Commercial real estate.

• Position: Industry Outlook - Interview

Utah's commercial real estate industry is experiencing a significant slowdown, like most industries across the state. Though bracing for the stalling to continue, the state's commercial real estate leaders remain cautiously optimistic. Our group of experts discussed major developments still on track, financing issues that have stopped other developments, and opportunities presented despite the economy. They agree that though the industry is experiencing its fair share of troubles, the government has positioned the state to weather the storm.

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We'd like to give a special thank you to Jeff Edwards, president and CEO of the Economic Development Corporation of Utah, for moderating the discussion, and to Holland & Hart for hosting the event.

What is the current state of commercial real estate in Utah?

WOODBURY: If you ask a developer whether the glass is half empty or full, most would say it is at least half full. However, the real question that developers debate is will the glass be totally full tomorrow? I'm on the hopeful range, but I have an optimistic attitude.

We have two leading economic indicators in our office that we use for the local economy. One is our hotel business (we run eight or nine hotels). When business picks up, people start travelling and we see a rise in our hotel occupancy. When we see a rise in our hotel occupancy, we usually see a change in Utah's economy, too. We haven't seen a rise in hotel occupancy, yet. We are still lingering below where we thought our budget would be. It's better in downtown than it is out in Sandy, but we are not seeing a rise, yet.

The second indicator is inquiries from local tenants. Not national tenants, because local tenants usually react a little bit faster. With this indicator, we are seeing something a little bit hopeful in that we think things are picking up a bit. So, it's an indication that there's at least some optimism out there, and maybe it's the first sign of something swinging up.

FUGAL: I'm cautiously optimistic. There is no doubt that sale activity is down across the board as a direct result of the banking crisis we are currently caught up in. But we are still observing a pretty steady flow of lease transactions across the Wasatch Front. Again, it's being driven by local companies for the most part. While we are fortunate to still have a few Fortune 500 national credit tenants that are evaluating leases and closing right now, those deals are few and far between. Whereas your local tenants still seem to have a very upbeat positive attitude.

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In talking to my peers outside of Utah--in Phoenix, California and Las Vegas--they continue to be amazed at how the fundamentals of the Utah market continue to hold fast in the wake of the major economic crisis across the country. Right now what we are witnessing is a true example of how Utah is thankfully not participating in the extreme downturn that some of our neighboring markets are experiencing.

SHIELDS: Going back to what Rick [Woodbury] said about hotel occupancy being an economic indicator, we have a large hospitality division at our firm and we saw a lot of hotel transactions until about June of last year, and then they went dead through about December. And then from December through, we saw the number of transactions increase dramatically, which usually happens about six to nine months before the lingering rates start to come up.

PRISKOS: We [InterNet Properties] are coming off the best year ever in our brokerage in 2008, so it's hard to say that things are really bad. Of course, there's a lot of bad news out there, but I think we're a little insulated because most of our business is downtown. And with so much investment happening downtown, it's kind of hard not to make money there right now. So maybe I'm a little off on the entire market, but I'm still pretty euphoric and I like where we are going. And when the country turns around, I think we are poised to do really well, especially in this market.

MILLBURN: I don't think Utah will really see an extreme bottom in multi-family real estate. Vacancy rates have risen, but they are still 7 percent, which is not bad in comparison to the rest of the nation. As for transaction volume, we [Apartment Realty Advisors] had the best year we have ever had in 2008. We had $300 million in transactions. So we are optimistic, as well.

Going forward, though, is going to be tougher. We've got a lot of new apartment supply--probably 2,300 units this year in Salt Lake County, which is going to flood the market. In addition, we've got some shadow markets that seem to be sort of jumping out at us that I don't think a lot of people were really prepared for. We didn't have a lot of condo, high-rise construction; but in single family, town-home style product is being rented.

One of the biggest concerns I have going forward is how are all of the...