Commercial real estate in Salt Lake market improving in 2014

SALT LAKE CITY — Commercial real estate made a bit of a comeback in 2013, and if trends continue, this year should be even better, analysts said.

A report released Thursday by the Salt Lake office of CBRE, a commercial real estate firm based in California, indicated that 2013 was a good year overall for the Salt Lake market.

The improvement occurred across a wide geographic area along the Wasatch Front, with most market segments experiencing positive absorption for the year — meaning more space was leased than vacated.

Vacancy was also down marketwide, and the average lease rate increased, said Eric Smith, CBRE first vice president.

The vacancy rate fell during the last three months of the year, ending 2013 at 13.1 percent. The decline in vacancy could be attributed to solid demand and limited amounts of new supply entering the market, Smith said.

Looking forward, marketwide vacancy is expected to continue decreasing in 2014, he said.

One trend that gained momentum throughout the year was that of workplace strategies, Smith noted.“These strategies focus on overall office environment promoting creativity, collaboration and efficient usage of space,” he explained. “The millennial workforce is growing, and as this segment grows, so does the demand for more flexible space.

"In an effort to cater to this up-and-coming group, office users are looking for real estate that is near public transportation, offers amenities and presents the opportunity to develop an adaptable workspace.”

The report noted that the average lease rate for the Salt Lake market increased slightly to $20.09 per square foot during the fourth quarter, up from $20.07 at the end of the previous quarter. The marketwide average lease rate is up 2 percent over last year.

Another positive sign, Smith noted, was that there is currently more square footage under construction this year than at this time a year ago.

“The market will continue to grow," he said, "and tenants will continue looking for expansion opportunities. However, tenants are looking at ways they can be more efficient in their occupancy of space and maximize the value of their office space.”

In the industrial sector, 2013 marked a year of steady growth and strong fundamentals in the Salt Lake market, the report stated. Both availability and vacancy decreased, and despite a slowdown in second-half activity, overall demand remained strong.

Since 2009, the industrial base has grown more than 7 million square feet. Even with the growth, availability rates decreased, dropping 2 percentage points since the fourth quarter of 2012 to 7.9 percent in the fourth quarter of last year.

The average lease rate surpassed pre-recession levels, ending the year at 41 cents per square foot, an increase of 4 cents per square foot. As availability continues to decrease and demand remains high, industrial lease rates are expected to continue to rise throughout 2014, explained Rad Dye, CBRE senior vice president.

Though traditionally dominated by a handful of developers, a surge of developers new to the Salt Lake industrial market has increased competitive activity, and industrial land is being quickly absorbed, Dye said.

“This activity indicates that new development can be expected in the immediate future,” he said. "Salt Lake County is an attractive location for all types of industrial operations, (offering) low energy, land and labor costs. These factors, coupled with our strong economy, are attracting a great deal of new users to the market.”

The report showed that of the 1.4 million square feet of construction completed in 2013, 70 percent was pre-leased. Analysts said it's a further indication of high levels of demand within the market. Currently, there is 1.1 million square feet under construction.