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The commercial real estate market is primed for a rebound. With vacancy rates falling, pent-up demand will soon outpace the available supply of commercial space. Industry insiders discuss the implications of low inventory and scarce construction activity combined with exploding demand.
We’d like to give a special thank you to Jeff Edwards, president and CEO of EDCUtah, for moderating the event.
Jake Boyer, Boyer Company; Craig Burton, ARA; Carl Barton, Holland & Hart; Jeff Edwards, EDCUtah; Greg Shields, Pentad Properties; Steve Peterson, Millrock Capital; Scott Kaufmann, RioTinto/Kennecott; Richard McAllister, Prudential Commercial; Nick Teseros, NAI West; Eric Smith, CBRE; Danny Shin, Marcus & Millichap; Bob Chatfield, Bank of American Fork; George Richards, Chapman Richards & Assoc; Vasilios Priskos, InterNet Properties; Kip Paul, Cushman & Wakefield, Commerce; Brandon Fugal, Coldwell Banker Commercial
Please comment on the state of the commercial real estate market now versus a year ago. Are there any big picture trends that you are seeing in your different segments of the market?
SHIELDS: The market is continuing to grow stronger. The demand is beginning to outstrip the supply—particularly, there’s not a lot of vacant big boxes around anymore, and there’s tremendous demand for retail property from out-of-state buyers. And landlords are holding the line almost across the board in terms of not rolling over for rent or other concessions.
In my 30-some-odd years in the business, I’ve never seen the underpinnings for growth so strong.
There’s been a great foundation set here with a lot of things that are going on in Utah. We just toured Salt Lake City with all of the brokers from our network for the Western United States, and they were very positive—from positive to astonished would be more like it. Positive about Salt Lake City. Astonished that there are things like City Creek in a city of this size.
SMITH: From what I can see from last year to this year, there’s a lot of positive things happening in the office market. Gateway 6 has been completely built and was fully leased before it was completed. We’re seeing positive absorption all around, whereas prior to this year we were trying to stay afloat and break even, and trying not to be negative. We have over 650,000 square feet of positive absorption, according to our numbers. Others even had higher amounts if you count the single-tenant absorption that took place last year. It was a very positive year, and it’s continuing to be positive.
BOYER: Companies have been reticent. They’ve come off the sidelines quite a bit since last year, though. And a lot of companies that we’re dealing with have finally decided that they can’t sit back. For the last three or four years, they’ve been in paralysis mode, a little bit, not knowing what the national economy was going to bring.
We’ve seen many of these companies say they have the need for growth, they have confidence in the economy, they have confidence in their business, and they’re going to come off the sidelines. And so we have a number of build-to-suit tenants that we’re working with right now who two years ago would not have even considered a build-to-suit.
PRISKOS: Specifically downtown, the build-up of City Creek has been pretty amazing—the level of activity, specifically in the restaurant sector. It’s like we’ve never seen before. We have not only national tenants looking downtown but a lot of well-funded local tenants.
The problem we’re having downtown is we’re running out of real estate to lease. That’s the bad part. The good part is if you look around, there’s still a lot of undeveloped land. They don’t develop small buildings downtown, so you have to have big projects to get the small spaces. That will be a challenge going forward. But the last year has been one of the most active years we’ve seen, especially in the retail level downtown. We attribute that mostly to City Creek and the build-up in the last seven, eight years.
TESEROS: We focus a lot on the south valley market, and what we’ve seen down there recently has been a real kick-up in activity from a landlord perspective in terms of listed buildings. As with the downtown market, there really aren’t a lot of blocks of large contiguous space in the south valley like there were just a year or so ago.
There seems to be a lot more optimism among some of the smaller tenants, even from out-of-state tenants that are coming in and starting to kick the tires. They want to start small with the idea that they’ll grow. That’s really a deviation from what it’s been in the past, where it seemed like every couple of weeks you’d see a new sublease come on the market and more space being contracted. It seems to have stabilized, and now they’re slowly beginning to feel more confident and moving in a positive direction.