Yearend 2016 was another solid year for Salt Lake County.
Overall vacancy in Salt Lake County has remained low for the last 10 years in comparison to surrounding Mountain West cities, with direct vacancy dropping to 3.93% at the close of 2016. Additionally, positive net absorption totals just over 2.1 million square feet (SF); in the last six years, the Salt Lake County industrial market has an average of 2 million SF positive net absorption each year. Approximately 1.2 million SF of industrial product was delivered in 2016 with another 2.1 million SF currently under construction and on track to finish in the next year to 18 months.
A significant amount of leasing activity occurred in 2016—with build-to-suit leases taking the forefront. In Salt Lake County, the most notable transaction is the Post Foods lease of 903,000 SF that kicked off construction for Landmark West Building B. Lease rates remained steady or experienced slight increases since 2013 on. The largest rate increase occurred in special purpose buildings which went from $0.39 PSF NNN monthly in 2015 to $0.54 PSF NNN monthly for 2016. The next largest rate jump was in manufacturing buildings which ended 2015 at $0.29 PSF NNN monthly and ended 2016 at $0.40 PSF NNN monthly.
The industrial market for Salt Lake County continues to be strong with positive absorption, rising lease rates across most subtypes, increased lease transaction dollar volume, and low vacancy. This paves the way for 2017 to be a successful year for tenants, landlords, and investors as they embrace the industrial strength of the Salt Lake market.
Office by David Kelly
The Salt Lake office market continued to excel throughout 2016 and shows signs of remaining strong through 2017. 2016 saw strong leasing activity, record positive absorption, numerous construction projects break ground, and vacancy lower again.
The number of leases signed dropped almost 17% in 2016; however, the overall total amount of SF leased was 15% higher than the average over the past 8 years (2.4 million leased SF average per year compared to a total of 2.8 million SF leased in 2016). Less leases were signed, but the leases completed were larger in size. Examples of such significant transactions in 2016 include E*Trade (84,619 SF), Pharmaceutical Research Associates (63,175 SF), and Inmoment (62,706 SF). 2015 had a tremendous amount of leases that were signed in new build to suits that did not hit absorption numbers until after the buildings came online—helping to create an incredible amount of over 1.8 million SF of positive absorption for 2016.
The suburban submarkets in Salt Lake County dominate the current under construction projects. With the delivery of 111 South Main Street in downtown Salt Lake City, all of the current construction activity in Salt Lake County is now focused in the south end with approximately just over 1.1 million SF underway. With Mountain America Credit Union’s headquarters relocation announcement to Sandy Center Plaza, the Southtowne submarket has 597,600 SF of Class A coming down the pipeline. Furthermore, the Draper Tech Corridor added 575,000 SF to its inventory SF in 2016, with another 321,500 SF completing in the near future.
Overall the Salt Lake office market is healthy, growing, and vibrant—set to flourish in 2017. New projects are anticipated, a multitude of companies are looking to expand into the Salt Lake market, and already existing companies are projected to see growth and expansion in the #1 ranked state for doing business.
Retail by Amelia Yates
The commercial retail market along the Wasatch Front had a great year: number of leases, lease rates, sales PSF, and investment transaction sales volume place 2016 at the top of recent past years in almost every county.
The number of retail leases, owner-user sales, and investment sales all increased in 2016 for Salt Lake County. Furthermore, the lease rates and sales PSF also increased. In contrast, the SF amount leased and sold decreased; more deals were done but were smaller in size. This is illustrated with 86% of the total retail transactions ranging in 0-4,999 SF and consisted of 46% of the total lease transaction volume. Overall lease transaction volume increased from $61.3 million in 2015 to $69.4 million in 2016--$8 million over the average volume the past seven years. The same trend is visible for owner-user sales price PSF ($174.47 in 2015 to $186.14 to 2016) and sales transaction dollar volume ($21.6 million to $30.2 million year over year).
Retail investment sales along the Wasatch Front surged by an incredible amount in 2016. Investment sales in 2015 brought in a very respectable $309.9 million in transaction dollar volume. This increased by nearly 50% in 2016 to $461.9 million, and also increased from 64 to 81 investment transaction year over year. Cap rates compressed in almost retail subtype with the sole exclusion being community center product. The highlight in investment sales were the sales of 3 very large enclosed malls—Newgate Mall (718,035 SF), The Gateway (623,972 SF), and Provo Towne Center (206,240 SF)—which had a combined total transaction dollar volume of $194.5 million.
The retail market in Utah is primed for grown and expansion for local and out of state companies alike. Companies and investors looking to enter a solid market at lower rates than surrounding larger metropolitan city in the West but still want to reach a new and ever increasing population will find a home to flourish in Utah.
Investment by Bryce Blanchard, MBA
Utah’s commercial real estate investment market remained strong through 2016 after a record breaking 2015. Buyers both based in Utah and outside of the state sustained their thirst for opportunity across all sectors with an all-time high in the number of transactions completed (231) in 2016. Overall dollar activity was the highest the market has seen in recent history: $1.79 billion for 2016. Nearly 16.3 million SF moved in 2016 with retail leading the way on the number of deals at 81, followed by industrial and multifamily, with 48 and 47 transactions respectively. Additionally, the Salt Lake market has become very attractive to new institutional and private regional syndicators looking to plant flags and grow their portfolios as it is now a legitimate secondary market.
Pricing held firm with cap rates averaging 6.86% across all property types—slightly down from 2015’s 7.23% average. Cap rate compression continued in office as it tightened to 7.26% with more Class A property transactions such as the sale of Cottonwood Corporate Center (490,030 SF). This was also true in multifamily with an average cap rate hitting at an all-time low of 5.92% with some very large deals trading hands—Farm Gate Apartments with 496 Units and Bridges at Citifront with 295 Units as examples. Lenders were active and aggressive in funding the debt side of the investment market. The once-feared 2016-2017 mountain of loan maturities fueled by the aggressive commercial mortgage-backed securities (CMBS) market of 2006-2007 was primarily handled in 2016 by low cap rates and healthy property-level fundamentals.
Land by Chris Terry
The 2016 Salt Lake County commercial land market had its best annual performance since 2008 in both acres sold and total transaction dollar volume. Transaction dollar volume came in at $123 million in land transactions over the past year, representing a 32% increase over 2015’s transaction dollar volume of $93 million.
Industrial land sales led the pack with 43% of the transaction dollar volume ($53.5 million) followed by multifamily/residential use at 19% ($23.1 million), retail at 13% ($15.5 million), and office at 4% ($5.2 million). Over the past year, industrial land increased its transaction dollar volume market share from 30% to 44%, and retail went from 7% to 13%. Multifamily/residential dollar volume declined from 34% in 2015 to 19% to 2016, and office declined from 25% to 4% year over year.
Overall, 2016 was a great year for the commercial land market in Salt Lake County. Although the land market took a breather in Q2 and Q3 2016 with only $63 million in sale volume up to that point, Q4 2016 almost matched the entire three previous quarters with $60.1 million, and brought 2016 home with the best year of the last eight.