Mid-Year 2009 Market Review
DETAILS BY SALT LAKE REAL ESTATE SECTOR
Salt Lake County Office
Office market vacancy has continued in the upward trend established last year. Direct vacancy increased to 13.6 percent at mid-year 2009, a 20.5 percent jump from the comparable period 12 months ago. The pendulum is swinging towards a tenant-driven market.
Economic conditions in Utah will continue to outshine the national average. While Utah has not been immune to declines in the economy as a whole, the state is experiencing fewer problems than those seen in other markets. Vacancy will continue to rise though the remainder of 2009. Office vacancy will likely increase to over 15 percent by year’s end. New office construction will slow.
Salt Lake County Retail
Although retail activity in the Salt Lake area slowed considerably during the first six months of 2009, the market continues to outperform most national peers. Total market vacancy edged upward, due primarily to store closures undertaken by national retail chains. Vacancy increased from 8.31 to 8.50 percent over the past six months, as troubled retailers shuttered stores in Utah along with the rest of the country. Developers have judiciously reigned in new retail construction. Many cities have banked on new retail development as a ready means of additional revenue. The decline in construction, along with a sharp reduction in proceeds generated by retail sales taxes, is contributing to mandatory budget cutbacks and will likely lead to increased fees and taxes.
Discount retailers and those perceived to provide solid value will outshine other categories.
Widespread closures by national retail chains have begun to slow. The wave of nationwide closures by tenants such as Linens ‘N Things, Mervyn’s, Steve & Barry’s, Harold’s and Bally Fitness appears to be abating.
Salt Lake County Multi-family Dwellings
The apartment vacancy rate in Salt Lake County at mid-year 2009 was 7.2 percent, a significant increase over the 4.6 percent rate reported at mid-year 2008. The recession and job losses have made for a very difficult rental market. Managers report that job losses have been the principal cause of higher vacancy rates. Salt Lake County has 98,000 renter households. If 4,000 of these households lose their jobs—not unlikely given the level of job loss—and move back with family or friends, the vacancy rate rises by four percent.
Job losses are expected throughout the rest of 2009 and the local economy will not see much in the way of a recovery until well into 2010. In addition there are several new apartment projects planned in Salt Lake County which will add to the supply of rental units and competition.
Salt Lake County Industrial
The lease market for industrial properties has fallen dramatically this year. While a slowdown in industrial activity had been anticipated, the scale of the decline is much greater than expected. When it comes to sales of industrial properties, there have been improvements over the past six months, much better than in 2008 when sales were the worst in a decade. Construction of industrial properties has come to a near standstill.
Industrial vacancy will increase through the remainder of 2009. Corporate restructuring and scalebacks by national and regional tenants will impact Utah, as several large users have indicated their intent to shutter or greatly reduce the size of their operations in the state.
Salt Lake County Investment
The investment market has continued to decline. A decline in property values persisted during the first six months of 2009. The number of completed investment sales transactions is down by 48 percent, spanning all types of commercial properties. A corresponding decline in sales volume has been even more dramatic, with year-to-date sales representing a 60 percent drop from the same period in 2008. The dearth of financing opportunities continues to exert a stranglehold on investment activity. Banks and other lenders are taking extraordinary measures to forestall the day of reckoning; writing extensions, negotiating with tenants and extending contracts on a month-to-month basis.
Utah is better positioned than peer markets to weather the current economic storm. Continued turmoil among lenders is likely to spur further declines in commercial real estate investment activity in 2009.