Utah has broken the $2 billion barrier for investment sales of commercial real estate for the first time, according to a report released by Cushman & Wakefield Commerce. The company released its 2016 year-end market review, which shows an exceptional year across the board for commercial real estate in Utah.
“Strong economic growth, solid cap rates and low unemployment all point to reasons why this is the third record-breaking year in a row for commercial real estate investment sales and why the Utah commercial real estate market is in a very healthy position going into 2017,” said Trigger Reital, managing director and market leader of the Cushman & Wakefield Commerce Salt Lake City office. “Utah is consistently recognized as a national leader for its pro-business environment and stability, including CNBC’s Top State for Business in 2016. This year’s record-high sales volumes are a prime example as they are indicative of the strength of the economy and the local Utah market overall.”
The following are summaries from the C&W Utah Marketbeat fourth quarter 2016 report:
Utah Investment Market
Utah’s investment market had its most impressive year on record in 2016. The total volume of investment sales breached $2 billion for the first time in state history, which also extended the streak to three consecutive years of new sales records. Average transaction size jumped 19 percent year-over-year, led by sizable office and apartment transactions. Utah reached nearly 9.8 million square feet (SF) of space transacted, the highest total since 2006 and the average price per square foot of commercial sales rose to $122.99, the second highest on record.
Utah Office Markets
Salt Lake City’s office market finished the year with considerable momentum. Asking rates continued to climb and have risen 4.3 percent market-wide compared to Q4 2015. Roughly 1.2 million SF of construction were completed during 2016, marking the first time since 2008 that the market surpassed 1 million SF. Despite significant projects moving from under-development to occupancy, the pipeline for under-construction projects has actually grown 13 percent year-over-year to 1.8 million SF. The trend of new spec development continuously replacing completed spec buildings demonstrates a strong and stable demand within the market.
Utah County’s office market continues to experience significant construction activity with more than 1.3 million SF of deliveries during 2016. Much of this development occurred in northern Utah County, which reported more than 680,000 SF of absorption.
Weber County’s office market lease rates remained relatively flat and vacancy rates dropped slightly. Class A space continues to be in high demand with a vacancy rate of just 10.8 percent.
Davis County has seen more than 300,000 SF of new Class A office space added to the market in the past two years. The growth throughout the county overcame any concerns regarding whether the space would be absorbed. Vacancy rates in Class A space dropped from 19.1 percent to 12.9 percent in 12 months. The market will see lease rates on the rise as quality space tightens.
Washington County’s office market showed solid improvement in the second half of the 2016. Vacancy dropped to 6.7 percent, which is the lowest office vacancy rate in the past nine years. This made average asking lease rates bump to 99 cents per square foot, which represents a 5 percent increase from last year. There is an additional 57,000 SF in the planning phase expected to go vertical in 2017.
In Summit County, Park City’s office market remained tight despite a slight uptick in vacancy to end the year at 4.5 percent.
Utah Industrial Markets
Salt Lake’s industrial market is experiencing significant growth and transformation. More than 5.8 million SF of industrial leasing activity occurred during 2016, which marked the highest total achieved since the recovery began. Construction has been strong with 1.7 million SF delivered in 2016. Strong leasing and construction activity combined to produce nearly 2.6 million SF of positive absorption, a 29 percent jump over 2015’s total. The Northwest Quadrant continues to be the hot spot with 77 percent (roughly 2 million SF) of all absorption activity during 2016 as well as 85 percent of construction completions and 88 percent of under-construction projects.
Vacancy remained tight throughout Utah County’s industrial market, driving lease rates up. More than 500,000 SF of new space is currently under construction to help satisfy demand.
The Davis County industrial market is as strong as ever with vacancy rates at just 3 percent. As such, several new projects are under construction and scheduled to be completed in 2017. New space is needed to help accommodate growth and will likely be absorbed quickly.
The Weber County industrial market continues to thrive with very little existing product available to lease or purchase. Vacancy stands at 4.9 percent. One new building was completed in 2016 and three new buildings are currently under construction, filling a need for additional industrial space.
In Washington County, the industrial sector dropped to a historic low vacancy of 1.0 percent. Lease rates are approaching 2006-2007 levels, ranging between 45 cents and 75 cents per square foot (triple net). High construction costs are limiting new construction.
In Summit County, industrial vacancy increased substantially from 4.5 percent at the end of Q4 in 2015 to 17.5 percent in 2016. This was primarily due to the closure of Ramp Sports.
Utah Retail Markets
Salt Lake’s strong retail market saw its vacancy drop 40 basis points year-over-year, ending the year at 5.4 percent. Meanwhile, the average asking rate continued to climb, reaching $20.86 per square foot (triple net) and more than 400,000 SF of new construction reached completion during 2016, helping to drive absorption above 200,000 SF.
Utah County retail remains strong. University Place in Orem is in the midst of more than $500 million of improvements while Dick’s Sporting Goods added a location in American Fork. Additionally, Lehi remained the center of growth, adding a new Harmons grocery as well as surrounding retail pads.
The retail market in Davis County is at 9.8 percent and is seeing several major developments under construction in Farmington, Kaysville and Layton, which will open new growth opportunities for retailers seeking space in Davis County.
The Weber County retail market picked up with increased activity in big-box spaces. Vacancy rates have declined to end the year at 10.4 percent while lease rates have remained fairly steady.
The Washington County retail market saw a strong year in 2016. Vacancy is down to 2.9 percent from 5.0 percent at year-end 2015. Numerous restaurants, financial institutions and neighborhood service companies are negotiating for space around new retail centers and the county can expect to see a long list of new retailers come to town in 2017.
In Summit County, retail vacancy dropped 7 percentage points year-over-year to 3.6 percent. Kimball Junction gained further momentum in 2016 with multiple leases signed at Newpark Retail Center and Redstone is nearing full occupancy.
Cushman & Wakefield Commerce operates Cushman & Wakefield offices in Nevada, Utah and Washington, as part of the Cushman & Wakefield global platform. The firm has nearly 300 employees, 9 million SF of property under management and a transaction value of more than $2.8 billion.
