Industrial – Solid Fundamentals Getting Stronger

Utah is on track for another year of great performance, as fundamental benchmarks are only getting stronger. Year-to-date, activity in the Wasatch Front industrial market has increased, while available industrial inventory has dwindled further. Salt Lake County continued its 10-year trend of low overall vacancy to end the third quarter of 2015 with a rate of 4.64%. When compared with the surrounding markets, such as Las Vegas (9.0%), Phoenix (12.0%) and Denver (7.6%), Utah is performing above and beyond expectations. Demand for industrial space continues to grow, while new supply is emerging. Currently, 11 buildings totaling more than 1.5 million square feet are under construction. These projects are expected to be completed within the next 12 months. Bulk distribution space will comprise 63.0%, or 991,379 square feet, of new product. In addition, 1.7 million square feet was delivered as of the third quarter of 2015. This much-needed supply will help companies to continue to grow or establish their footprints in the crossroads of the West.  

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Office –Low Vacancy and Higher Rates Show High Office Demand

Utah’s diverse economy is still on the national radar, with many new companies looking to expand into the market. Utah ranks first in the nation for year-over-year private sector job growth at 4.6%. The state also ranked first in the nation for year-over-year total job growth at 4.0%. At 3.7%, its unemployment rate is the sixth-lowest in the nation.

The Salt Lake market netted 448,585 square feet of positive absorption in the third quarter. The amount of office product under construction fell from the second quarter to 1.2 million square feet. Most of the buildings under construction are in the CBD/Periphery and Southeast/Southwest submarkets, and many will have vacancy rates below20.0% when completed, due to strong pre-leasing. This will leave very little new space available in the market. Given the construction backlog, large office tenants need a minimum of 18 to 24 months to find space. Yet with Class A office space full, new construction is providing the only relief in sight.

With the low vacancy and increased demand for office space, asking lease rates are increasing, and landlord concessions are decreasing. Landlords are now offering tenants minimal tenant improvement allowances or requiring longer terms to pay for new space. Landlords are also offering less free rent, with three months the average for a five-year deal.

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Retail – Vacancy Rates Continue to Decrease

Overall vacancy rates continue to decrease to the lowest rate since 2010. The demand for shop space has continued to increase, as 86% of the transactions that took place during the 3rd quarter of 2015 fell in the 0-4,999 SF range. Many retailers in Utah increased their number of locations and numerous out-of-state tenants entered the market for the first time.

Recovery and stabilization have also been evident in the number of leases completed as well as the lease transaction volume. These are impacted by the previous absorption over the past couple years leaving little quality space left in the places where market demand is high.

Investment –Investors Scrambling for Product

The Utah commercial real estate investment market is full of positive momentum and record numbers. There are unprecedented trends in the investment market in 2015, including total transaction value being up 72% from the third quarter of 2014 with 2015 having the potential to be the largest year since 2007.  The number of investment transactions has more than doubled since 2008, leaving all divisions looking for quality real estate. Investors are scrambling to find product with demand outweighing supply in Utah. Availability of favorable financing and a solid economy in Utah has created a perfect storm to achieve record pricing and volume for the remaining portion of 2015.

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