CBRE report: Reason to be optimistic about commercial real estate market

The Salt Lake City office of commercial real estate broker CBRE has released its first quarter 2016 Marketview report. Overall, indicators in the report give reason to be optimistic about Utah’s commercial real estate market. Demand remains high across all market segments and space is being steadily absorbed amid high levels of construction.

The Salt Lake City office of commercial real estate broker CBRE has released its first quarter 2016 Marketview report. Overall, indicators in the report give reason to be optimistic about Utah’s commercial real estate market. Demand remains high across all market segments and space is being steadily absorbed amid high levels of construction.

Though some chatter has begun regarding declining economic conditions — such as a global slowdown, uncertainty surrounding monetary policy and the upcoming election — Utah’s commercial real estate market is well positioned to continue its current trajectory, according to CBRE.

Though slightly subdued by comparison to 2015, the Salt Lake office market has continued to maintain momentum and still has room to run in the coming months. More than 1.7 million square feet is under construction in Salt Lake County and is slated to deliver by year-end 2016. Though this is a significant amount of space, availability of large, contiguous blocks of office space remains low, so the high level of construction is welcome, commercial real estate companies believe. Also, over 60 percent of this space is already pre-leased, indicating that current levels of supply and demand are healthy.

“Even with continued construction activity, overall metro vacancy decreased and average metro rental rates increased,” said Eric Smith, senior vice president at CBRE. “Utah has one of the most diversified economies in the nation and this fact continues to give the local office market a great advantage, economically speaking.”

The most noteworthy story in the industrial market continues to be construction and its effects on local supply and demand. CBRE reports that several new trends began to take shape during the first quarter, such as increases in build-to-suit owner/user development, increased small-box activity and greater absorption in the South Valley.

“At the end of the first quarter of 2016, close to 1.6 million square feet was under construction, over 61 percent of which was either build-to-suit or owner/user,” said Rad Dye, CBRE senior vice president, “This shift demonstrates how low interest rates and limited sale availability have incentivized many users to build their own facilities.”

Piggybacking off of the levels of new construction, leasing during the quarter was strong. Though the majority of new industrial leases took place in the northwest quadrant of the county, the south end of the valley experienced a significant increase in activity. This uptick in absorption can be attributed directly to the availability of new small- to mid-box product in the area.

Looking forward, industrial leasing and absorption are expected to increase significantly, suggesting demand is in line with new supply.

Evolving customer preferences continue to shape the retail market. Though overall demand for retail spaces continues to be steady, newer experience-focused properties were heavily favored. Over 47 percent of all lease transactions were in buildings constructed during the past 15 months, a direct reflection of this preference.

“Strong demand for new, Class A space has sparked interest in value-added opportunities from both local and out-of-state investors,” said CBRE vice president Russ Harris. “Prime examples of this can be seen throughout the region, including The Gateway near downtown Salt Lake City and Provo Towne Centre. In an effort to improve the experience of its visitors, the new owners of these destinations have plans to invest significant funds in upgrading these spaces.”

Another notable occurrence in the retail industry is the high number of sales currently taking place in the market. Almost 700,000 square feet of retail space was sold in the first quarter, putting 2016 on pace to become the third consecutive year with over 1 million square feet sold.