Summer Symposium: The Industrial Market
Fri, 08/21/2009 - 15:29
The Finch Building in Orem is a nearly 92,000-square-foot industrial building listed by CBRE. In Utah County, available industrial space is up significantly from a year ago to approximately 2.4 million square feet, according to CBRE. Photo courtesy CBRE.
Editor’s note: This article is the second in a five part series highlighting the five markets discussed at the 2009 Summer Symposium: Mid-Year Real Estate Economic Update. Watch for the next three articles on the retail market, the multi-family housing market and the single-family residential market or read our previous article on the office market.
Jim Berry, vice president of industrial properties for CB Richard Ellis of Salt Lake City, summarized Utah's industrial market at the 2009 Summer Symposium: "Activity is down — a lot. Construction down. Basically nonexistent. Vacancy up — just a little. Availability — up, a lot. Achieved industrial rates: the average is down, but it is not terrible. Asking rates? Doesn’t seem to matter. Sales prices: down on most prices, but that doesn’t seem to matter either. Lending, down a lot.”
The Salt Lake City industrial market, with nearly 112 million square feet of space, remained slow as demand in sales and leasing softened, according to CBRE reports. Available industrial space is up significantly from a year ago to 9.97 million square feet, with the majority of available space in warehouse and distribution properties.
Total market availability stands at 8.9 percent compared to 6.08 percent a year ago. Highest availability is in the Sandy, Draper and west Murray submarkets, although they comprise less than 7 percent of the total market share, according to CBRE. The downtown, California Avenue and airport submarkets, which make up 54 percent of the market, had an average availability rate of 9.59 percent, while the two submarkets with the lowest availability were South Valley and West Valley with 5.52 percent and 6.45 percent, respectively.
Comparing leasing activity from last year, total square footage leased is down 51 percent from 2,083,122 square feet in the second quarter of 2008 to 1,014,890 square feet leased in the second quarter of 2009, CBRE reports state. Lease rates for warehouse and distribution properties are 34 cents per square feet compared to 37 cents per square feet a year ago.
For properties more than 100,000 square feet, asking rates dropped 27 percent from 37 cents per square feet to 27 cents per square feet, according to CBRE. The actual achieved lease rate dropped from 35 cents per square feet in the second quarter of 2008 to 29 cents per square feet in the second quarter of 2009.
The near-term forecast anticipates increased availability which will put downward pressure on lease rates. Overall sales and leasing activity will remain below 2008 levels.
In Utah County, available industrial space is up significantly from a year ago to 2,365,998 square feet at the end of the second quarter of 2009, according to CBRE. Industrial space in Utah County is distributed evenly among the Northern, Central and Southern submarkets, with the highest availability being in the Central submarket with 12.86 percent. The South submarket, which has 37 percent of the market share, had the lowest percentage of availability at 5.14 percent.
Overall, the market had 8.54 percent, compared to 6.91 percent a year ago, in available space with 2.3 million square feet available in a total market of 27.7 million square feet, according to CBRE. The expectation is that more industrial space will become available, particularly sublease space, putting continued pressure on landlords to lower actual lease rates and offer increased incentives.
Leasing activity is down 64 percent from 187,494 square feet in the second quarter of 2008 to 67,396 square feet leased in the second quarter of 2009. Achieved lease rates dropped from 63 cents per square feet in the second quarter of 2008 to 49 cents per square feet in the second quarter of 2009, CBRE reports state. No investor sales occurred in the second quarter of 2009 compared to 92,259 square feet in the second quarter of 2008. The downward trend is expected to continue in the second half of 2009.
“We are still in a great place to do business, and when it turns around let’s hope it just comes out like a race horse,” Berry said.
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