Industrial real estate in Utah is booming! Find our one-minute market update below with Michael Jeppesen, Jeremy Jensen, Candace Keller, and Skyler Smith
Since sanctions from the United Nations on Russia were set, the average price of Diesel in the United States has risen from an average of $3.97 a month ago to $5.10 which is a dramatic 22% monthly rise and a 39% rise over the past year. This, in turn, affects not only the individual but also logistics companies.
Logistics for small and large companies were already facing quite the challenge with the lasting impacts that the pandemic had. As companies looked to move forward from the pandemic, war with Russia will again test companies’ ability to pivot and make an adjustment based on what is most cost-effective. One potential means will come from options that do not burn as much fuel such as rail usage and updating systems to maximize energy efficiency such as renovating old HVAC, building idle-free trucking stations, and switching to electric dock equipment.
While transitioning to energy and cost-saving measures, it can be expected that we will see inflated costs for consumers continuing especially as the US is not the only country experiencing this rise in energy. The European Union was getting 25% of their oil from Russia and is now seeing fuel prices rising over 50% which is significant as half of the costs incurred for logistics are from transportation and shipping.
Whether it is being domestically shipped via roadways, put in a container and sent to the US on a container vessel, or flown in via cargo ships, the prices of fuel and goods are on the rise worldwide and trending upwards for the near future.
The results of an IPG square foot per person (SF/person) industrial study found significant growth in Salt Lake County to 118 SF/person even as flex and retail space shrinks.
Salt Lake County is set to see a 6% increase of industrial SF/person this year with a record 10 million SF set to be delivered. From 2012 to 2017, industrial SF/person remained steady until, in 2018, a 1.9% rise broke the trend. For the next 3 years, the growth per person rose by an average of 2% but the market has remained underwhelmed so far as vacancies lowered to 2% within that time period. Utah's industrial supply as a whole also saw gains over the past years but the rapid growth of the state has kept the average statewide SF/person increases surprisingly conservative even with 2021's significant construction deliveries in Salt Lake County.
There is evidence of multiple reasons that Salt Lake County has been growing so quickly; increased centralization for shipping to Utah consumers, the change from retail to online fulfillment, companies switching from just-in-time to just-in-case shipping strategies, re-shoring of manufacturing from overseas, and increases in inland port shipping through Utah facilities to exterior states. These contributing factors could all be responsible for increased industrial SF per person.
The western states are stepping up to the plate to create a new energy option for residents and companies driving throughout the west. State governors in Colorado, New Mexico, Utah, and Wyoming are creating a plan to invest federal funding to build statewide facilities for hydrogen vehicles in the future.
With oil possibly looking at negative long-term effects due to sanctions against Russia, there is a growing focus on energy independence. The growth of hydrogen, solar, wind, and other fuel sources noted in the report could help to take advantage of untapped energy from our own backyard giving us newfound independence. While this plan wouldn't immediately take effect, it could lessen the effects of future conflicts and shipping problems greatly. As a multi-state approach, the plan could encourage shipping companies to take advantage of long-haul hydrogen sooner as infrastructure will be more widely available.
The states will now need to show plans to successfully create viable infrastructure for vehicles before any funding can be distributed but this could be a major step for hydrogen fuel throughout the western states.
Steel prices set to continue downward trend allowing Utah developers unique opportunities
by Skyler Smith
Steel prices are continuing to cool throughout the US from their October Highs but currently remain elevated. The price drops come as European demand slows alongside the world's largest steel consumer, China. China is looking to see a 5% decrease next year according to China's Metallurgical Industry Planning and Research Institute and the number could go higher with the Chinese economy still seeing negative effects from the Evergrande default. High Iron ore inventories are also assisting in cooling the market as Brazil and Australia increase shipments of iron ore providing downward pressure on the raw material prices for steel. Fitch Solutions, among other analysts, expect that global prices have peaked and that U.S. steel prices will continue to lower in the coming year with flat steel expected to see the highest decrease in price.
This is great news for future industrial development as Salt Lake County's industrial market remains undersupplied with vacancies staying under 3% for the majority of 2021. These price drops will help developers to complete the buildings the nation desperately needs with under 4% industrial vacancy nationwide being reported in Q1. Planning construction now could be especially important as projects of the recently passed federal infrastructure bill will soon have an opportunity to affect the supply and cost of steel. Utah's rapid industrial growth and dwindling available land show there is no time like the present to begin projects in the Salt Lake Valley.
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