Nick Clark, Cushman & Wakefield | Commerce
The retail market in Utah continues to build steam and has expanded over the past 12 months. With these gains, tenants are in abundance and new construction is on the rise. Vacancy continued to improve through 2014, as the overall vacancy rate declined by 0.7 percentage points on a year-over-year basis to end at 6.2 percent. This represents the lowest vacancy rate of the past decade. With supply constrained and demand improving, average asking lease rates jumped by 9 percent on a year-over-year basis, to $18.98 per square foot. New construction continued across the valley, with 548,577 square feet of space added to the market.
The local housing market drives retail development in Utah. About 18,573 building permits have been issued throughout the state in the past two years, including multifamily projects. This construction pushed many retailers into expansion mode, looking to take up shop in locations that cut off the competition.
This is particularly true in one segment of the market that now stands supreme in the Utah retail ecosystem: grocery. Grocers have expanded at a breakneck rate.
Sprout’s Farmers Market opened new stores in Holladay and South Jordan. A Smith’s Marketplace opened its doors in West Jordan at The Highlands, along with three other locations and five additional stores planned. Four Walmart Neighborhood Markets were added, including one in Magna at Arbor Park, and another four are in the works. That will be nearly 20 new stores from just two grocers in about a year and a half.
In addition to newly completed projects, a number of other grocers are currently under construction or renovation, including a Trader Joe’s in Union Heights. The largest retail development is in southern Utah County in Spanish Fork. The Costco and Walmart Supercenter are finished, and a Cinemark movie theater, along with several other retail properties, are in the works this year.
An increase in vacancy is expected with new grocery-anchored centers coming online in the first quarter of 2015. Adding to that figure is the potential for some larger box vacancies as Sports Authority and several office category retailers continue to reposition. The shoe category is struggling, with Famous Footwear and Shoe Carnival closing some of their locations in Utah, but discount-oriented retailers like Ross, TJ Maxx and Bed Bath & Beyond are still the leaders in quality sales.
On the restaurant front, Utah has shown it has an increasingly sophisticated pallet. One-off restaurants like Francisco’s and Copper Kitchen have done very well. Consumers are seeking options other than traditional chain stores. Utah should see a few new retail tenants enter the market during the next year as activity is expected to remain high. With the food category seeing so much activity, Utah’s liquor laws will likely continue to gain attention as well, as broad discussions and new, out-of-state players with very different requirements look to enter the market.
The low vacancy rate and increasing rental rates will also continue to pull new and old developers into the market. Many of Utah’s projects have been traditionally handled by local developers like Woodbury Corp., Boyer Company and Gardner Development. Additional developers will be needed to fill the void when you consider the high pace wth which new companies are moving to Utah.
By Nick Clark, Retail Specialist, Cushman & Wakefield | Commerce. This story originally appeared in the March 2015 issue of Western Real Estate Business magazine.