Office Market Delivers Most Space in More Than a Decade
The confidence of both office developers and users continues to solidify; for the first time since 2007, construction levels surpassed 1 million square feet, as Salt Lake County delivered 1.2 million square feet of new office space during 2016. This construction total is the highest the Salt Lake market has achieved since the 1990s and the momentum will continue during 2017; at year-end, 1.7 million square feet remained under construction. Metro-wide average asking rates also performed well, reaching an all-time market high during 2016 and ending the year at $23.02 per square foot, full-service gross (FSG). This surpasses the previous high of $22.01 FSG reached in 2015 and provides further evidence of the strength of Salt Lake’s office market.
“Supply and demand have been keeping pace with one another, ensuring that the office market is not overbuilding,” commented Marty Plunkett, vice president. “Looking forward, construction levels will remain elevated, average asking rental rates should increase market-wide, and despite the delivery of new space we expect net absorption and vacancy levels to remain healthy. Going into 2017 Salt Lake’s office market should continue to expand, just at a more moderate pace.”
Industrial Leasing Activity Reaches 10-Year High Amid Large Volume of
Industrial & Logistics
Four major big-box leases ranging between 97,000 square feet and 902,00 square feet were signed during Q4 2016, pushing industrial lease activity to a 10-year high of 5.7 million square feet. Even with these transactions, deals over 100,000 square feet only accounted for 35 percent of the total square feet leased during 2016, illustrating a diversified industrial market. During the past two years, over 3.5 million square feet of speculative (spec) industrial space was brought to market, nearly 20 percent of which broke ground during Q4 2016; a signal that key market players are still confident in Salt Lake’s industrial performance. Overall, the market delivered 781,349 square feet of space and broke ground on nearly 1.7 million square feet during Q4 2016.
“Even with the high levels of construction taking place, net absorption—the amount of space that is leased compared to the amount of space that comes available—has held steady. In the fourth quarter alone, just over 1.4 million square feet was absorbed resulting in a decrease in market-wide vacancy and availability to 3.5 percent and 5.8 percent, respectively,” stated Tom Dischmann, senior vice president. “These numbers reflect a tight market with steady demand, which is why developers continue to analyze the Salt Lake City industrial market and determine that additional speculative construction is justified.”
Retail Confidence Drives Market Expansion and Record-High Rates
At just over 757,000 square feet, new retail lease activity reached one of its highest yearly totals in recent history, second only to 2014. In fact, lease rates increased 8.1 percent year-over-year to a market-average high of $18.35 per square foot, triple net. Much of this rent growth can be attributed to the significant demand for (and increased development costs of) new, high-image space, where some rates reached as high as the low-$40s.
“Positive economic and demographic growth continues to foster consumer and developer confidence; particularly in the Southwest and Central West neighborhoods,” remarked JR Moore, first vice president. “Geographically, 62 percent of retail completions that took place during 2016 were in the Southwest submarket. This directly ties to the increase in lease rates, as increased construction costs and demand for high-image spaces affected the overall market.”