Newmark Grubb Acres Releases Third Quarter Utah Market Reports
Salt Lake City — Newmark Grubb Acres (NGA) announces the release of its 2019 Utah Third Quarter Market Reports, including separate reports highlighting the industrial, office, retail, investment, and tech industries. Commercial real estate along the Wasatch Front remained strong through the third quarter and many market indicators point to a strong fourth-quarter finish for 2019.
Salt Lake County industrial product experienced a slowdown in leasing activity year-over-year, in large part due to a dearth of available product. With more industrial product being delivered via new construction recently, the direct vacancy has inched up over 3.0 percent for the first time in six quarters. Along with the new construction has come an uptick in leasing activity in the second and third quarters of 2019. The investor appetite for the industrial product remains strong, with some investors choosing to buy new vacant industrial buildings on pro forma–knowing that the demand will fill those spaces quickly. There was 5.3 million square feet of industrial product under construction at the end of the third quarter of 2019.
The Salt Lake County direct vacancy rate for office continues to drop, falling to 7.16 percent overall. Net absorption remains positive for the year and is trending to surpass 2018 by year-end. Average achieved lease rates experienced an uptick for Q1-Q3 2019 across all class types, and the number of owner-user sales remains high throughout the county. Strong employment, low vacancy and high demand all factor into these increased rates and sales throughout the county. Additionally, many developers and investors are placing capital into Opportunity Zones before the time frame ends at the end of the year.
Along the office Tech Corridor, net absorption for Q1-Q3 2019 is already more than 2017’s total and is expected to be at or close to 2018’s year-end total. Over 1.0 million square feet have delivered within the Tech Corridor so far in the first three quarters of 2019 with another 2.3 million under construction at the end of the third quarter 2019. Companies, both local and national, are moving to and expanding in the Tech Corridor, pushing vacancy to 4.29% with very few large blocks of space available for an immediate need. Many buildings within the region have started construction as speculative development but are quickly leased before delivery—leaving supply constricted. This has pushed lease rates up as demand and quality of product continues to rise.
The smaller square footage segments of retail continue to show brisk leasing activity with restaurants, coffee shops, specialty food shops, and convenience stores, among others, driving the activity. In the larger square footage retail segments, EoS Fitness, REI, Duluth Trading Co. and Planet Fitness have all signed leases this year. Retail leased square footage is down 16.4 percent along the Wasatch Front year-over-year with overall retail lease rates also on a slight downward trend; however, smaller lease transactions (up to 4,999 square feet) have seen a slight increase in average achieved lease rates from $24.43 NNN PSF to $25.04 NNN PSF. Single-tenant retail investment sales made up 62.0 percent of the overall retail investment transactions for Q1-Q3 2019.
Utah’s total investment dollar volume is down 5.5 percent year-over-year across all product types; however, office investments have increased by 35.9 percent for the same time frame. Office cap rates are offering investors a stronger cap rate yield relative to other product types and will continue to be an attractive option for investors, especially relative to gateway markets. Nuveen, a TIAA company, has made a sizable investment in the Utah market this year, acquiring six office buildings totaling 786,293 square feet–all within the Tech Corridor. All price-weighted average cap rates have compressed during Q1-Q3 2019. While transactions have been down slightly, 2019 still figures to be the second-highest transaction dollar volume year in Utah history, only being eclipsed by 2018.
“Overall, the commercial real estate market along the Wasatch Front remained vibrant through the third quarter of 2019 with direct vacancy remaining historically low, average lease rates increasing, institutional investors establishing or expanding their presence in Utah, and new construction continuing at a brisk pace to meet ever-present demand,” said NGA Managing Director Nick Wood.
About Newmark Knight Frank
Newmark Knight Frank (“NKF”), operated by Newmark Group, Inc. (“Newmark Group”) (NASDAQ: NMRK), is one of the world’s leading and most trusted commercial real estate advisory firms, offering a complete suite of services and products for both owners and occupiers. Together with London-based partner Knight Frank and independently-owned offices, NKF’s 18,000 professionals operate from approximately 480 offices on six continents. NKF’s investor/owner services and products include investment sales, agency leasing, property management, valuation and advisory, diligence, underwriting, government-sponsored enterprise lending, loan servicing, debt, and structured finance and loan sales. Occupier services and products include tenant representation, real estate management technology systems, workplace and occupancy strategy, global corporate services consulting, project management, lease administration, and facilities management. For further information, visit www.ngkf.com.
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