December 20, 2012

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2013 Outlook Positive for Commercial Real Estate

Press Release

December 20, 2012

Overall, Utah’s commercial real estate market had a positive 2012. Throughout the year markets statewide fluctuated with the economy and presented significant opportunities for owners, investors and users of commercial real estate. The positive momentum experienced throughout 2012 has made commercial property owners and brokers excited and optimistic for 2013.

A prevailing sentiment throughout the market is that owners and users of property feel more secure and less hesitant to make real estate moves. Continued low interest rates have made new construction or purchases more feasible for owners and investors, while lease rates remain reasonable for tenants.
Some of the common trends throughout the industry are:

  • Utah’s economy is strong and has created an ideal environment for buyers, sellers, and tenants in all areas.
  • Class A space has experienced the strongest demand increase in all areas.
  • All segments of commercial real estate will see continued growth through 2013.

Office Market Outlook
Looking forward to 2013, office real estate users, owners, and agents are excited and optimistic. “We are seeing activity in areas that have been slow for the last four or five years, such as Davis and Weber Counties,” said Chris Falk, vice president – Northern Region for NAI WEST Commercial Real Estate. “South Davis County will have nearly 220,000 square feet of new office space come online in 2013. Seventy percent of which will be spec space.” Commercial real estate agents in the area are eager to see large users of space (20,000 square feet or more) enter the area.

All of this new development should impact vacancy rates, which have not changed significantly over the last year. According to Falk, office condos will be an area that will experience growth in 2013, “The significant amount of available space coming on line, combined with record low SBA loan rates, should help the office condo market flourish this year.”

Falk stated that the biggest potential hurdle for the office market would be a negative perception of the general economic and business environment. Tentative business owners putting strategic moves on hold could prolong and slow the ongoing recovery. “Waiting could be more negative than anything at this point. With low interest rates and other economic incentives, this is the ideal time to make real estate acquisitions,” said Falk.

Retail Market Outlook
The retail real estate market has had a very positive 2012. Vacancy rates dropped this year, and landlords have been able to experience a little relief as lease rates have increased slightly. The trend is that the local and national economies continue to progressively improve.

According to Andy Moffitt, retail specialist with Mountain West Retail/Investment, 2013 should be incrementally better than 2012. “This has been one of the best years ever for retail brokers. Much of this has come due to low CAP rates and low interest rates on financing. We expect to see this continue into 2013. We don’t expect it to be a blowout year, but we are looking forward to continued improvement.”

Areas of growth in the coming year are expected to be in the fast casual restaurant market, as these continue to increase in popularity and chains seek to open more locations. Mid-box retailers are also seeking to reposition into higher quality properties. Additionally, investment opportunities are plentiful as sales prices and interest rates remain low.

However, Moffitt also explained that big-box retailers may be looking to reduce store sizes over the coming year. Opportunities to shrink by 5,000 square feet can lead to significant savings for retailers. Additionally, there are no significant construction projects on the horizon. “With the completion of City Creek, Station Park in Farmington was the other marquee construction project in 2012,” said Moffitt. “Grocers and shopping center owners have nothing planned for the coming months.”

Local industrial data indicates modest upward projections of lease rates, number of leases and total square feet leased. The market is seeing less and less one-year lease renewals and more 3-5 year deals; a sign that many tenants are finally in a position to step up and take advantage of the diminishing low-lease rate opportunities. The decrease in square feet sold and number of sales should begin to flatten out while average sale prices of class A and B product will continue to increase.

Investment and Multi-Family Market Outlook
Investment and multi-family indicators show a very positive outlook for 2013. In 2012, investment property sales increased well beyond expectations as demand for class A assets fueled the acquisition of numerous properties, especially retail and apartment properties. Both owners and sellers will have significant opportunities as vacancy levels decrease and lease rates remain low.

Commercial real estate professionals maintain that the investment market will continue to see growth as market fundamentals improve. “There seems to be less insecurity in the market,” said Rick Davidson, NAI WEST executive real estate agent. “Institutional investors have realized that class A real estate is the best hedge against the uncertainty of these political and economic times.”

Overall, Utah continues to have one of the healthiest commercial real estate markets in the country. 2012 proved to be a very positive year and 2013 looks to continue that trend. Across all market segments, outlooks remain positive and agents and owners alike are optimistic for the next twelve months.

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