After a year of staying home, it’s no surprise that commercial real estate markets have felt the impact. This year’s outlook, however, depends on the type of real estate and the location.
That’s according to the National Association of Realtors (NAR), which hosted a Commercial Real Estate Forecast Summit on Wednesday and named Salt Lake City as one of the top 10 markets for commercial real estate this year.
The 10 markets selected have stronger economic and commercial conditions when compared with national averages and indicators. The trade group selected the top markets based on economic, demographic, housing and commercial market conditions in the multifamily, office, industrial, retail and hotel property sectors.
“The top commercial real estate markets that are expected to outperform the rest of the nation are generally affordable and able to draw new residents with a greater flexibility to work from home,” said Lawrence Yun, chief economist of the National Association of Realtors. “These growing markets also offer much lower office and retail rents and are, therefore, able to attract new and expanding businesses.”
The report says Salt Lake made the list because it has the lowest decline in nonfarm employment, which is down only a half percent. At 3.6%, it also had the lowest unemployment rate among the 52 markets studied, and job growth is stronger than the national pace.
“Commercial transactions are likely to pick up in the second half of 2021 and in 2022 as more people get vaccinated and more businesses open,” said the Commercial Real Estate Metro Market Report for Salt Lake City. “Higher fiscal spending and monetary accommodation will boost growth nationally and in the area.”
Here’s a look at what the report and economists say about each of the commercial sectors.
There is a strong demand for Salt Lake rental housing, and the market is experiencing faster rent growth than nationally. On average, households spend 31% of weekly wages on the typical apartment rent of $1,257.
“However, rent is still relatively cheaper than areas like San Jose ($2,129), San Francisco ($1,997) or Los Angeles ($1,840), so Salt Lake City has the potential to attract more movers, increasing the demand for housing,” the report said.
Salt Lake’s rental vacancy rate stands at 5.5% versus 6.5% nationally, according to the report.
“A recovering economy and the near certain job growth will steadily lead to the absorption of commercial properties,” said Yun, referring to the national market. “The apartment rentals market could once again experience very low vacancy rates by year’s end.”
Among the top 10 markets, Salt Lake had the fourth-lowest industrial vacancy rate at 4.8%, and industrial space occupancy has increased in the past year.
“Multifamily and industrial remain the commercial market’s bright spots,” said Gary Cororaton, NAR’s senior economist and director of housing and commercial research, at the Forecast Summit. “With wide differences in commercial and apartment rents across metro areas, development will turn to less expensive markets that are closer to the gateway cities.”
Salt Lake’s cost to rent office space is lower compared to other tech markets. For example, office asking rent is $25 per square foot in Salt Lake versus $50 per square foot in San Francisco.
Nationally, economists expect work-from-home habits will impact demand.
“Office vacancy rates will remain elevated, even with full office-job recovery by the middle of 2022, due to some shifting toward a nationwide work-from-home culture,” Cororaton said.
While many markets lost jobs in retail trade employment, Salt Lake actually had an 8.6% increase. That’s compared to a 2.2% decline for the U.S.
The report also notes Salt Lake has stronger consumer spending than the country as a whole.
Salt Lake City has a smaller share of leisure and hospitality jobs compared to the U.S. The report notes leisure and hospitality jobs have shrunk both in Salt Lake and in the U.S.
To learn more about commercial real estate, contact a Realtor specializing in commercial. Search for one at UtahRealtors.com.