CBRE Report: Q4 Portends More Growth Here

SALT LAKE CITY, UT—The fourth quarter of 2014 brought increased construction and demand across all market segments and this momentum in the commercial real estate market is expected to continue into 2015, according to CBRE's MarketView Research Reports.

Industrial Market

At the close of 2014, speculative construction in Salt Lake's industrial market reached its highest level in over six years. Over the course of the year, approximately 3.1 million square feet of industrial space broke ground, 95 percent of which was speculative, or roughly 3 million square feet. The majority of these new projects consist of high-clear (ceiling heights greater than 32 feet), class-A warehousing and distribution spaces located in the northwest quadrant of Salt Lake County. This follows the recent trend of the need for larger warehousing space with access to multiple modes of transportation to accommodate the growth of e-commerce.

“This new, available supply has opened up what had previously been a tight market. Though a temporary jump in availability has resulted from this construction, demand for space continues to remain high and leasing activity is expected to remain strong through 2015,” noted Tom Dischmann, senior vice president.

Office Market 

One interesting story that began to clearly take shape during the 4th quarter of 2014 is the resurgence of downtown Salt Lake City's office market, as indicated by the high levels of net absorption for the year. (Absorption measures the net change between the amount of space leased versus the amount of space vacated, thus an indicator of market demand.) In 2014, the Salt Lake office market experienced 1,113,319 square feet of net absorption, making it the best year since 2007, and marking a 26% increase over year-end 2013 levels. In Q4 2014, 43% of Salt Lake's net absorption occurred in the downtown market. The same area was responsible for 40% of market net absorption in all of 2014, indicating improved demand for downtown office space.

“This elevated interest in downtown locations—especially from the state's expanding tech sector—gives reason to believe that downtown's resurgent office market will be able to maintain its momentum as we transition into 2015,” stated Marty Plunkett, vice president.

It is important to note that all key indicators in the office market improved, ending the year on a solid note. In addition to the strong net absorption, vacancy declined to 10.5% and average asking rates increased, ending the year at $20.40 per square foot, full service gross.

Retail Market

Strong demand for retail space in the Salt Lake market has continued, particularly in the southwest part of the valley where the majority of new construction is currently taking place. Growth is illustrated by continued development of food service-related tenants, particularly quick serve and fast food businesses. This includes both original concepts and new tenants to the Utah market, as well as the expansion of successful existing food retailers. Demand is also exemplified by heavy competition among grocers, particularly Smiths, Sprouts and Wal-Mart, as each looks to obtain the available infill space that remains in the market.

“2014 was a huge year for both leasing and sales activity in the retail market,” stated JR Moore, vice president. “Leasing activity experienced year-over-year growth of 65 percent, and due to a couple of large transactions (involving power centers and an enclosed regional mall), sales activity increased more than 415 % over the previous year. This is a significant indicator of the strength of the retail market, which is expected to continue to perform well in 2015.”