The first half of 2009 in Washington County could be classified as moving very slowly in relationship to positive growth.
The county is experiencing a trend of stagnation that began in the early part of 2008 in the residential sector of the county, and spread into commercial activity during the third quarter of 2008.
For a market that has been one of the fastest growing areas in the nation over the last several years, the reversal has left many individuals, families and businesses wondering what happened.
New construction, whether residential or commercial, is at present very difficult to finance.
The industrial market increased by 171,500 square feet during the first half of 2009.
The industrial vacancy rate has risen to 11 percent while the cap rate moved to 8.50 percent. Industrial lease rates and land values have both retreated slightly since mid-year 2008.
The new Atkinville Interchange at milepost 2 on I-15 has been completed and the Southern Parkway, that will provide an additional access road to the Fort Pierce Industrial Park, will be complete by the end of July 2009.
The office market in the first half of 2009 reacted expectedly to the local and national economic conditions.
Vacancies have risen, leading lease rates to decline, as the competition for the few tenants in the market has become very competitive.
New construction activity is at a near standstill for the first half of 2009, with 18,760 square feet of new space completed and 20,000 square feet under construction.
The market is very favorable for tenants looking to negotiate lower lease rates. Landlords with access to capital for improvements, and who are willing to make concessions, are having more leasing success than those who are attempting to compete on lease rates alone.
The St. George retail market is experiencing an acute slowdown in retail market growth that we anticipate continuing through the remainder of 2009. Very little new inventory was added in the first half of this year.
National tenants continue to pursue market expansion, but in many cases, they have extended their timeline for opening in the market.
Asking lease rates have softened and as a result, there has been some absorption of vacancy in anchored centers.
New construction vacancy remains high, especially as most of the new centers are un-anchored centers. Several developments have been delayed included the new Harmon’s in Santa Clara and Red Rock Commons.
The new Walmart Supercenter in Hurricane along State Road 9 opened on schedule in March. St. George remains a viable retail market, fueled by continued population growth.
On another upbeat note, Washington County has been fortunate to have several large roadway projects and the new airport that were already through the planning and funding stages before the economic slowdown.
These projects are scheduled to be completed by the first quarter of 2011, and have had a substantial impact on providing a large number of construction jobs to the area.
- Office market vacancy has continued in the upward trend established last year.
- Absorption continues to fall far short of historical norms.
- New construction is contributing to the increase in office market vacancy.
- Plans for speculative office construction have come to a standstill.
- The increasing supply of sublease space is impacting overall market conditions.
- Although asking rental rates remain relatively flat, the pendulum is swinging towards a tenant-driven market.
- Cautious tenants continue to extend the time it takes to complete transactions.
Economic conditions in Utah will continue to outshine the national average. While Utah has not been immune to declines in the economy as a whole, the state is experiencing fewer problems than those seen in other markets.
Corporations continue to consider Utah as a positive site for expansion, attracted by an enviable workforce, quality lifestyle and transportation and infrastructure.
Vacancy will continue to rise through the remainder of 2009.
Office vacancy will likely increase to over 15 percent by year’s end, or more than 17 percent if sublease space is taken into consideration.
The completion of the 222 South Main office tower during the fourth quarter of that year will alone add 1.5 points to the vacancy factor.
New office construction will slow. New development will not proceed without the fulfillment of very significant pre-lease requirements.
Only 500,000 square feet of new office space is predicted to be built and occupied in 2010, approximately half the annual average reported over the past decade.
Landlords will become increasingly competitive in order to attract and retain tenants.
Effective lease rates will continue to decrease and owners will be more amenable to concessions such as free rent, generous tenant finish allowances and turnkey operations.
Tenants will be able to access attractive opportunities not seen in the marketplace in recent years. Those who commit to remain in their current space may be able to lock in very favorable terms.
Travis Parry, SIOR, CCIMTravis@linxcre.com
Partner – LINX Commercial Real Estate