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Utah Business held a roundtable conversation with Utah’s commercial real estate leaders to discuss interest rates, hybrid work, multi-family dwellings and more.

Roundtable: Commercial real estate

Utah Business held a roundtable conversation with Utah’s commercial real estate leaders to discuss interest rates, hybrid work, multi-family dwellings and more.

This month, Utah Business partnered with Dentons Durham Jones Pinegar to host a roundtable event featuring Utah’s commercial real estate leaders. Moderated by Brandon Fugal, chairman at Colliers, they discussed interest rates, the sustainability of hybrid work, multi-family dwellings and more. Here are a few highlights from the event.  

How is Utah’s commercial real estate market different from the rest of the country?

Ronda Landa | VP, Sales NCS Utah | Fidelity National Title 

We’re very resilient people. Utah’s market is different because we don’t have the high highs that the coastal states see. There are some pockets, but generally, our market stays level. Those trends pair well with the fact that we live in a very conservative financial governance state: we save our money and spend it wisely. In other states, you might make a lot more in a brief period. That’s not us, and I don’t think the people around this table are looking for a quick buck.

Jeff Rossi | Executive Managing Director | Newmark 

From the office-occupier standpoint, we’ve done dozens and dozens of build-to-suits over the last decade. One of the challenges we’re facing that makes us different is that we did so many build-to-suits. It was the only way for a company to get what it needed regarding real estate. Today, we don’t know how those build-to-suits continue to develop with office space use decreasing.

Michael Holman | VP, Development & Finance | Overland Group, Inc. 

Other markets are a lot more short-term focused and have more institutional capital, whereas Utah’s capital sources tend to be a lot more long-term and local. The capital we see comes from Utah; it was established in Utah and built in Utah.

David Nixon | Managing Director | JLL 

We have the highest birth rate in the country and one of the lowest unemployment rates. Many people want to move to Utah and do business here because our government is incredibly business-friendly. These are many interesting dynamics helping and differentiating our market. I love Utah, and business-wise, we’ve seen a great run for the last 10 years. We’re excited to see what the next 10 years have.

Nadia Letey | SVP | CBRE 

After the pandemic, we saw an influx of law firms and other national groups coming to the market that had never been here before. Salt Lake City hit the radar pre-pandemic and then came to fruition over the past couple of years. We have a good mix of industry in our marketplace now. 

Utah Business held a roundtable conversation with Utah’s commercial real estate leaders to discuss interest rates, hybrid work, multi-family dwellings and more.

How will dramatically increased interest rates impact the market?

Mike Richmond | Executive Managing Director | Cushman & Wakefield 

It’s just resetting values. 2.5 to 3 percent—these are lower interest rates. A plus-or-minus six percent interest rate isn’t that bad from a long-term perspective, and we’re starting to see this impact as deal volume drops. We’re also starting to see tenants flip the tables and ask landlords, “How is this building financed? When’s your debt due? When you have these higher interest rates, are you going to kick in that additional equity just to get your building refinanced?” From a leasing agent standpoint, I can’t think of a time I really worried about when the debt was maturing on an asset. But that’s starting to be a critical talking point as we get into lease negotiations, especially with larger tenants.

Brock Bench | Investment Real Estate Manager | Altabank

Regarding the rates, banks’ cost of funds have increased dramatically. When you see CDs [certificates of deposit] at four or five percent, those are our cost of funds—that impacts everything. Securing debt has become a lot tougher. We have a lot of projects we started two to three years ago at three, four percent, but those rates have doubled. We were stress-testing our assets at 100 and 200 basis points. We never thought we’d be looking at 300 to 400 basis points. The investor side will definitely have more opportunities come about.

What trends are expected to drive the retail sector over the next year from your standpoint?

Taylor Woodbury | CEO | Woodbury Corporation

Right now, we have the highest occupancy in retail that we’ve ever had in the history of our portfolio. There’s been a lot of inexpensive, second-generation space that’s now gone, so I think we’ll see a significant amount of growth in retail rental rates. Coming out of 2009-11, we had too much retail square footage. But there’s been no new square footage built in the last 10 years, and the population has grown tremendously. There’s no question that online shopping is going to continue to grow, but some amount of brick-and-mortar square footage is always going to be justified.

