Utah Is Going Through A Building Boom
These are historic times. We have never witnessed more new construction and development in Utah, and all signs point to this trend continuing. When I began my career in commercial real estate in 1991, I could have never imagined the astounding development renaissance we’d be experiencing as we approach 2020. But how long will it continue?
Utah’s economy continues to capture nationwide attention as one of the fastest-growing and most diverse states in the country. According to recent reports, this growth continues to outpace the rest of the nation, recently ranking Utah at the top among states for job creation, with unemployment rates hovering around three percent.
As the tech innovation coming out of Silicon Slopes captures global attention, other sectors are also contributing to the greater good of our state—including life sciences, financial services, and aerospace. In fact, two of the newest and largest headquarter campus projects in Utah county are non-tech: Young Living Essential Oils and doTERRA, with over 1.2 million square feet of new space attributed to these companies alone. In a state that was once dominated by an economy dependent on mining and farming, these are dynamic, changing times.
With bold, new projects breaking ground on a monthly basis, it is easy to be both excited and concerned about the future of our state. I’m asked daily if these growth trends can be sustained, but I remain optimistic.
2020 will be a big year for public projects in Utah. Especially with the completion of the $3.6 billion Salt Lake City International Airport renovation, construction on the new $800 million prison underway, and the Inland Port becoming a reality. And who can miss the constant road construction? With the Utah Department of Transportation commencing projects totaling $2.1 billion in this year alone, we will continue to have our lives overwhelmed by the ubiquitous orange construction barrel―which I believe should replace the beehive as the state symbol.
On the private side, the downtown Central Business District has never been better, as evidenced by the exciting new 25-Story, 95 State Office Tower being constructed at City Creek―adding nearly 500,000 square feet of office space downtown. Urban downtown living continues to gain momentum with the Liberty Sky 24-story luxury residential tower under construction by The Boyer Company and Cowboy Partners at 151 South State. On the horizon, the skyline will continue to be transformed by the 28-Story Convention Hotel and other projects yet to be announced.
Consider this statistic: there is currently a record 4.1 million square feet of office space under construction, and vacancy remains relatively low and stable, hovering at eight percent overall. Although many projects are majority preleased (Pluralsight, HealthEquity, and Divvy headquarters in Draper, along with Podium in Lehi), it is important to note that many buildings are being built on a speculative basis.
The largest speculative office project in over a decade, Innovation Pointe I and II, under construction in Lehi, totals 300,000 square feet and broke ground on both buildings with not one prelease signed. It is now 100 percent leased as the project nears completion and contemplates future phases. As evidence of our market’s strength and risk being rewarded, global coworking giant WeWork entered the Utah market by committing to take over 120,000 square feet in this project.
On the outs
Even with such exciting growth and optimism, there are reasons for caution. For example, analysts project tens of thousands of retail store closures and large vacancies over the next few years. These disruptive changes require innovative thinking such as repositioning significant blocks of commercial space to accommodate everything from creative office users to more experiential entertainment. We are already observing this transition in many mixed-use mall locations across the state.
So long as lease rates, project proformas, and incomes keep pace with the rising cost of construction and doing business, Utah will likely continue its development renaissance. But this could quickly change, just as our weather patterns can unpredictably go from blue skies to snowstorms. Future growth can only be sustained by remaining competitive, keeping economics in check and anticipating disruptive market shifts with proactive planning and visionary solutions.