Since the Global Financial Crisis, the financial industry has experienced a great deal of change: change in regulations, changes in technology, and the emergence of new economic realities. The culmination of so many modifications in the industry has resulted in a transformation. A new report by CBRE Research describes the components of this transformation, outlining the impacts of recovery, regulation and technology on the U.S. financial services industry and office markets.
Salt Lake City is featured in the report as an active financial services market. The report defines active markets as those where financial services employment has grown substantially and more quickly than other industries in the market, and where real estate options and skilled labor are more affordable than established markets, such as New York and Chicago. The data gathered over the past ten years reinforces this observation with regards to the local market. The greater Salt Lake City area experienced rapid economic growth coming out of the Great Recession, and the local finance industry has played a significant role in this recovery. Of the total employee base in Salt Lake City, roughly 10% work in financial activities. In an economy as diverse as Utah’s—our economy is consistently ranked one of the top most diverse in the nation, often ranking #1—this 10% total is significant. Anything that impacts the greater finance industry has the potential to moderately impact the local economy.
So what is currently impacting the finance industry that could potentially affect Salt Lake City? Some of the observations highlighted in the report include:
- The industry mix in established markets is shifting
- Lower-cost growth markets have emerged
- Real estate markets in established and active finance economies are healthy
- Technology disruption is real
- Talent competencies are shifting
- Technology is the ultimate disruptive force
Salt Lake City’s finance industry is already feeling the effects of this national transformation. A few of the most prominent occurrences affecting the local market are included.
• Lower-cost growth markets have emerged
Salt Lake’s financial services industry has grown substantially, and m uch more quickly than other industries in the market. Since 2010, the financing activities industry has grown 21.9% in Salt Lake City. (The overall employment growth for the market during the same time period was 15.9%). This number is quite notable, especially considering that our employment growth rate has been one of the highest in the nation during this same period.
• Real estate markets are healthy
Real estate options and skilled labor are more affordable in the Salt Lake City market as compared to established financial markets (The cost of business in Salt Lake is 87% of the national average as compared to New York’s cost of 161%.) This is a major factor in the area’s recent growth. Relative to its size, Salt Lake City has the fourth-highest amount of office space under construction in the country—5.7% of the existing market’s net rentable area. (The national average is 2.1%.) Though not all of this construction is due to growth in the finance industry (surges in overall economic progression have reduced the total amount of office space available in the local market), the strength of the local finance industry has certainly had a positive effect on Salt Lake’s commercial real estate office market.
• Talent competencies are shifting
Disruptions within the industry have resulted in an increase in professional skillsets. In order to maintain profitability during the global financial crisis, many financial services firms began relocating jobs to low-cost hubs and locations where these skillsets are prevalent. Salt Lake’s labor force has benefitted from this shift, as it is a low-cost hub with a highly skilled workforce. This can be seen in the rapid growth of Goldman Sachs (Salt Lake is the company’s second-largest North American office and embodies a variety of positions) and the recent entrance of SoFi to the Salt Lake market. The high number of IT-related financial companies either forming or expanding within the state is further evidence of this point. This is especially true near the Point of the Mountain between Sandy and Provo.
Finance is turbo-charging growth in the greater Salt Lake City market, and this growth has been good for the local economy. As national shifts continue to evolve, our local market will continue to experience a financial transformation of its own.
1 Transformation: Impacts of Recovery, Regulation and Technology on the U.S. Financial Services Industry and Office Markets, CBRE Research, October 2016
Authored by: Scott Wilmarth.
Scott Wilmarth is an Executive Vice President in the Salt Lake City office of CBRE who specializes in office commercial real estate.