Commercial real estate company Colliers Utah has published its third-quarter market report, an overview of three different product types in Salt Lake County and how they have fared during the third quarter of 2020.
The report findings by category are:
Office. After extremely slow activity by mid-year 2020, some tenants are starting to look for space again, but they are still hesitating. The full effects of the pandemic and the work-from-home orders are not fully known. Although market activity relaxed after a seven-year trend of massive office expansion, vacancy rates remained in the single digits, reaching 9.82 percent. Positive absorption rates for office space in Salt Lake County are nearly half of what they were at this same time last year.
Industrial. The Utah industrial market saw growth and has remained resilient throughout 2020. While all commercial real estate sectors have been impacted by the pandemic differently, the industrial sector showed no signs of slowing. New construction increased to a historic high of 7.1 million square feet, and importantly, over 60 percent of the current construction has already been leased. Overall, construction costs are still on the rise but should begin to level out in 2021.
Lease rates have increased to an overall weighted average of $.52 (NNN), up 1 cent from this same time last year. Recognizing these continued increases, some tenants are now looking to lease space for longer terms (seven to 10 years) rather than the historically more typical five-year term.
Retail. The Salt Lake County retail market experienced an anticipated increase in vacancy from 4.32 percent at this same time last year to a current rate of 6.61 percent. This increase was expected due to the growing concern of some retail tenants who would not recover from the mandated business closures earlier this year. Some retail tenants are taking advantage of these current conditions by strategically looking for opportunities with idealistic space attributes and prime locations throughout the market.
During the third quarter — and despite all the economic volatility — existing regional and national tenants continued to open their doors. Quick-service restaurants continued to have strong sales and some have even expanded their businesses across the Wasatch Front. As mentioned, the need for drive-through retail has never been as prominent as in 2020.