Commercial real estate company Newmark Knight Frank (NKF) has released its 2019 Utah Year-End Market Report, which finds that the Wasatch Front commercial real estate market continued to perform strongly last year.
New industrial construction in Salt Lake County totaling 4.1 million square feet was delivered to the market in 2019, and 7.6 million square feet was under construction at year-end, the report said. The delivery of new construction in 2019 provided relief to an undersupplied market where the direct vacancy rate had hovered below 3 percent for the past two years.{mprestriction ids="1,3"} Davis and Weber counties experienced one of their largest jumps in lease and sale values year-over-year to date. Just over 2 million square feet was under construction in Utah County and the direct vacancy rate ended at 3.4 percent for 2019.
Demand for office space in Salt Lake County remained strong in 2019 as vacancy dropped 128 basis points, with construction reaching new records at 3.5 million square feet currently underway. The number of owner-user sales increased 100 percent and total transaction square feet increased 234.4 percent from 2018 to 2019. In the Tech Corridor, net absorption remained even with 2018 at a positive 1.8 million square feet for 2019 as well. Utah County saw a dramatic increase in net absorption and leasing, while Davis and Weber counties' overall combined vacancy dropped from 6.7 percent at year-end 2018 to 6.1 percent at year-end 2019.
Utah’s retail market along the Wasatch Front is evolving, according to the report. The shuttering of major players such as Sears, Shopko and Payless across the valley drove down net absorption and increased direct vacancy. By contrast, mixed-use redevelopment projects are flourishing. The market is proving its adaptability, resulting in stable lease rates of $17.60 per square foot and a 3.9 percent increase in the number of lease transactions.
The Utah investment market remained robust in 2019, posting an annual total dollar volume of $2.52 billion. The overall price-weighted cap rate ended 2019 at just under 6 percent, a decrease of 19 basis points from 2018. The office investment sector performed strongly in 2019, posting one of the highest annual dollar volume totals of all time. Industrial properties are still highly sought after but little product is available to purchase. The multifamily market experienced a precipitous drop in total dollar volume of 50.1 percent from 2018 to 2019.
On the retail investment side, interest in single-tenant triple-net leased assets and grocery-anchored centers remained solid.
Demand for multifamily land, both apartment and townhomes, remains high throughout Salt Lake County. Well-suited industrial sites are becoming scarce, pushing pricing up 7.8 percent from year-end 2018. Developers are watching how the office market reacts and absorbs the current construction before land banking any future office developments.{/mprestriction}
