25 Jun, Saturday
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Turning Point: Commercial real estate continues its climb in Draper and Lehi

Just a few short months ago, the commercial real estate market in the vibrant Draper-to-Lehi region was in a unique bind: Businesses that had built expansive new headquarters there had lots of extra room, which they promptly put on the market to sublease. In short, an unexpected amount of office sublease space was available, which impacted markets all along the Wasatch Front and dampened the prospects for new office construction.

Fast forward one quarter, and that space has already been consumed.

“We have observed some of the most dynamic market fluctuations and conditions in our history over the course of the last six months in Utah, specifically near the Point of the Mountain,” says Brandon Fugal, chairman of CBC Advisors. “Six months ago there was an abundance of sublease availability and large blocks of space due to companies having an excess that they did not necessarily need at that time. That space has now been surprisingly absorbed, and we’re quickly running out of inventory as a result.”

Reaching critical mass

Surprising is the right word for that rapid absorption. Jeff Rossi, executive director of Cushman & Wakefield Commerce had predicted it would take 12 to 18 months for the sublease space to be absorbed and for lenders and developers to begin eyeing the area for new projects.

But the demand has been unrelenting, and Rossi expects growth to continue, if at a slower pace. “We are probably 60 percent of the way through our build cycle in Lehi,” he says.

Fugal credits the state’s red-hot economy and active tech scene for the rapid absorption. “As one company may downsize or slow their growth, other companies quickly step up and emerge,” he says.

For example, MX subleased some of its space to Canopy Tax, which offers a software solution for tax professionals, and Workfront subleased to Podium, a customer interaction platform. Even large, well-established businesses are getting in on the act: Adobe has already outgrown its signature building along I-15 in Lehi and subleased additional space from Ancestry.com.

The area surrounding the Point of the Mountain is already home to the who’s who of the state’s large employers: eBay, 1-800 Contacts, IM Flash, Vivint Solar, Nuvi, DigiCert, Solutionreach and Younique. The list goes on and on—and will only get longer. Fugal says to expect several announcements of new headquarter buildings in the area.

“People have no idea what’s coming,” he says.

The growing cluster of companies located in the area has created its own gravity, pulling more and more businesses to the region. “The more companies that locate in an area and gravitate to a particular submarket, the stronger the identity and branding of the area—driving further momentum,” says Fugal.

That phenomenon has been particularly pronounced with Utah’s tech sector. “Seeing companies like Adobe, eBay, EMC, Microsoft and Oracle [be successful here] gives other companies great confidence in viewing Utah as an ideal market for growth and expansion,” he says.

Draper Vista StationWhere the workers are               

Rossi believes one reason the area is growing is because employers are chasing the workforce into the suburbs.

“Recruiting and retention is now driving real estate in a way that it never has before,” he says. “Companies are looking at where their new hires live today and where their next hires are going to come from.”

Utah’s residential growth has traditionally followed a linear pattern from north to south. However, over the past decade, the need for more space has pushed development east and west, especially near Lehi and Draper.

“The majority of growth for our young, intelligent, well-educated, family-oriented people is right in that area,” Rossi says. “So locating there makes a ton of sense for companies who are thinking about their labor pool, not just for today but over the next 10–30 years.”

With the state experiencing such a low unemployment rate, businesses often need to cast a wider net to find qualified workers. Because of its central location, the Lehi/Draper area allows companies to recruit in both Salt Lake and Utah counties.

Take Ancestry, for example. The online family history company was founded in Provo but decided to build its new headquarters in Lehi. “The challenge was that the majority of its employees were just being drawn on from Provo and the two Utah County schools,” Rossi explains. Once the company grew larger and needed to attract more employees, it had to position itself to draw on workers living in downtown Salt Lake, executives living in Park City, and graduates coming out of the University of Utah or Brigham Young University.

What’s next?

“We’ve seen great expansion in Draper and Lehi and now everyone is asking, ‘What’s the next boom marketplace for Utah?’” Rossi says. He expects the commercial construction will follow the residential growth in Saratoga Springs and the 2100 North area of Lehi.

“I think we’ll continue to see office occupiers look at that corridor for potential expansion—not necessarily for headquarters but for growth to capture that employment market,” he explains. “We’ll also continue to see a significant amount of infill development along I-15 and along transportation corridors over the next 10–15 years.”

Fugal agrees that development is going to expand out from the Point of the Mountain into adjacent communities. In fact, Pleasant Grove and Lindon are already seeing spillover growth. Fugal points to Jive Communications, which recently announced a new headquarters in Lindon. Instructure and ASEA, Inc. are positioning their new buildings at the Pleasant Grove interchange, “which demonstrates a more diverse range of expansion and growth that is not wholly focused on Lehi or Draper,” he says.

But don’t count out Lehi and Draper just yet. “In Lehi, at the Point of the Mountain, there is such a positive, critical mass of key companies that we’ll continue to see growth in those sub-markets as well,” says Fugal.

In fact, any employer thinking about building or relocating should still consider the Point of the Mountain, Rossi says. “Though they may not end up there, all major occupiers need to ask themselves, ‘If I don’t have an office in Draper or Lehi, why not?’”