SALT LAKE CITY—Class-A office and industrial space is king in the Salt Lake City market, where overall commercial real estate fundamentals are strong, reports CBRE. The sectors in this market all exhibited stable performance during Q1 and are expected to gain momentum going forward, and the demand for high-quality space is high.
In the office sector, as companies work to recruit and retain Millennials, demand for newer class-A space has increased. Millennials make up slightly more than one-third of the workforce here, so retaining this talent is of high importance for office tenants, according to CBRE.
Kreg Peterson, a first VP at CBRE who focuses on the office market, tells GlobeSt.com, “Millennials represent the fastest growing employment demographic, and decision-makers are beginning to recognize the impact this has on their business. Workplace strategies that focus on minimizing expenses and maximizing efficiency include key factors that did not exist 10 years ago. The Millennial workforce seeks employment opportunities where workspaces are collaborative and amenities are diverse. Although cost containment remains a focus, occupiers are placing emphasis on recruitment when making decisions about the location and design of office space.”
Tab Cornelison, SVP with CBRE, adds that “when executed properly, companies are able to reduce the space dedicated to each employee by 30% or more, resulting in a balance of saving space and money, while incorporating new collaborative amenities which will attract a younger workforce.”
New construction in the Salt Lake City market has tried to meet the demand for quality space. At the end of Q1, 573,587 square feet of new office space was under construction in the region, and as this space is delivered asking rates should rise and may potentially influence vacancy rates, particularly at the submarket level, CBRE reports.
On the industrial side, local fundamentals continue to outperform national averages, CBRE says. All but two submarkets experienced positive net absorption during Q1 2014, and availability decreased 20 bps from Q4 2013 to 7.7%, well below the national average. As in the office sector, class-A space is also in high demand in the industrial sector, due to the desire for greater clear heights driven by e-commerce and distribution.
However, supply of high-quality industrial space has been limited because speculative construction has been low, and those spec buildings that are in the pipeline have been sold to owner-users or leased to a single tenant early in the development phase. On the other hand, a rapid absorption of industrial land that has been observed over the last year means a volume of spec product is planned for the near future.
Sales of industrial buildings were also strong during the first quarter, with total sales up more than 225% year over year—a pace that, if maintained, could make 2014 the top year for industrial sales volume here in more than five years. As GlobeSt.com reported earlier this month, Newmark Grubb ACRES completed the sale of Pacific Landing III, a 345,686-square-foot industrial distribution building at 4475 W. 700 S., built on speculation in 2012. The $15 million transaction marks Salt Lake City’s largest industrial property sale to date in 2014.
“Overall, the industrial market is being driven by the demand for new space,” says Tom Dischmann, SVP of CBRE. “There is more than 650,000 square feet of speculative space under construction—most notably Meridian Commerce Center, a 230,000-square-foot building that just broke ground in the California Ave. submarket. In addition, there is more than 500,000 square feet of spec space scheduled to break ground before year end. 2014 is shaping up to be an active year for the industrial market.”