SALT LAKE CITY—There is an overarching theme present in Utah's commercial real estate market—a strong local economy is continuing to generate demand. That's the perspective from CBRE, Utah, which says the state has strong fundamentals, and noted as an example, that during the second quarter of 2014 all market segments experienced a healthy increase in demand.

Office Market: Demand began to pick up in the Salt Lake office market during Q2 2014. Absorption, which is an indicator of market demand, totaled positive 304,718 square feet for Q2, a significant increase compared to Q1 2014 which totaled positive 90,080 square feet.

Though vacancy rates increased slightly to 13.1 percent, completed construction bringing vacant space to the market is the primary reason for this growth. Three Class A properties delivered during Q2 2014: 101 Tower—totaling 144,000 square feet—was completed downtown, and in the suburban market, Sandy Park Center 2—totaling 100,000 square feet—and Riverpark VII—totaling 72,000 square feet—were completed.

“Though overall lease rates slightly decreased during the second quarter, Class A rates continued to increase,” stated Tab Cornelison, SVP with CBRE. “Decreases in the average asking rate for suburban class C and downtown class B properties weighed down on the total asking rates, but submarkets with large concentrations of Class A space saw the highest rate increases. Class A space continues to lead the office market as tenants continue to upgrade their facilities.”

Industrial Market: Strong demand and consistent performance has turned Salt Lake into one of the region's prime hot-spots for industrial development. Of particular note is the large amount of big-box development taking place. During Q2 2014, 882,066 square feet of industrial construction was completed and another 892,822 broke ground.

Jeff Richards, First Vice President noted, “Of the square footage that broke ground, 89% was speculative big-box space.”

Investors have already closed on more than 1 million square feet of existing product. After a reportedly sluggish start to the year, the industrial market has gained momentum; both leasing and sales have picked up, with leasing activity in spaces ranging from 50,000-100,000 square feet increasing by 36 percent over the previous year.

Retail Market: Due to Utah's strong economy and population growth, retailers continue to expand in Salt Lake. There are several notable new stores entering the market, such as The Container Store, Madewell, GameWorks and DOPO.

 Developers in Utah have been active in an effort to keep up with demand for class A space; newly completed construction in 2014 has already surpassed annual 2013 levels, with over 343,000 square feet completed year to date. The southwest submarket saw the highest number of construction starts with 306,503 square feet. Some of the new construction can be attributed to businesses expanding their footprints within the state. For example, RCWilley opened its largest store during Q2—a 160,000-square-foot building located in Draper.

Though some retail segments have been losing momentum due to the emergence of e-commerce, retail categories such as restaurants, grocers, health facilities and salons are experiencing the most growth because they offer goods and services that cannot easily be obtained online.

Investment Market: Due in large part to the state's fiscal stability, business-friendly environment, and comparatively high investment yields, both private investors and institutional firms have sought commercial acquisitions in Utah. Within recent years there has been an influx of outside investors entering the Utah market, which has driven the per-square-foot prices and cap rates to record levels. One example of this is the recent sale of 222 South Main. This transaction set the record for the highest-priced office building sale in Utah at $400 per square foot.

Eric Gustafson, a vice president with a focus on investment sales added, “Though we don't expect average investment sales to reach the same prices as that of 222 Main, this deal is evidence of a maturing investment market. Although historically dominated by local investors, Utah continues to draw an incoming number of out-of-market investors seeking the economic stability and profitable yields that can be achieved in this market.”

For the complete second quarter 2014 reports detailing the office, industrial, retail and investment markets, visit CBRE.com/USA/Research.