As I wrote in the 2015 midyear market report, the Utah commercial real estate investment market is full of positive momentum. There are unprecedented trends in the investment market in 2015, including substantially increased sales dollar volume, a record number of transactions, and expanded and increased capital sources looking to invest and loan in Utah. The activity seen in 2014 showed the growing and continued confidence investors have in the Utah market, and 2015 has solidified investor sentiment that Utah is the place to invest. Demand far outweighing supply, availability of favorable financing, and a solid economy have created a perfect storm to achieve record pricing and volume in 2015.
Here are some trends in the market:
1. There are more buyers than sellers. It is common to receive multiple offers on quality assets. There is a dramatic increase in 1031 exchange buyers, syndicators, and high net worth groups and individuals looking to increase their allocations into commercial real estate. Commercial real estate has stood out as a hedge against inflation and a solid investment class globally—bringing a wider variety of funds, wealthy investors, foreign money, and additional combinations to the buyer pool.
2. There is a lack of available investment product. Many sellers are reluctant to sell even at record pricing if they do not have an alternative for their equity. The vast majority of owners do not want to sell and pay the taxes, limiting the supply. Coupled with increased demand and a wider buyer spectrum, this continues to drive prices higher.
3. Capital is flowing. One major trend over the last four years is accessing capital is easier for investors and borrowers. Lenders are more willing to lend and are becoming competitive on deals to get their money to work. While the majority of investors are looking for safe long-term investments, the lack of product is pushing investors towards Class B and C assets or even smaller markets. The liquidity of all asset classes has vastly improved due to increased capital.
4. The investment market is hitting new pricing levels that have never been seen before. Record sales volume and number of transactions mark the first half of 2015. Sales dollar volume is up 118% over the midyear 2012, and is up 12% from the highest midyear total seen in 2013. Total number of transactions is up from 93 for midyear 2014 to 111 for midyear 2015.
5. Deals that fell apart in 2005-2008 that did not hit the required financial thresholds are now coming back on market and closing. This may indicate a spike in volume and transactions that will not be repeated in coming years.
6. There is a tailwind pushing deals over the finish line. Over the past few years many deals fell apart over lender requirements, buyers and sellers not agreeing to price reductions for capital improvements, etc. In 2015, deals are closing and rolling over terms and conditions that would have otherwise killed the deal in previous years. There is pressure to invest quickly that is heavily driven by 1031 exchange buyers and increased equity allocation requirements.
Simply put, the market has been—and is currently—spiking. Utah’s investment market is a unique market where it is truly a good time to sell, but also a good time to buy and hold long term. Now is the time to evaluate portfolios, look into trading asset classes to achieve higher cash flows or trade into newer properties if the intent is to hold long term and improve the effective age of assets. For real estate brokers, this market is primed for making decisions and moving quickly as liquidity of assets is at an all-time high.