INDUSTRIAL: INDUSTRIAL MARKET CONTINUES TORRID PACE AGAINST PANDEMIC BACKDROP.

• Author: Roberts, Kyle

AMID A PANDEMIC, civil unrest, a tumultuous election cycle, and earthquakes, the Salt Lake County industrial market continued to beat previous benchmarks in many categories on the way to a banner 2020. Due to strong occupier demand, construction activity continues to be a central talking point, and that held true in 2020 with 8.5 million square feet under construction at year's end and 5.6 million square feet delivering to the market-both historic highs. Even with the historic high in construction square feet delivering in 2020-much of it speculative development-the direct vacancy rate remained unchanged at 3.7% from 2019. The demand for industrial space was so strong that records were broken for both leasing activity in terms of square feet as well as net absorption. In the case of leasing activity, the previous record was bested by an incredible 46.8%. Additionally, achieved average first-year lease rates remain strong, albeit down slightly from 2019, and owner-user sale prices per square foot grew precipitously In 2020 thanks to strong demand and lack of available product. Industrial real estate proved to be one of the safer harbors for investors in 2020 and industrial investment transaction dollar volume was at the highest level ever despite an Incredibly slow April due to investor uncertainty. The high demand for industrial product pushed investment sale prices per square foot higher and compressed cap rates, with Class A product now trading in the 4.0%-territory. Land prices continued to climb steadily higher with the average price per square foot at $8.49 for 2020.

CONSTRUCTION

Based on the amount of square feet under construction at yearend 2019, it was expected that 2020 would be the new high watermark for delivered square feet in a year, and that did indeed come to fruition. Some of the notable build-to-suit and owner-user developments included a second Amazon fulfillment center in Salt Lake County for Amazon at 1.3 million square feet, the new Bullfrog Spas building in Herriman (264,524 square feet), and a BioFire facility in Salt Lake City (230,329 square feet). On the speculative development side, SLC Global Logistics Buildings 2 and 3, a joint venture of Colmena Group, Stokes Stevenson, and Wadsworth Development Group, contributed 800,000 square feet to the market. Amazon leased the entire 585,912-square-foot SLC Global Logistics Building 3 shortly before construction completed and is now using the space as a sort center. Additionally, Lake Park Commerce Center 1 and 4, a Hamilton Partners development, delivered 559,508 square feet to the market with much of the space available. Hines' 201 Mountain View Park delivered 727,933 square feet of available space in early January 2021. Between both 201 Mountain View Park and Lake Park Commerce Center, among other projects, the market is getting some much needed relief for the demand for new, Class A, large blocks of space in bulk and medium distribution buildings. However, with current robust leasing activity at the "lease negotiation stage", and/or with leases signed and build out underway, we anticipate less than half of the inventory in the projects referenced above will remain available by the end of first-quarter 2021.

With the record amount of 8.5 million square feet currently under construction, 2021 will certainly be one of the top years for delivered construction. Some of the notable projects either currently under construction or permitted and slated to begin soon include SLC Global Logistics Center Building...