Have you driven down I-15 recently with someone who hasn’t seen Utah in a while? If you approach the Point of the Mountain area, a typical response is open-mouthed amazement. Where did all those houses come from? And what is all that new commercial construction going on?
Historically independent of each other in more than just location, Salt Lake County and Utah County are finally linking arms through commercial development.
“The macro picture is you have two dynamic counties that are growing together and the place they meet at is undeveloped territory. It makes it ripe for state-of-the-art development, and that’s what’s coming,” says Jon Anderson, partner and principal broker with Commerce CRG’s Utah County office.
Devoid of development for years, the Point of the Mountain area in the southern end of Salt Lake County and northern end of Utah County started to look more attractive to commercial developers with the recent residential boom. Utah County continues to add 25,000 to 30,000 new residents a year and cities such as Lehi, Saratoga Springs and Eagle Mountain accounted for one in every six new homes built in Utah during the boom, says James Wood, director of the Bureau of Economic and Business Research. “Residential development leads retail and retail follows those rooftops,” Wood says.
Growth in the retail sector has been complemented by escalation in office space development, as Utah led the nation in job growth in 2006 and 2007. Development naturally occurred along the I-15 corridor, which provided an easy transportation option for businesses, Wood says.
This cycle is not new; in construction phases, non-residential development typically peaks about two to three years after residential reaches its summit, Wood says. “This is nothing more than a reflection of the economic and demographic growth of the area,” he says. “Eventually the area will just be one commercial-residential region.”
Close to Home
With a flush of new residents discovering an attractive quality of life in the area, more and more workers are ditching the downtown commute. Wadsworth Development Group capitalized on this trend by developing The Exchange, a Class A office park located at 14000 South in Draper. The complex, which will eventually be comprised of six buildings, is designed to focus on smaller, professional tenants ranging from 2,500 square feet to 20,000 square feet, says Nate Ballard, general manager for Wadsworth Development Group.
“We found in our research that there are a lot of decision makers that live in the area and want to work closer to where they live. There hasn’t been a lot of opportunity for that until recently,” Ballard says.
Developers and builders are also finding the area attractive because tenants can appeal to workers from both counties. Sorenson Associates chose Draper as the site for The Pointe, a 600,000-square-foot Class A commercial center, to entice workers from the north and the south. “We feel one of the greatest attributes of The Pointe is its location, being that gateway between Utah and Salt Lake counties,” says James Sorenson, managing partner of Sorenson Associates. “It is ideal for growing corporations to be poised to commute to.” Upon completion, the development is projected to bring up to 5,000 workers to the location.
Location, Location, Location
In addition to The Exchange and The Pointe, several notable developments are rising in the area to create a new skyline. In Lehi, G Code Ventures’ mixed use development with architect Frank Gehry will include the tallest building in Utah, with construction slated to begin in summer or early fall of 2009, company representatives say. The development’s architecture will reference Utah’s natural landscapes, including a nod to the slot canyons in the south.
“As people come in [to Utah Valley], you need some kind of iconic type of welcome, which is what this would be,” says Kent Partridge, vice president of communication for G-Code. “It says, ‘You’re in Utah Valley now and Utah Valley can be as progressive as other parts of the state.’ We want to give people in that area something to hang their hats on.”
Across the freeway to the east, local developer Traverse Mountain Commercial has teamed up with national developer Craig Realty Group on a 55-acre outlet center, scheduled to break ground next year. Major national anchors have already expressed excitement in the site, says McKay Christensen, president of planning and development for Traverse Mountain Commercial.
Thanksgiving Park, located at Thanksgiving Point in Lehi, will feature 1 million square feet of Class A office space, with one building presently completed, says Brandon Fugal, execu-tive vice president for the greater Salt Lake area of Coldwell Banker Commercial NRT. In Pleasant Grove, ground has been broken on a 10-story Embassy Suites Hotel and Utah Valley Convention Center with completion expected in the next 18 months. The first building in Grove Creek Centre, another Class A office park featuring five buildings also in Pleasant Grove, was 100 percent preleased upon completion in August, Fugal says.
Though some consider the amount of commercial construction in the area ambitious, developers, brokers and agents feel the area’s population and travelers can finally support the growth. More than 50 million people pass by the Point of the Mountain on I-15 every year, says Christensen, and based on projections, he expects more than 13 million people to visit the Traverse outlet center.
“Our demographic is fantastic,” Christensen says. “The median incomes in our area are some of the highest in the state. What we’re finding is it’s like an hourglass. We call it the narrow neck of land, with Salt Lake County on one end and Utah County on the other and we’re right in the middle.”
As the housing scare so recently manifested, every cycle has its peak and its fall. Some experts are concerned about the amount of new development yet to be absorbed.
“We’re probably going to peak this year in non-residential construction,” says Wood. “It’s a worry now because our employment has fallen off so fast, we’ve got a lot of new buildings underway in office, industrial and retail. Those buildings will be coming on line and not all of [their space] is preleased. They will come on when we have job growth under 1 percent, so it could be a tough market for some of these projects in 2009.”
Prices have also gone up on construction materials, which in term affect leasing rates. Costs have zoomed up 30 to 40 percent in the past two to three years, partially due to a supply strain as developing countries experience an infrastructure boom, Commerce CRG’s Anderson says. “You have to pass that along to your customer or you can’t afford it. New projects will have a much higher price tag,” he says.
Compared to the rest of the nation, however, the odds might still stand in Utah’s favor. Utah’s occupancy costs remain approximately 45 percent of those in competing markets such as Arizona, Nevada and California, says Anderson. And though commercial development could be slower in 2009 and 2010, “there will be plenty of opportunities for those who can play their cards right and be smart about what they do,” says Wadsworth’s Ballard.