"Growth is here, bringing challenges and opportunities for us to figure out. We are well-positioned in the capital markets and the financial sector. Utah certainly punches above its weight as far as the funds, banks and talent here are concerned. We’re well-positioned to work through the challenges and opportunities."

What impact is remote or hybrid office scheduling having on the market? What does the future look like for office?

Jeff Rossi | Executive Managing Director | Newmark 

Kastle Systems, a key card swipe company, has tracked return-to-work over the last several years since the pandemic started. They reported a 90 to 100 percent occupancy pre-Covid, then down to zero, and now we’re at about 50 percent today. That means 16 million square feet across the Wasatch Front is currently unutilized and needs to come back onto the market. We need to be creative about how we utilize office space in order to come back from this. We’re seeing a lot of conversions to multi-family, which is a great use for older office spaces in really great locations. I think that will continue to happen as long as people can make it pencil. 

Matt Riley | Founder | Stanza 

Some people want to say they have the right answer. I’m not smart enough to have the right answer, but I think every company, every employee, every team, every city, every day of the week will have their equilibrium and their right answer for productivity and balance. Now, start to triangulate some of these questions. Interest rates are going to change the equation for building out new space. If building out new space becomes unreasonable, you re-engineer how you use your existing space. And what did we just hear? There’s a lot of existing space available. This is good news for a lot of people! It’s good for the customer to create flexibility, and as much as the commercial real estate ecosystem can lean into some creative but good-for-the-customer options, that’s how we make it good for tenants. That’s how Utah can lead the way.

Is remote working here to stay or is it an unsustainable pandemic trend?

David Nixon | Managing Director | JLL 

It depends on what sector you’re in. Law firms and professional services tend to be back in the office. Tech is still trying to figure it out. If your boss is in the office, you’re probably going to be in the office, but I think it’s changing daily right now. The biggest trend we’re seeing is this flight to quality. Groups have 30,000 feet, but they want to downsize to 15,000 in a much nicer building because the costs are about the same. In fact, they are probably saving on the downsize, but now they have a much more beautiful space that their employees want to come to. 

Mike Richmond | Executive Managing Director | Cushman & Wakefield 

Remote work is not new. It was around before Covid; some statistics show that most corporations had five to seven percent of their workforce already remote or doing some sort of hybrid work. The biggest impact now is it’s impacting the office market by keeping businesses from making long-term lease decisions. I think the flight to quality is real. We’ve leased 250,000 square feet at 95 State in the last year, and it’s the priciest. All across the market, employers want to get their employees back to work and provide them with the best environment they can.

Nadia Letey | SVP | CBRE 

We used to analyze commute times for our tenants. They would laugh because we’d say, “10-30 minutes.” If you got to 45 minutes, you were going far, but they were coming from markets like San Francisco, where you’d go a short distance and have a two-hour commute. The pandemic forced us all to create a habit of working from home. Now, we need to reinforce the habit of returning to the workplace. I have a 15-minute commute coming into the office; it was simple for me to shift back. If you look at these bigger markets, when you’re talking two hours out of your day to commute, that’s a hard habit to shift. You have to consider location.

Matt Riley | Founder | Stanza 

Employee scatter definitely complicates the equation. If you have a headquarters and want to bring people back to the office, consider the employees that moved far away during the pandemic. I met with companies with an return-to-office mandate, and 50 percent of their workers didn’t live within even two hours of an office. They were incapable of being compliant. That scatter is part of the equation that requires new thinking.

Utah Business held a roundtable conversation with Utah’s commercial real estate leaders to discuss interest rates, hybrid work, multi-family dwellings and more.

Will the industrial market in Utah remain dynamic and strong?

Braden Moore | National Development Director | Big-D Construction 

Seventy percent of our volume is industrial work. It’s all consumer-based. It’s important to understand the market because companies now think, “How do I get the cost of real estate lower? How do I get the cost of overhead lower?” That’s great news for Utah because they will get that lower cost here. We have land constraints; Utah County is quickly becoming as saturated as Salt Lake. But if we can figure out how to extend Legacy Highway in Northern Utah, our owners and investors will be ready to start going again fast.

