Salt Lake's Industrial Lease Activity Reaches All-time High, While Local Retail and Office Markets Gain Momentum Leading into 2018
25 Jan 2018
The Salt Lake City office of CBRE has released its Q4 2017 MarketView reports, which reflect a strong end to 2017 and positive momentum in commercial markets leading into 2018. Click here to download full copies of each report.
Industrial Lease Activity Reaches Record Level in 2017
Total industrial lease volume reached 6.8 million square feet during 2017, breaking last year’s 10-year high and record of 5.7 million square feet. While demand was strong across all industrial segments, this historically high level of activity was principally driven by large users—in particular a handful of national players who initiated large build-to-suit projects. During the year, new leases 50,000 square feet and larger represented 65 percent of total leased square footage, and a total of 17 leases over 100,000 square feet were signed—almost three times the prior five-year average of six per year.
The bulk of this leasing activity took place in the northwest quadrant, which encompasses the Airport, California Avenue and West Valley submarkets. At year-end, the northwest quadrant accounted for 84 percent of overall net absorption and 95 percent of active construction, which reached 3.6 million and 3.9 million square feet, respectively.
“Growth in the local industrial market has been monumental during this market cycle,” noted Jeff Richards, senior vice president. “Two factors have really contributed to this growth: first, the activity in the northwest quadrant, which brings newly available land to the market, and second, the emergence of big-box users in the overall market. Industrial users are looking for much larger spaces than has historically been the case, and for the near-term, Utah has the location, economy and land to meet their needs.”
After Nationwide Retail Shakeup, Salt Lake Accelerates Into 2018
Following several quarters marred by headline retail closures and timid activity, Salt Lake’s retail real estate market rebounded in the second half of 2017. Building owners have adapted to the new landscape by demising large retail vacancies into smaller blocks, initiating renovations, and in some cases redeveloping or selling to non-retail users. Leasing was especially strong in new or redeveloped product, which helped drive 170,000 square feet of positive net absorption in the fourth quarter alone—the strongest quarter in over a year.
Demand remains strong across most retail segments. Over 941,000 square feet of retail was leased during 2017—more than any other year, post-recession. More than one third of this leasing took place in the Southwest submarket, following residential growth; there was also a significant amount of leasing that took place in redevelopment projects in established areas. At the end of Q4, nearly 630,000 square feet was under construction—75 percent of which was pre-committed, ensuring a solid pipeline of positive absorption in the new year.
“At the beginning of 2017, several nationwide retailers announced a number of store closures. There was a level of uncertainty regarding how this would affect the local market,” commented JR Moore, first vice president in the Salt Lake office. “Though big-box vacancies took place throughout the year, the market has largely stabilized; Salt Lake’s retail real estate market has rebounded and retailers have become more strategic in their use of space. Throughout 2017, Salt Lake has experienced strong demographic growth, which is expected to continue in the near-term, supporting a positive outlook as we head into 2018.”
Reinvented Office Space Attracts Downtown Users
The downtown office market had its best quarter of the year due to growing interest in conversion and renovation projects. Historic and repurposed buildings received attention from tenants looking for a unique space with proximity to downtown amenities—often an important attribute when attracting and retaining employees. Bouncing back after a slow first half, downtown Salt Lake City absorbed over 85,000 square feet on net in the fourth quarter of 2017, accounting for 65 percent of the 130,000 square feet of downtown net absorption year-to-date.
Over 1.3 million square feet of new office product was delivered during 2017, making the year a strong one for development. The final delivery of the year was a 162,000-square-foot tower in Draper which was the only building that delivered in 2017 without prior tenant commitments. Going forward, future developments will depend on their ability to secure tenant commitments before breaking ground, as the current market cycle enters a more mature phase.
“One noteworthy item that took place in the office market during the fourth quarter was an increase in the absorption of Class B and C space. In recent years, a significant amount of Class A office product has been developed or renovated, and as a result, a ‘flight to quality’ has taken place with many tenants upgrading their office space,” noted Scott Wilmarth, executive vice president. “The fact that vacated, older spaces are being backfilled bodes well for landlords and is reflective of a well-balanced market that meets the needs of the broader client base.”
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