Third quarter 2016 is setting up the year to have yet another strong finish for the commercial real estate market in Utah.
From Q3 2015 to Q3 2016, lease rates keep climbing, net absorption is positive, and vacancy continues to decrease for all divisions (office, industrial, and retail) in an already tight market. Vacancy for office and industrial product combined is closing in on 5.13% for the entire Salt Lake County commercial market. Coupling this vacancy with the large amount of product delivered during Q3 2016 indicates the high demand for space is still outpacing the supply pipeline, creating a ripe environment for developers to bring new projects into Utah. The industrial market saw an increase of 363,823 SF for Q3, with a staggering 3 million SF now under construction. Q3 delivered 746,872 SF of office product, with just under 1.4 million SF currently underway.
The retail market had an explosion of owner-user and investment sales year to date. With another quarter still to go, the number of owner-user sale transactions has already outpaced all of 2015 by 13% and transaction dollar volume is even year over year, leaving Q4 open for enormous potential. Furthermore, the number of retail investment sales increased 24% year over year, and transaction volume during Q1-Q3 2016 is up 77% compared to Q1-Q3 2015; the retail market is prime for both owner-user and investment sales in the Salt Lake market.
In the investment market, there are some interesting developments to point out. Cap rates for multifamily, office, and industrial all compressed downward, and the number of deals has decreased. Retail, however, is increasing in cap rate and number of deals closing. Despite the number of investment deals slightly decreasing from 51 in Q3 2015 to 48 in Q3 2016, the transaction volume is significantly higher: $329.8 million in Q3 2015 compared to $553.5 million for Q3 2016. This illustrates that many of the deals completed were of high quality product that led to a higher transaction volume. Examples