SALT LAKE CITY — The strength of the local economy has helped buoy the area’s commercial real estate market to historic levels, according to a new report.
Data from commercial real estate firm CBRE indicated that a decade-high volume of industrial construction activity climbed even higher during the third quarter of 2017. The three-month period saw 5.3 million square feet of industrial space under construction in addition to 1.4 million square feet that had already been completed this year.
Along with record-high construction, the Salt Lake metro area’s industrial market boasted notable milestones in the third quarter by reaching four straight quarters with over 1 million square feet leased and achieving 16 consecutive quarters of positive net absorption.
Net absorption is defined as the net change in the supply of commercial space in a given real estate market over a specified time period. Net absorption is calculated by subtracting commercial space vacated by tenants and made available on the open market from total space leased.
This level of activity was driven by robust, broad-based demand primarily by large users, explained CBRE senior vice president Jeff Richards.
“Industrial is the hottest property type in the west right now, and Salt Lake is a prime example of this,” he said. “Salt Lake recorded 1.5 million square feet of new leases during the third quarter, experienced positive net absorption of over 400,000 square feet and still construction levels continue to surge.”
He added that while some analysts may question whether the market is being overbuilt, the increased construction levels are “justified” considering a low vacancy rate of 3.4 percent and the current level of consumer demand.
Of the 5.3 million square feet currently under construction, nearly 60 percent is already pre-leased, signaling a well-balanced market, he said.
In the retail market, following three straight quarters of negative net absorption and rising vacancy rates, the local area experienced a reversal during the period finishing with positive net absorption and a marketwide drop in vacancy, explained CBRE first vice president J.R. Moore.
He attributed the change to the successful repurposing of old retail centers and a wave of recent development activity.
“Efforts to reinvent retail centers with a more diversified and relevant tenant mix have never been higher,” Moore stated. “The market continues to see an influx of capital going toward reinventing traditional retail sites to experience- and entertainment-focused destinations.”
Additionally, a number of older, poorly located centers with high vacancies are experiencing thorough renovations or complete demolitions to make way for mixed-use office or multifamily developments, he said.
“The traditional retail model continues to evolve and retail real estate is undergoing its own transformation as a result,” Moore said.
New developments ignited major activity during the period as initial phases broke ground at Mountain View Village in Riverton and Anthem Commercial in Herriman, he noted.Comment on this story
In the suburban office market, new development activity prompted a surge of absorption outside of downtown following three straight quarters of low net absorption levels, the report stated.
The far south end of Salt Lake County currently has the highest construction volume in the valley, explained CBRE senior vice president Eric Smith. However, he noted that a new project broke ground in Sugar House — a two-building, 320,000-square-foot office development that is going up at the site of the former Shopko retail store.
“Overall, indicators are demonstrative of a healthy market and the economic drivers of office demand are secure,” he said.