When it comes to commercial real estate, Park City offers many options along Main Street, Canyons Village, and Kimball and Quinn’s Junction. Here are some commercial real estate industry trends to watch out for this year.
FACTORS AFFECTING COMMERCIAL REAL ESTATE
Several factors affect commercial real estate, not just in Utah but in the entire United States. These include:
- Inflation – The annual inflation rate was 4.9% in April 2023, slightly lower than the initial projection of 5% and the lowest annual increase since April 2021. The consumer price index (CPI) increased 0.4% the previous month and is driven by rising shelter, vehicle, and gas prices. Though the CPI has cooled since peaking at around 9% in June 2022 and is in line with Wall Street expectations, inflation is still above the 2% annual target.
Shelter costs increased by 0.4% on the month, up 8.1% from a year ago. Shelter costs make up a third of the CPI reading and is indicative that a key inflation driver is on the rise. According to a CJEC study, families in Utah are spending $511 more per month than they did compared to the same time period last year.
- Interest rates – The Fed approved a quarter-of-a-percentage-point interest rate increase in May 2023, the 10th increase in a row since March 2022, raising the benchmark policy rate to the 5.25% range.
- Geopolitical issues – Sanctions on Russia and the conflict in Ukraine have implications for the global economy, affecting supply chain issues and driving up shelter, food, and energy prices.
The combination of these factors may contribute to a mild to moderate recession that will likely impact all asset classes in the months to come.
EFFECTS ON COMMERCIAL REAL ESTATE
Prices and lease growth
Inflation has had an impact on the average lease rate growth in Park City commercial real estate. The price per square foot for office, retail, and industrial properties has steadily increased over the past three years, according to Mountain West Commercial Real Estate researchers.
The cost per square foot for industrial properties in the Mountain West Region increased from $8.13 to $9.21, up 13.28% from Q1 2020 to Q4 2021. For retail properties, the price per square foot has increased by 5.58% from Q1 2020 to Q4 2021 while the price per square foot for office spaces increased by 2.15% over the same period.
The growth of e-commerce over the last few years has driven the demand for warehouses, distribution properties, and industrial space. There have also been substantial investments in logistics, drones, and last-mile distribution complexes. Industrial real estate is also known to have longer leases, which presents opportunities for investors.
There has been a resurgence in neighborhood shopping centers and commercial strip centers due to a scarcity of available commercial space throughout Utah combined with increased lease rates and the rising costs of construction. There is also an opportunity for investors to redevelop these spaces for mixed-use and experiential retail purposes. Ultimately, the forecast for any given retail property has to do with its location.
Explore commercial real estate in Park City & Navigate commercial real estate industry trends with Team Schlopy today. Call us (435) 640-5660