Newmark Grubb ACRES 2015 Mid-Year Market Report
Industrial – Utah Industrial Market is On Track for Great Year
Utah is on track for another great year of performance as fundamental benchmarks are only getting stronger. Year to date, the Wasatch Front industrial market has increased in activity and available industrial inventory has continued to become sparse. Overall vacancy in Salt Lake for the last 10 years has remained relatively low compared to surrounding markets like Las Vegas (9%), Phoenix (12%) and Denver (7.6%). At midyear 2014 the direct vacancy rate had reached a low of 4.69%. At midyear 2015 the direct vacancy rate for industrial is an astounding 3.86%. Demand for industrial space continues to grow while new supply is emerging.
Through the rest of 2015 and into 2016, we anticipate that industrial users will continue to seek occupancy in quality assets. New projects coming on line around the point of the mountain will further connect a robust Utah County to a strong Salt Lake County market. The addition of the new bulk distribution inventory may loosen up the industrial market as companies vacate older space to occupy new state of the art properties. The space vacated will add some inventory to the market, but values on the space will be at increased rates.
Office – Office Demand Outpacing Available Supply
In 2015, the Salt Lake County office market has accelerated in nearly all segments, with a drop in vacancy, an increase in absorption, and increase in buildings under construction.
The Salt Lake office market is vibrant and healthy, however large blocks of space are rare and small blocks have seen an increase in permitting time and construction lead times. The office market will continue to improve through 2015, with new product being delivered and an increase in lease rates.
Retail – Strong Demand for Quality Space Drives Lease Rates Up
The Utah retail market demonstrates signs of full recovery from the recession. The vacancy rates continue to slowly decrease well into levels of stabilization and cap rates for retail investment product are following the same pattern. The demand for shop space has continued to increase as the majority of existing quality space has been absorbed. This absorption came as retailers in Utah increased their number of locations and many out-of-state tenants entered the market for the first time.
There is little quality space left in the places where market demand is high.
Investment – Abundance of Buyers Drives Volume Up and Cap Rates Down
The Utah commercial real estate investment market is full of positive momentum. There are unprecedented trends in the investment market in 2015, including substantially increased sales dollar volume, a record number of transactions, and expanded and increased capital sources looking to invest and loan in Utah. The activity seen in 2014 showed the growing and continued confidence investors have in the Utah market, and 2015 has solidified investor sentiment that Utah is the place to invest. Demand far outweighing supply, availability of favorable financing, and a solid economy have created a perfect storm to achieve record pricing and volume in 2015.
Simply put, the market has been—and is currently—spiking. Utah’s investment market is a unique market where it is truly a good time to sell, but also a good time to buy and hold long term. Now is the time to evaluate portfolios, look into trading asset classes to achieve higher cash flows or trade into newer properties if the intent is to hold long term and improve the effective age of assets. For real estate brokers, this market is primed for making decisions and moving quickly as liquidity of assets is at an all-time high.
Land –Vibrant Development Cycle Makes Land in Demand
Land sales through midyear have lived up to earlier expectations. All aspects of the market are in development mode and land is naturally in demand. There is definite upward pressure on prices, but prices are held in check by attainable rents and absorption. Land prices in Utah have been on a steady growth track for four years.
Utah is in a tremendous development cycle and it is no wonder that land sales are so strong. It isn’t likely to change markedly through the rest of the year. There will be upward pressure on prices, but those prices should be constrained by an increase in building costs in both residential and commercial arenas.