George Arnold | Partner | Hamilton Partners 

The pricing slowed things down a little bit, but with the Salt Lake industrial market, the land is owned by generational wealth groups that will continue to build pragmatically and deliver product to the market when it’s needed. That has set up this whole market to be steady and, hopefully, dynamic again. Utah County is also an excellent place to build product. I’m bullish on industrial, specifically in the Wasatch Front and Utah County.

What is the state of hospitality in Utah?

Ronda Landa | VP, Sales NCS Utah | Fidelity National Title 

There has been a lot of leisure travel. Everybody saved money for two years and is now taking vacation after vacation. I think they’re up 60 percent in sales.

Braden Moore | National Development Director | Big-D Construction 

I can only speak to what people ask us to build, but we are building more leisure hospitality than ever: Park City, Jackson Hole, eastern Idaho. In my career, we’ve never seen this kind of leisure hospitality built. We want to work from home, but we want to travel a lot.

What does the future look like for multi-family? Can this record rent growth and development continue?

Michael Holman | VP, Development & Finance | Overland Group, Inc. 

Industry experts tell us there is a massive housing shortage. But investors look at Salt Lake City and say there is too much supply. That is an interesting dynamic causing the capital markets to be more fickle. Nobody wants to be the first group to bust open the floodgates because they don’t know the future. We’ve had this big boom, and I think a finance-driven shortage is coming. Development will decrease, then once capital markets feel safe, things will boom again.

George Arnold | Partner | Hamilton Partners 

Right now, investors don’t know the dynamics of the Salt Lake market. Things will pause while people figure out what’s happening before going forward. I don’t think rents will continue to rise; it’s not sustainable. People from Boston, New York, San Francisco or LA get it a little more. They just don’t know Salt Lake. I’m bullish if you have the right product in the right place and build to the market.

Utah Business held a roundtable conversation with Utah’s commercial real estate leaders to discuss interest rates, hybrid work, multi-family dwellings and more.

Will Utah’s unemployment rate continue to be among the lowest in the country? Will our population continue to grow? Are these good things?

Jonathan Woodland | VP | KeyBank 

Yes, but housing and housing policy drives the desirability of where we are. We need to get creative because we do have market dislocation. No plan will work completely, but how we handle adaptive reuse is crucial to growth and keeping this a great place to live. I’m super bullish on Salt Lake. The secret’s out. Everyone I talk to wants to be here or wants to be on vacation here. We’re not hiding any more.

Taylor Woodbury | CEO | Woodbury Corporation

We will fail as a state if we don’t figure out ways to responsibly and smartly develop more of our natural resources. We need to add more ski resorts. We need to add more trails. We must create better access to amenities because, while Silicon Slopes is fabulous, our environment drives people to Utah. If we become as bad as Denver, that growth will dry up overnight. We must come to terms with that if we want to keep people in Utah.

How would you characterize the future of Utah’s commercial real estate market?

Jonathan Woodland | VP | KeyBank 

Growth is here, bringing challenges and opportunities for us to figure out. We are well-positioned in the capital markets and the financial sector. Utah certainly punches above its weight as far as the funds, banks and talent here are concerned. We’re well-positioned to work through the challenges and opportunities.

Taylor Woodbury | CEO | Woodbury Corporation

I’d like to honor our legislature. President Adams and Speaker Wilson are phenomenal. We get ranked at the top of every list as the best place to do business year after year, and our legislature doesn’t do anything to hamper that. We are fortunate to have a government focused on keeping Utah moving in the right direction.

Ian Davis | Attorney | Dentons Durham Jones Pinegar

The tide’s certainly going out. Some people are being caught a little unawares, unprepared and inexperienced, but the good projects and the good operators are still working and doing well. Some things slowed down, but there’s optimism that it will swing around the other side.

Brock Bench | Investment Real Estate Manager | Altabank

We will face some headwinds: delivery time with rising rates, 10 and 20 percent cost increases for the last couple of years. There’s definitely some stress hitting the market. That being said, there’s not a better state or group of people to face it with.

Savannah Beth Withers Taylor is the assistant editor of Utah Business and a graduate of the editing and publishing program at Brigham Young University. Beth has written content about travel, academics, and mental health for Stowaway magazine, BYU College of Humanities and United Way. She enjoys traveling, reading, eating, and mercilessly defeating loved ones in anything competitive.