WESTERN SNAPSHOT, NOVEMBER 2007

Salt Lake City Industrial Market

Utah’s industrial market is on new footing. Demand continues to exceed supply with values and rates on the rise. Available land is under increasing pressure, and migration patterns are being reinforced. The valley is filling up. With new belt routes and light rail lines under construction, forward-thinking users and investors are staking out positions.

The Salt Lake County vacancy rate currently stands at 4.9 percent. This trend is a continuation of a 4-year trajectory down from 11 percent in June 2004. The change in the available inventory represents a 33 percent decline during the last 12 months. Most of the decline can be attributed to the larger end of the market. Available properties exceeding 50,000 square feet dropped by 40 percent in the past year, and currently there is just 5 million square feet of available space, 82 percent of which is for lease.

Five million square feet seems like a large number for vacancy, however, that translates into a 10.5-month supply. Salt Lake City’s gross market activity, as measured by absorption, has averaged 5.9 million square feet a year during the past 3 years. When incremental supply is analyzed by looking at absorption by size increment, one finds that there is essentially a half-year supply for increments less than 50,000 square feet, a 9-month supply for 50,000 to 100,000-square-foot increments and a 21-month supply for increments exceeding 100,000 square feet.

Lease rates are rising across all size increments in Salt Lake City’s industrial market. However, don’t be fooled by looking backwards because actual lease rates on completed transactions lag the market. The current average asking rate for all size increments indicates a 12 percent rise from a year ago, with the largest increases around 20 percent for product between 10,000 to 50,000 square feet. Increasing lease rates and the tight supply of property for sale are creating some friction in the market. Deal velocity has declined as companies assess their options and evaluate new construction.

Ultimately, there is increasing pressure on Salt Lake’s land market. Values are on the rise and sites are becoming more challenging to locate. New land-use plans on the west side of the valley will have a dramatic impact on what can be delivered.

Salt Lake County’s vacancy rate is expected to continue its decline for the next 12 to 18 months as demand will continue to outstrip supply. It is projected that Utah needs 2.5 million square feet of new industrial product added to the industrial base annually to keep pace with in-migration. That annual requirement translates into the development of 170 acres of land each year. With an industrial base that now exceeds 105 million square feet, the valley has seemingly achieved a critical mass and is well positioned to benefit from national demographic trends. The end result is that Utah represents outstanding value with solid, long-term upside.

Jim Sheldon is an executive real estate agent and the Industrial Department Chair at NAI Utah Commercial Real Estate in Salt Lake City.

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