Salt Lake City’s retail market will post modest occupancy growth through year’s end, though performance will vary considerably by location, as weak housing conditions weigh heavily on parts of the metro. For example, many shopping centers in the Midvale/Sandy/Southeast, Southwest and Weber and Davis counties submarkets, which were home to significant residential and retail construction during the housing boom, will post vacancy in the mid-teens this year.
While weakness will persist until the housing market enters a formidable recovery, outer suburbs may offer strong long-term growth opportunities, particularly in the south, as the final leg of Trax extends from Sandy to Draper. In the near term, however, close-in submarkets will outperform. In the South Central area, which experienced limited construction ahead of the recession, vacancy will hover around 5.5 percent. Within the submarket, discount stores, such as Savers, Goodwill and Dollar Tree, along with fitness centers, have started to backfill vacant spaces, taking advantage of discounted rents.
Investors will seek healthy returns in Salt Lake City, though limited for-sale inventory will hamper velocity. Private buyers, mostly from Utah or the Western region, will favor performing strip centers and smaller single-tenant deals, such as fast food and drugstore assets, along with distressed shopping centers priced below $100 per square foot. REITs, on the other hand, will focus on large single-tenant assets with national credit tenants and at least a decade remaining on the lease term, in addition to well-located, anchored shopping centers. Within the metro, high-quality multi-tenant assets with a top grocery anchor tend to trade in the low 8 percent range, a 100-plus-basis-point advantage over many West Coast markets.
Key Metrics for 2012
· Construction Forecast: Developers will complete 675,000 square feet in 2012, up from 161,100 square feet last year
· Vacancy Forecast: Metrowide vacancy will decline 20 basis points by year’s end to 9.9 percent, following a 10-basis-point improvement last year
· Rent Forecast: Asking and effective rents will rise 0.2 percent to $15.72 per square foot and $12.96 per square foot by the end of the year, respectively
Investment Forecast: City Creek opened in March, which will have a major impact on the Salt Lake City CBD. City Creek is anchored by Macy’s and Nordstrom. Other major tenants include Michael Kors, Pandora and Tiffany
— Richard Bird, regional manager, Marcus & Millichap’s Salt Lake City office