The Salt Lake City office of commercial real estate firm CBRE has released its annual Salt Lake City Real Estate Market Outlook report. The company expects 2017 to be a continuation of a strong 2016 market. The publication highlights the performance of the local commercial real estate market during 2016 and provides insights into expectations for the year to come.
Mark Bouchard, senior managing director at CBRE said, “All service lines (in 2016) saw strong levels of user activity and absorption levels remained positive throughout the year. Though vacancy increased slightly in the office and retail sectors — mainly due to high levels of construction completions — the strong demand and elevated levels of development experienced in 2016 are expected to continue into the new year.”
Some of the key findings highlighted in the report include:
In 2016 office, retail, industrial and residential development continued at elevated levels:
• Closing out the year with nearly 3.7 million square feet of commercial space constructed, 2016 marked the third time post-recession that annual deliveries surpassed 3 million square feet.
• Strong job growth most directly supported the multifamily and office markets. In 2016 the local office market saw its highest level of completions in over 15 years, reaching a total of 1.2 million square fett of newly constructed office space.
Supply and Demand
Elevated construction levels in 2016 were matched by strong demand from both local businesses and out-of-state investors.
• In 2016, the flow of out-of-state dollars into Utah continued, driving up investment sale volumes and supporting demand for a variety of commercial real estate services.
• Looking forward, the pipeline of tenants entering or expanding in the market appears to be strong. However, the balance of such demand with new supply should be monitored closely.
As in all markets, commercial real estate in Salt Lake is tied to the broader economic environment, the report said. Therefore, there are a number of local and national factors that have the potential to impact commercial real estate performance during 2017:
• Utah unemployment rates reached a post-recession low of 3.1 percent in 2016. With a low supply of labor in the local market, in-migration is becoming increasingly important to sustain current levels of economic growth. Strong job growth is again projected in 2017, supporting continued commercial expansion.
• Issues with labor supply and increasing material costs have directly impacted the construction industry, leading to rising construction costs. This is expected to continue through 2017.
• 2017 should usher in a more active fiscal policy in the U.S., potentially resulting in a stimulative economic effect over the short- to mid-term. But strict stances on trade and immigration policy could have a long-term negative impact on commercial real estate.
“Favorable economic conditions during 2016 allowed the local market to continue its growth-run despite being more cyclically advanced. Looking ahead, the marketplace is even more complex, but key fundamentals remain in place for another year of healthy expansion and positive performance across Salt Lake’s commercial real estate market,” Bouchard said.