Utah's commercial real estate industry is back with a vengeance. From St. George to Utah County to the downtown Salt Lake area, vacancy levels are down and leasing rates are steadily increasing. Our panel of experts discusses emerging trends, such as Millenials shaping office space and the growth of transit-oriented development.
We'd like to give a special thank you to Jeff Edwards, president and CEO of EDCUtah, for moderating the discussion.
Jake Boyer, The Boyer Company; Steve Peterson, Mi//rock Capital; Scott Wilmarth, CBRE; Kent England, Argent Development Group; Graig Griffin, Intermountain Advisory Group; Jon Anderson, Anderson CRG; Michael Drury, United Mergers and Acquisitions
David Broadbent, Holland & Hart; Melissa Clyne, NA/OP, Steven Kemp, Vantage Real Estate; Brandon Fugal, Caldwell Banker Commercial; Gary Mangum, Marcus & Millichap; David Wright, Capstone Property Management; Greg Shields, Pentad Properties; Andrew Bybee, Thanksgiving Park; Sage Sawyer, EquiMark MultiFamily
Kip Paul, Cushman & Wakefield/Commerce Real Estate Solutions; Lorrie Ostlind, Building Owners and Managers Association of Utah; Vasilios Priskos, InterNet Properties; Jeff Edwards, Economic Development Corporation of Utah; John Dahlstrom, Wasatch Commercial Management
What is the state of the commercial real estate market right now?
KEMP: The St. George market has come back. Industrial vacancy is down below 5 percent. Office is still soft, and there's really not a whole lot of retail in St. George to speak of, other than right along the 1-15 corridor in a few spots, but nothing new. The only new retail construction in St. George has been the project with Dick's Sporting Goods and others right on River Road--Red Rock Commons. That project is being finished up, but everything else has been on hold for several years, just fill - in. We've only had one new office building built in the last four years, a medical building near the hospital.
The only new industrial properties being built are for owner-users that are coming in and wanting to build something specific for themselves. No new spec. In a small market like St. George, the banks are scared to death of doing anything spec. Developers are, too, with good cause.
But the market has come back. Class A office has tightened up because anybody who was in a B or C property when the market softened moved into an A space. Anybody that just needs a box and a desk moved into some C space. So B seems to be the area that's continued to be soft--if there's such thing as that kind of a classification in St. George. People talk about A, B and C, but we only have a few buildings that would qualify.
ANDERSON: Utah County is doing really well. We had a great 2013. Looks like 2014 will be better. We have about 10 million square feet of office, and we're about 14 percent vacant. The north part of the county is on fire. We have a lot of you from Salt Lake County visiting us in the Thanksgiving Point area. But retail is about 7 percent vacant. Industrial's down to about 6 percent, pretty healthy. So the activity and the occupancy are really back from 2007.
The rates are not back. We're still struggling there, and those will continue to, hopefully, climb. But overall, really positive things are going on in Utah County.
FUGAL: Utah County is really experiencing explosive growth. This is arguably the most exciting submarket not only in Utah but the entire Intermountain West. I actually think vacancy is a bit lower. In fact, it's creeping down closer to 10, 11 percent in Utah County. In north Utah County, class A vacancy is in the single digits as a result of all of the space being absorbed. And it's not just about Lehi. As much as there is going on in Lehi, and you see the majority of the cranes dotting that skyline, there have been major projects announced in Orem, under construction in Pleasant Grove. American Fork has its tallest building just being completed west of I-15.
MANGUM: At the NAIOP symposium they had a roundtable discussion with Heinz and Cushman and some of these others, .and they described why they're now looking at Utah. They said it used to be a fly-over state and none of the large institutional players were looking at placing capital here. Today they say we've got everything going for us, and they hope the other institutional players don't catch onto Utah for a while so they can continue to increase their portfolio holdings here. Some of these large players with significant investment holdings are looking to come here to Utah, seeking yield that they can't get on the two coasts.
That portends well for the economy of this state, as we've gained a lot of recognition and credibility out there in the market, where we've got national firms looking to relocate here, lots of corporations setting up either their national headquarters or subsequent offices here. Salt Lake, and Utah in particular, is poised for additional growth with just everything that's happening for the good in this market.
SHIELDS: Every major hospitality big player is looking to buy product that's hard to find. We just had a client buy the Shilo Inn, and it is going to rehab it, I believe, into a Holiday Inn Express. They're all looking, and I continue to hear negative comments about other states. There's a lot of fear with states that have deficits--the belief is someday they're going to have to fix that, and the first thing they're going to do is figure out a way to tax the out-of-state institutions that don't vote for them directly. So they want to come to a market like Utah, where they're welcomed and where there's a great infrastructure.
MANGUM: Last year this market did just under $1.4 billion in investment transactions. You've got to go back to about 2005 before we are anywhere close to that transaction quality. We would have been higher than that had inventory been available. Almost everything that was priced right was sold, and some at record numbers on square-foot prices and transaction volume and number of deals.
So far at the start of this year, we're on that same pace. When deals hit the market, there are more buyers out there than we have deals to supply that demand.
Let's talk about downtown.
PRISKOS: Ever since City Creek there's just been a great momentum. The momentum's been there for the 30 years that I've been downtown, but others seem to think there have been valleys and peaks. But downtown is constantly changing, and more people are paying attention to it now, and transportation is a huge part of it. All lines lead to downtown Salt Lake, and there has just been so much constructed. The federal court building, many people hate the look of it, but I had a chance to tour it last week and it's just an unbelievable building inside. And then of course the project on the corner--the LDS Church purchased Hamilton's interest on the corner of 111 South Main. The demolition is occurring right now. But for the suburbs breaking that $30 barrier, I agree with Scott, there's just this great demand downtown.
It's more than just Goldman Sachs. There are some large blocks of space looking in our market right now. But all of a sudden, with a $30-plus rate out at Cottonwood Corporate Center, a $34 rate down here sounds pretty good, with all the amenities that downtown offers.
The UPAC deal right next to 111 South Main, a huge $100 million-plus redevelopment of those properties, is going to be significant for downtown. It's nice seeing those buildings come down but it also hurts. There's a lot of history in those buildings, but it's nice to see change downtown. The Air development on Fourth South and West Temple where it's going to be, I guess, a super club with some office space, that land deal was at $110 a foot, which we haven't seen downtown.
What Boyer's doing on the Questar block, that new building they built on the east side of Second East is a very attractive building, and the renderings I've seen on State Street for 151 South State are very attractive. That block means a lot to downtown Salt Lake. It's been a large, vacant parking lot for many, many years, so that's a very welcome addition.
There's so much momentum in transportation, with the streetcar being proposed to go up Second South all the way up to Seventh East--that's in discussion right now. And it's just unprecedented how much housing is going on downtown.
The one sore spot for me is we're not seeing concrete and steel construction. We're still seeing stick frame over podium. I hope our city gets to the point where we can build buildings like Promontory, like American Towers in for-rentals. I do think our market will get there, but land is so scarce downtown. I do believe appraisers are going to start looking at FAR rather than price per...