Speculative Industrial Construction Reaches Highest Point in the Current Cycle
2.4 million square feet of new industrial construction completed during Q2 2018, 63 percent of which was speculative (spec.) space, meaning that construction began before any tenants had committed to lease space within the developments. Three new big-box spec. projects also commenced construction during the quarter, bringing active spec. construction to 2.7 million square feet and marking the highest level yet in the current cycle. This is significant, as it is a reflection of the confidence that investors and businesses have in the local economy and highlights recent demand levels.
Together with build-to-suit and owner-user construction, industrial growth is formidable.
“Industrial construction and leasing has been phenomenal during this cycle. At mid-year there was 4.2 million square feet under construction, which is a substantial total for our market. This is even more impressive when considering that 2.9 million square feet of new product has already delivered year-to-date. This total for the first half of the year surpasses the annual delivery totals for four of the last seven years,” remarked Tom Dischmann, senior vice president.
Building off a robust first quarter, a surge in leasing activity during Q2 2018 pushed Salt Lake’s industrial market to one of its best first-halves in the current cycle—second only to 2017. Totaling 2.8 million square feet of leased space by mid-year, this robust activity was headlined by a 336,000-square-foot lease by Packaging Corporation of America, an international paper and packaging company.
Retail Market Achieves Best Single Quarter for Market Growth in Over Five Years
New construction and strong leasing reignited Salt Lake County’s retail market in Q2 2018, reversing a slow start to the year and spurring the best single quarter for market growth in over five years. Mountain View Village was the largest contributor to this growth, which added nearly 285,000 square feet of new retail product to the Southwest and was 73-percent leased at the time of delivery. Though this was a boost to the market, there are no additional major projects which are expected to break ground this year.
“Though construction has tapered off for the year, there is still a large amount of product available in the market—particularly when considering vacant big-box space. Though big-box vacancy decreased 11 percent quarter-over-quarter, there’s still 1.38 million square feet of big-box available in Salt Lake County. This offers great potential for redevelopment or repurposing of space to fit the needs of various retailers—or other business models as well,” commented JR Moore, first vice president.
Strong Leasing and Tenant Activity Drives Down Office Vacancy
Office leasing downtown has been robust; over the last year, downtown vacancy has decreased 70 basis points to 14.1 percent in Q2 2018. This is due to both steady lease activity and a lack of downtown development. Though these are signs of a healthy market, this dynamic has affected users seeking large blocks of space. Very few contiguous blocks of space 50,000 square feet or larger remain available downtown. While there is no new development currently underway, there are several planned projects which could break ground if they obtain tenant commitments. These proposed new developments would add an estimated 1.0 million square feet of new office space to the downtown market.
“Though demand for high-end product was robust both downtown and in the suburbs, suburban Class A space championed quarter activity, accounting for 78 percent of total net absorption. In addition, demand for high-end users is steadily increasing in Salt Lake’s office market, fueled by our strong local economy and current workforce preferences,” noted Nadia Letey, vice president. “Class A properties rich in amenities and providing access to transit have been the most sought-after space for some time, and this is a trend we expect to persist as density in Salt Lake City continues to increase.”
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