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2018 UTAH REPORTOFFICE
Utah's strong economic performance in 2018 is expected to secure its place as one of the top-performing economies in the nation well into 2019. Utah's excellent business climate and low cost of living have created a place where companies thrive. However, the need for a talented workforce combined with the demand for affordable housing are key factors that need to be addressed in order to ensure continued economic growth over the next few years.
SALT LAKE COUNTY
Asking rates for office space in Salt Lake County Office are expected to rise as an increased amount of supply reaches completion. Tenants will continue to absorb record amounts of Class A office product ideally located along the 1-15 corridor to better capture employees from all counties along the Wasatch Front. The Salt Lake County office market grew by an additional 589,521 square feet in 2018, primarily in the south submarket. Just in Salt Lake County alone there are roughly 1,194,665 square feet of space under construction scheduled to be completed by mid-2019.
Net positive absorption rates in Salt Lake County have more than doubled in 2018--from 447,884 square feet at the beginning of the year to 1,433,399 square feet currently. Additionally, 68 percent of all buildings in Salt Lake County were pre-leased prior to reaching completion. Many larger companies chose to locate in the southern portion of the county, such as Mountain America Credit Union, who absorbed over 320,000 square feet of space at their recently completed location in Sandy. Or Pluralsight, who leased over 348,000 square feet in Draper. Ivanti also leased 160,000 square feet of office space in South Jordan and Dealer-track leased over 112,000 square feet of office space at 136 Center in Draper.
Vacancy in Salt Lake County decreased slightly during the year, down from 9.81 percent at the close of 2017 to 9.04 percent at the end of 2018. Subleasing space was less 'of a major trend in 2018 as in the previous year because many tenants chose to fill in the space they had set aside to absorb. The Salt Lake County average asking rate across all classes of space was $24.48 PSF/year full service. Available Class A office space decreased from $29.52 at the end of 2017 to $26.48 at the end of 2018. However, this decrease is not reflective of the market as a whole since rates fell anywhere between $27 and $31 PSF/year full service. Instead, the decrease in asking lease rates was a result of the majority of Class A space in the market being fully leased and leaving only lower-end Class A space on the market. The overall Class B average asking lease rate was $22.21, while the Class C average asking lease rate increase.
The Utah County office market experienced an uneven performance across the region's submarkets. At 833,876 square feet of positive net absorption, the northern quadrant posted the lion's share of the market's 798,926-square-foot total. Asking rates increased by three percent during the year, ending 2018 at $21.47 PSF/year full service as an additional supply of newer office space became available in 2018. While office activity in Utah County remained strong throughout the year, the pace increased by year-end 2018, building on more than four years of unprecedented growth. Office tenants expanding their footprints in Utah include: WeWork, iServe, and Rainfocus pre-leased space in the Innovation Pointe building, which broke ground on 141,000 square feet of office space in 2018. Young Living broke ground on a 263,000-squarefoot project and Thanksgiving Station broke ground on two new buildings, reaching a total of 300,000 square feet.
Several high-profile speculative developments announced in 2018 made headlines throughout the year, with 1,834,453 square feet of office space under construction in Utah County at the close of the year--over 639,788 square feet more than Salt Lake County. 2019 will be a year of adjustment as Utah County folds this new construction into its office inventory and future developments reach completion in the year 2020.
DAVIS AND WEBER COUNTIES
Davis and Weber Counties are working together to bolster the northern Utah economy and position themselves as contenders in the competition to lure new business to the region. These unified efforts have already created strong economic growth in the Davis/Weber market.
While office deliveries decreased over the last two years, the Davis/Weber office market grew by an additional 280,250 square feet in 2018, primarily in Davis County. With no future office developments currently under construction, Davis and Weber anticipate some construction announcements by mid-2019.
An increasing demand for quality Class A office space in Davis and Weber Counties has led to an increase of $1.49 in overall asking rates, reaching $19.98 PSF/year full service at the end of 2018. Hill Air Force Base, the area's largest employer, has managed to attract several companies to the area with its defense and aerospace industries. Competitive lease rates in Davis/Weber point to an up-and-coming office boom as affordable and available space in Salt Lake and Utah County becomes harder to find.
HISTORICAL VACANCY RATES DAVIS/WEBER SALT LAKE UTAH COUNTY COUNTY COUNTY 2015 10.81% 8.60% 4.30% 2016 10.92% 9.81% 7.40% 2017 8.98% 9.81% 14.20% 2018 10.82% 9.04% 9.29% Note: table made from bar graph. ABSORPTION RATES DAVIS/WEBER 132K SALT LAKE 1.4M UTAH 833K LEASE RATES DAVIS/WEBER COUNTY SALT LAKE COUNTY UTAH COUNTY 2015 $17.98 $22.40 2016 $18.32 $23.45 $21.34 2017 $18.49 $23.66 $18.54 2018 $19.98 $24.48 $21.74 SOURCES: Costar, CCIM, Fisher Center for Real Estate & Urban Economics, Oxford Economics, PNC Financial Services Group, Real Capital Analytics, The Conference Board Economic Forecast for the US Economy CONSTRUCTION CURRENT SF UNDER CONSTRUCTION CURRENT SF COMPLETED DAVIS/WEBER 280K SALT LAKE 1.19M 589K UTAH 1.83M 743K 2018 UTAH REPORT RETAIL
SALT LAKE COUNTY
Salt Lake County continues to be a serious attraction for major retailers relocating to Utah. Retail asking rates increased by over 12 percent throughout the year, ending 2018 at $19.43 PSF/year NNN. The increases are primarily the result of new Class A retail space in ideal locations becoming available. Several retail tenants paid higher-than-average asking rates for the highest quality new retail space in the Draper, Riverton, Sugarhouse, South Jordan, Sandy, and downtown Salt Lake areas.
Various mid-sized to big-box tenants have announced intentions to expand and locate in Utah. For example, CenterCal Properties has announced that Harmons, TJ Maxx, HomeGoods, Kirkland's, Old Navy, Michaels, and PetSmart will be opening new stores...