Utah's commercial real estate market is still healthy and strong. But, with an eye on the future, our panel of experts discusses some of the challenges and threats the industry is grappling with.
Cushman & Wakefield
Stack Real Estate
Holland & Hart, LLC
Cresa Salt Lake
CREW Utah/Snell & Wilmer
St. John Properties
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A special thank you to Brandon Duke, vice president, KeyBank Real Estate Capital, for moderating the discussion.
Generally speaking, was 2017 positive for the industry? Tell us what you're seeing in each of your areas.
KIEFFER: From the construction side, we had a great year, probably our best year in the history of our company. We saw a lot of growth in many markets. The office market was very strong. A lot of warehouse/ industrial projects.
Costs keep creeping up. Labor costs have been the big issue. It is softening up a little bit. Were getting more labor quotes from subcontractors than we were in 2017, but the market is still very tight. We're being told that we're going to get hit with a higher steel number here pretty quick. In fact, some are already telling us it's increasing because of the tariffs that may be put in place. People are already dropping that in.
DIAL: Generally it was a good year for multifamily. Costs were still somewhat in check. Rental demand was still very high and continues to be very high.
But at the same time, because of costs creeping up, I think everybody is building through the top of the rental market. So that's forcing people who are renters to pay 40 to 50 percent of their take-home pay in rent, which is probably not sustainable for the long term. So because of the high demand, 2017 was still a good year, but going forward it's going to become pretty challenging because the market probably can't sustain a lot of rental increases. And with costs continuing to escalate, the only way you can pay for that is with rental increases. So you may see some projects put on hold as those costs increase. And we may see a balancing act between subcontractors coming back and saying, "Hey, we lost some jobs, and so we're back in the market." Maybe we'll see some real fluctuations between the costs for that reason.
Let's talk about some major projects along the Wasatch Front: the prison relocation and the airport rebuild.
BULLEN: The prison relocation is underway. There is about a $100 million infrastructure plan to bring roads, sewer, power, water and data to the prison site, which is on the furthest northwest corner of the northwest quadrant. So it's the furthest possible point to drag that infrastructure through a piece of property that's now rezoned 100 percent, entitled Ml industrial in the city of Salt Lake, with an RDA that's been created. It's one of the largest RDAs in the history of the city and comprises approximately 4,000 acres. So the main catalyst for growth is the prison. That's changed the dynamic.
CRITCHFIELD: We purchased about 600 acres in Herriman just to the west of the prison in 2006,2005, and there was, of course, a very slow development process because of the downturn, but now it's just booming. So that pocket of the community is going to fill in, especially with the new development at the prison.
BULLEN: Looking at the airport, the total project cost at this point is $3.6 billion. I look at Denver pre- and post-Stapleton: it was a whole new world. A lot of development came in, back-filled with that DIA investment.
The future of this multimodal logistic supply chain world is really a play on consumer behavior. Rail, air, sea and land become the modes, and it couldn't be more favorable to have that type of infrastructure investment in our community. It's going to last decades, the impact. Not only just for consumer travel, but also freight travel. Air freight is going to be a huge opportunity in the state and put Salt Lake on the map.
BINGHAM: I don't think that air freight is going to be much of a factor, actually. I come from Chicago. That is air freight. This is UPS and FedEx and not much else. But I think we are going to see a general increase.
The prison is going to be a catalyst that will move a lot of other things in the neighborhood. But I think were going to see steady growth. That's the nature of Utah. It's the nature of Salt Lake City: no highs, no lows. We're in that center cut of bands between the highs and lows, and that's wonderful. It's hard to beat that situation.
How have the state's efforts around homelessness impacted our industry, and what are you hoping for the future?
EVENSEN: I actually see a lot of positive movement on that. I work downtown and I'm on the board of Artspace, which is taking the lead in developing affordable housing downtown. It's very refreshing to see projects like this coming up.
I just recently toured Project Hope. It's on 500 W. 355 North. It's a net-zero, affordable housing project. What really surprised me is it's a very beautiful project. It has young professionals living there, but also homeless people. They co-exist. It's a very pleasant environment there.
BAIRD: With Salt Lake City and the state getting very involved with mitigating the homeless issues all over Salt Lake City, specifically on the west side by The Gateway, it has dramatically decreased the number of homeless people wandering around. We're seeing a huge impact at...