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While Utah has undoubtedly suffered the consequences of the Great Recession that began in December 2007, the outlook appears to be on the rise, especially when it comes to new commercial construction.
According to Utah real estate professionals and experts, Utah is among the nation’s leaders in new building construction—a hopeful sign of a once-again healthy, robust local economy.
“This is an exciting time for Utah,” says Brandon Fugal, Coldwell Banker Commercial executive vice president. “In spite of concerns regarding the economy and national political climate, Utah is leading the country on many fronts and offers ideal opportunities to accommodate expansion, strengthen recruitment and reduce operating costs.”
According to CBRE Salt Lake City, Utah isn’t the only state in the country that is seeing more demand for construction, but it does stand out as one of the faster-growing markets in terms of new construction completions.
Largely due to rare pre-lease commitments from major corporate users, along with local developers that are willing to take risks in order to meet projected demands, new construction is booming in Utah.
Fugal identifies a number of notable, recent examples of large projects that have been completed or are in the process of being completed, including projects at Thanksgiving Point, Station Park in Farmington and Vista Station in Draper.
CBRE points out that new construction is chiefly the result of a healthy local economy and the fact that there are high-demand areas where inventory cannot oblige the requirements of the market.
“Demand for commercial space has increased [in Utah] because organizations see Utah as a place with a resilient and growing economy,” says Mark Bouchard, senior managing director at CBRE. Bouchard also points out that, according to the U.S. Bureau of Labor Statistics, Utah has the ninth-lowest unemployment rate in the country and employment growth in the state is at its long-term average of 3.1 percent.
In addition, the U.S. Chamber of Commerce reports that Utah is the nation’s fourth-fastest growing state for science and technology jobs.
Because of the myriad differences that exist between markets, it isn’t easy making comparisons between Salt Lake City and other markets in the United States. But the statistics do paint a compelling picture.
According to CBRE, the average annual completion rate of new offices ranks Utah the highest out of 63 markets; for industrial completion, Utah is second out of 58 markets; and for retail completion, Utah is tied for 13th with eight others out of 60 markets.
Aside from the state’s strong economy, a healthy construction output in Utah is due to many other factors as well. Emerging transit-oriented developments are one driver of construction, says Fugal. These have brought the Vista Station in Draper, Station Park in Davis County and the North Utah County commuter rail station at Thanksgiving Park.
Station Park, incidentally, is an 800,000-square-foot project currently under construction. This Davis Country commuter rail hub is one of the largest construction projects in Davis County history.
“With mass transit now connecting every county along the Wasatch Front, significant new construction is being observed at these ‘transit hubs,’” Fugal says.
Similarly, CBRE says Utah’s location at the “crossroads of the West” has impacted industrial construction in particular. CBRE cites a report from the American Association of Railroads that Utah has a forecasted growth in intermodal activity of at least 6 percent a year. And as a major hub for the trucking industry in the Western states, the Utah Department of Transportation reports that Utah maintains the highest truck traffic percentage in the West at 23 percent.
Utah also continues to maintain comparatively low operating costs, drawing corporate users toward class A-type projects. Fugal says large markets, such as Los Angeles, Dallas, Chicago, Phoenix and Denver, report annual building operating costs in the $8.50 to $10 per rentable square foot range. Utah, meanwhile, shows costs in the $6 to $7 range.
“This is a significant cost savings and competitive advantage,” he says. Fugal attributes this cost difference to lower utility rates and property taxes, along with lower vendor costs in janitorial services and maintenance.
So will Utah’s trend of new commercial building construction continue in the near future? Optimism appears to remain high.
CBRE says 2013 is poised to bring lower overall construction numbers than in 2012 because the market is still absorbing some of the new construction. Still, except for unforeseen dips in the global economy, Utah’s economy—and Salt Lake City’s more specifically—will continue to be strong. “Such a trend will ensure continued demand for properties and justify further new construction,” says Bouchard.