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Commercial real estate report revisits 2009, forecasts for 2010

Fri, 01/22/2010 - 15:36

(Enterprise)

According to Commerce Real Estate Solutions, consumers’ retail spending patterns will continue to be conservative while investor interest should pick up for 2010.
 Retail Market Year-End 2009   
The most active parts of retail in 2009 were grocery and restaurants. New WinCo stores were built and Associated Food’s bought out a number of Albertsons’ supermarkets, while Smash Burger and Five Guys Burgers and Fries were new to the eatery market.
New construction of retail space is still well below normal, despite a four-fold increase from the first half of the year to the second. Nearly all of the new construction last year is attributed to the new WinCo stores in West Valley and Midvale.
The future of Cottonwood Mall redevelopment remains unknown, while the renovation of Trolley Square is finally moving forward and a mixed-use development scheduled for the Rice-Eccles Stadium parking lot area was canceled.
 Forecast for 2010
Commerce Real Estate Solution’s report suggests that consumers will shift away from the purchase of less durable items and toward products that improve home values and boost energy efficiency.
Small business lending should increase, giving smaller local and regional retailers a chance to expand while softening business closures during 2010.
 Office Market Year-End 2009
Salt Lake direct office vacancy climbed to 15.72 percent (up from 12.95 percent in 2008). Lease rates did not increase and office space absorption was positive.
New office space construction totaled 768,000 square feet compared to just over a million square feet in 2008. Most of this new space was in the suburbs.
 Forecast for 2010
Positive job growth should return by third quarter of 2010, but the office market will lag behind. However, only 315,000 new square feet of office space will open up in this year and more than 75 percent of that space has already been leased.
Landlords will make big concessions to lease space and keep current tenants, including free rent and rent relief in exchange for longer leases.
 Investment Market Year-End 2009
There was a decline in investment activity in 2009, yet 75 percent of investors were local, up from 50 percent from the previous year.
Investment in apartment properties held steady and the vacancy of the overall apartment sector is at only 7 percent. Landlords are offering tenant concessions, which was not the case in 2008.
Due to lenders willing to work only with investors with strong credit, there were an unusually high number of cash transactions.
 Forecast for 2010
Utah’s economy is further ahead of nearly every other state in the region, thus investor interest should pick up. However, cash sales or low-leverage transactions will continue until debt capital returns in greater quantity to the marketplace.
Investment in retail properties is still a challenge, but Commerce does expect to get more interest from out-of-state retailers. A recovery in investments is not expected until job growth becomes positive and credit becomes more available to businesses.
 Industrial Year-End 2009
A number of large national and regional tenants chose to sub-lease some space in 2009. The cost to lease industrial space dropped 10 percent; in 2008 it was up 23.42 percent. The leasing of industrial space declined 25 percent last year.
 Forecast for 2010
The complete halt of new industrial space construction will extend through 2010. Declining lease rates should stabilize. Tenants will continue to purse more short-term lease renewals.

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