December 1, 2011

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Southern Utah

Utah Business Staff

December 1, 2011

There are a number of investors that are taking their money out of Wall Street and are looking for investment rental properties, because they can buy a property for $130,000 – $160,000, put 20 percent down and typically return 7 – 10 percent before the cap rate. So investors are very active in the St. George market. The challenge home sellers have is that we don’t have the economy that attracts people in terms of employment. We’re actually seeing people leaving the St. George market on a weekly basis. A number of our clients are seeing reduced hours, forced compensation cuts. We have got to find ways to build economic stability in the St. George market so we are not a real estate driven economy.

WALTER: As the inventory in the residential market, particularly the REO inventory, starts to clear and move out, we’re going to see additional new construction. We’re seeing people buying land again for the first time in two or three years. And it’s not just buying REO improved lots at below replacement cost. People are actually buying unimproved land that they intend to turn into building lots. This is a good sign for the next two or three years.

Our rental market is very tight. In our multifamily market, we went from roughly 20 percent vacancies at the really worst of this recession, all the way down to about 8 percent. Some of the properties that we’re surveying have vacancies under 4 percent. So if you look at what’s happening in the residential sector, it’s not healed, there are still pricing issues, but overall the residential market is in much better shape than it was in 2008 or 2009.

On the commercial side, our industrial sector has seen absorption of some significant facilities that have sat vacant for three or four years. We have had a couple of really great firms move into the area, take up those facilities and actually create jobs.

Our multi-tenant industrial market is still weak. That’s reflective of the fact that we lost a significant portion of the contractor/subcontractor leasing base. But overall, the industrial sector is doing better. Retail looks very good, particularly anything that is anchored. If you look at the prices we’re getting for the Red Rock Commons facility on River Road, they are getting 2006-2007 prices for those facilities. For less desirable properties, there is a lot of weakness, particularly in the unanchored retail market. But overall retail is recovering.

Office really is struggling. And office is the market that’s going to be the last in our commercial sector to recover. We’re overbuilt still. We have a lot of available space. But as the residential continues to recover, we’ll have some additional industrial activity that’s going to create absorption there. The retail sector is looking good. Eventually this is going to trickle into our office sector.

We don’t expect commercial construction to be active in 2012, but our inventory is not as deep as people think it is. It doesn’t take much absorption to really tighten up our market and create new construction again.

Are the contractors busy? Are there employment opportunities in the construction industry?

STEVENS: All of a sudden there is a shortage of about everything contractor-wise, and that’s caused most of our Hispanics that weren’t supposed to be here in the first place to leave. It wasn’t because of laws and rules, it’s simply because there was no work for them. The next batch we lost was the group that was in over their heads with equipment, payroll, tax problems or whatever, and those people are all gone.

The group that stayed and survived is a pretty small group. And now that we’re fairly busy and everyone else has left, North Dakota took a lot of our workers. Wyoming has taken a lot with the oil fields. We’re actually short on about everything, which will be a problem before long.

Is Southern Utah’s high population growth over? Will future growth be more like the rest of the state, which is internal growth?

AMES: Without a doubt, we will see faster growth than Northern Utah and surrounding states. St. George is viewed as the San Diego of the Rockies, so our market falls off faster in terms of economic issues.

WILSON: The things that drew people to southern Utah are still here. The beautiful scenery, the 300 sunny days a year in Washington County—those will continue to be a draw. WOOD: I’d like to throw Cedar City into this as well. A lot of people would be surprised to know that Cedar City has just as many sunny days as St. George does. We have that lifestyle and quality of life as well. When I talk to groups outside of this state, they are looking for a young, educated workforce for over the next five, 10 years. They’re looking 20 years down the road. Where are they going to find their workforce? Not only does Cedar City have that, but St. George as well, which will help our growth in Southern Utah.

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