Development Tilts Salt Lake Industrial to Historic Levels
For the sixth straight quarter, industrial leasing has topped one million square feet, amounting to the longest run on record for Salt Lake County. Lease activity has been facilitated by a sustained high level of development. During Q1 2018, industrial developers applied for 1.3 million square feet of speculative industrial permits. Phase one of the Salt Lake City Port Global Logistics Center was also announced; this is a major new project planned to be a 3,000-acre logistics park in the northwest quadrant of Salt Lake City. Phase one is currently slated to consist of ten buildings totaling approximately 7.5 million square feet.
“Salt Lake’s industrial market has experienced remarkable growth in the recent past and it shows no signs of slowing down,” commented Jeff Richards, senior vice president. “With the announcement of the Salt Lake City Port Global Logistics Center the local industrial market has potential to increase in size by 39 percent in the future. This is just one example of the extraordinary momentum occurring in Utah’s industrial segment right now.”
New construction delivered during the first quarter of 2018 totaled 500,000 square feet, with 4.4 million square feet currently under construction. 2.2 million square feet of this total is speculative construction which is scheduled to be delivered before year-end 2018, while the other half is made up of build-to-suit and owner-user developments.
Redevelopment Softens Shock Amid More Big-Box Retail Closures
More retail closures took place during Q1 2018, but the market has evolved in its ability to withstand market adjustments. Over 175,000 square feet of large retail blocks were newly vacated accounting for most of the jump in vacancy, which went from 6.7% to 7.3%. Though this has affected the local retail market, this shock was smaller and less abrupt than that of last year, where vacancy climbed 2.1 percentage points from Q2 2016 to Q2 2017. As irrelevant retail concepts phase out, efforts to adapt centers for modern consumers are taking shape. Landlords continue to modernize retail centers with a focus on convenience, value and experience, and some vacant blocks are up for complete redevelopment into multifamily-anchored centers. Most of the 83,371 square feet of construction completed by quarter-end was in redevelopment areas.
“More large closures are expected throughout the year, but the level of potential big-box closures is much more limited than it was just one year ago,” noted Russ Harris, first vice president. “When considering the large amount of completed construction and number of pending redevelopments, we expect net absorption to turn positive again before the end of the year, signaling a balanced retail market.”
Full Construction Pipeline Promises Increase in Office Activity
During the first quarter, demand-driven development surged in the suburbs and is already nearing 2017’s construction high. There are several 100,000-plus square foot tenants in the market searching for space and with only a handful of existing properties in the valley with large available spaces, new development is expected to continue throughout 2018 to meet this demand. Though expected to increase, overall activity in the market was slightly subdued during the first quarter, with net absorption decreasing year-over-year ending Q1 2018 at 191,832 square feet.
A couple of emerging trends were solidified in the office marketplace during Q1 2018: co-working and conversions. The rising trend of co-working space—shared workplace facilities that can be used by a variety of users seeking flexible lease terms and space requirements—has landlords looking to upgrade their space in order to attract tenants and meet the needs of the changing market. This is also related to the high level of conversions taking place, where investors are seeking existing, non-office buildings in which to build-out new, upgraded office space.
“According to the Utah Department of Workforce Services, Utah’s growth rate of 3.1 percent was the highest in the nation during March of 2018. Utah’s historic, strong economy has led to a steady demand for office space, and economic indicators are demonstrative of continued growth in Salt Lake County. Demand and construction for office space are both expected to continue at healthy levels throughout the duration of 2018,” commented Marty Plunkett, vice president.
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