davis, Summit and Washington Counties.
“We anticipate that the business, economy and job growth accolades for Utah we heard during 2011 will continue throughout 2012,” said Michael M. Lawson, president and CEO of Commerce. “While the past years have been challenging, they have also been opportunistic. Our clients are actively and aggressively pursuing the right opportunities to meet their specific needs—more space, better space, better located space, acquisition of buildings and property for current and future use.”
Forecast Highlights for Salt Lake County
Given the current levels of new activity and transactions underway, we anticipate absorption to remain strong through 2012. The Salt Lake market will add 847,000 sf of new construction in 2012, with 63% of the space pre-committed.
Overall vacancy will continue to decline in 2012, although at a more modest pace than in 2011. Asking lease rates will also rebound as vacancy continues to decline and landlord concessions are reduced, particularly in Class A and B suburban properties.
As expanded mass transit comes online in the form of additional commuter rail and TRAX options, we anticipate more office development and expansion activity at key transit oriented developments. Overall, there is optimism that the market fundamentals will continue to show improvement throughout 2012.
Vacancies will continue to be at stabilized levels with an overall reduction in larger increment spaces. Vacancy in the smaller increment spaces will increase. Lease rates will remain consistent at current rates within +/- 5% and lease activity is anticipated to keep showing improvement. With the exception of a greater portion of the large increment spaces, tenants will continue to seek short term leases.
There is uncertainty as to what the potential change to Capital Leases policy will be on the market. Corporate America will continue to gain traction and grow while Main Street struggles. Limited new industrial building construction will occur as capital continues to be cautious and tenants face further economic and policy uncertainties.
The biggest impact on the 2012 retail market is the public/ private incentive model. This new way of financing development is skewing the market with excess space and more competitive incentives. Owners and tenants of nonsubsidized retail outlets are also displeased and frustrated with the cities over this current trend. The 2012 Legislature may have a few bills presented but how it will develop is yet to be seen.
Expect to see modest improvement in the overall market due to the ability of retailers moving to stronger locations while maintaining essentially the same economic costs. As stores downsize or pull out, other stronger regional and local retailers are moving into these prime locations and enjoying lower rates.
In addition, expect an influx of new national tenants to begin looking at Utah as a viable market. With the additions of Crate and Barrel and H&M, other national retailers such as Container Store are beginning to look for a spot to land within the Salt Lake market.
Investors will exhibit more confidence in the market in 2012, with an increase in investment activity. In spite of signs that investors are becoming more optimistic, it will continue to take an extended period of time for the market to return to full momentum.
Well-priced and well-located quality properties, both large and small, will be attractive. Class B and C properties will continue to have difficulty attracting buyers. Inexpensive debt capital will continue to feed an increasing level of market activity. Underwriting standards will remain strict, yet more capital providers will return to the marketplace seeking yield-based commercial real estate investment opportunities.
Most market participants are going into 2012 believing interest rates will remain at historical lows for the near term, thus adding a stabilizing factor going forward. The market will continue to lay a solid foundation, always searching for good news on job formation and continued low interest rates through the first quarter of 2012.
As stability in the overall economy becomes a reality, investment activity for commercial real estate will pick up in the coming year with a strong performance in the multi-family and retail sectors and even a possible forward press for office properties.
To review the entire report visit: http://www.comre.com/reports/2011Reports/Utah/YearEnd2011Report_Utah.pdf