Commercial Markets: What's on the Economic Horizon for 2018.

• Author: Farrell, Joseph
• Position: UB Voices by CBRE

Commercial real estate literally houses organizations of commerce. As a result, it is directly tied to economic indicators and can be thought of as an 'economy in a box.' As we reach the end of another calendar year, at CBRE we are often asked by clients and business leaders about what is on the economic horizon. To break it down into more digestible pieces, this article provides an overview of each major segment of the commercial real estate market, describing how that segment performed during 2017, while delivering a preview of what we expect to transpire in the coming year.

Industrial:

Utah's industrial market has seen record-breaking growth over the past several years, particularly from large users. This is chiefly due to the rise in bulk distribution and e-commerce operations, which require more space than traditional industrial users. This trend is expected to continue into 2018, aiding the market in expanding to areas where there has not been any past development. At the end of Q3 2017, Salt Lake's industrial vacancy rate was just 3.4%, and it is expected to remain low throughout 2018. Lease rates are also expected to remain steady or slightly increase due to higher construction costs and the limited number of development sites. Perhaps the most significant local catalyst for growth on the horizon is the emergence of the Northwest Quadrant, which is slated to substantially change the landscape of the local industrial market as the possibility of an Inland Port gains more traction.

Office:

Salt Lake's office market has experienced strong activity in 2017, though there are some signs of leveling off as the market cycle advances. Nearly 850,000 square feet of office space delivered in Salt Lake this year--entirely in the suburbs. This is expected to decrease to roughly 500,000 square feet in 2018; however, this does not include roughly 700,000 square feet of new construction that is expected in the neighboring Utah County market. While several large office projects are planned downtown, they have yet to reach the tenant commitments necessary to move forward, thus limiting activity downtown in the coming year. Within Salt Lake County, lease rates are expected to remain flat at about $23.80 and vacancy is projected to increase from 13.2% to 15.0% in 2018. This is primarily due to vacated Class B and C space as occupiers migrate to newer, Class A buildings in an effort to attract and retain talent.

Retail:

For the past several years, the...