Construction, Demand Grow in SLC'S Industrial Base

Momentum in the industrial market has remained strong for the past three years. This momentum should continue through 2014. Total market activity for 2013 generally remained on par with a record-setting year from 2012, but the makeup of that activity changed significantly. On a square footage basis, leasing activity decreased by 25.6 percent, while user-sale activity increased by 117.3 percent. Much of the increase in user-sale activity can be attributed to Boeing’s acquisition of the 850,000-square-foot Kraftmade building.

Strong activity in the market led to more than 2.5 million square feet of positive absorption, representing the highest level of annual absorption since 2007 and exceeding the absorption of the past four years combined. This high level of positive absorption pushed overall vacancy rates down by 1.6 percentage points to end the year at 7.4 percent. As vacancy rates have declined, achieved rental rates have increased by 8.1 percent. The greatest increase was seen in spaces with more than f 100,000 square feet where rental rates increased by 14.7 percent. This category accounted for more than 40 percent of total market activity.

The expansion of e-commerce continues to leave its mark on the development and functionality of buildings. E-commerce accounted for 6.2 percent of sales in 2012, according to the Department of Commerce. This represents an increase of 16 percent over the prior year. Although 2013 numbers are not yet available, similar growth is expected for 2013. As e-commerce continues to grow well in excess of brick-and-mortar store sales, the landscape for distribution facilities will continue to change in response to these direct, non-store consumer sales. New requirements are necessary for these facilities to be more efficient at handling this type of distribution, and developers should account for this when they are considering the design of these buildings.

Construction remained in line with the 10-year average, with more than 1.9 million square feet of new space added to the market. While construction has not yet returned to peak levels, the current construction is tracking closely to absorption, evidence that developers are rolling out product primarily based on need rather than on spec. Freeport West’s 505,007-square-foot Landmark #6 building was leased to Sportsman’s Warehouse, while the 484,500-square-foot #7 building was leased to Sun Products. The 415,872-square-foot Westport Distribution #3 represents the largest building constructed on a speculative basis.

The Utah economy continues to thrive and is regularly rated as one of the top states in the country for business. As a result of this pro-business environment and well-educated workforce, growth is expected to continue for the foreseeable future. New construction for 2014 will exceed the 10-year average, and will eventually expand into more speculative projects. Even with the new supply, demand is expected to outpace this expansion.

By Travis Healey, Industrial Specialist, Cushman & Wakefield | Commerce. This article originally appeared in the March 2014 issue of Western Real Estate Business magazine.

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