Is Utah’s economy as great as we claim?: Behind the headlines, commercial real estate provides insight and creates opportunity
You’ve been hearing it for a while: #1 State for Business!1 Best Economic Outlook!2 Hot Startup City!3 Best Places to Live!4 Headline-grabbing claims are in no short supply when it comes to Utah’s economy and general business environment. Beyond words, anyone who hops on I-15 has seen the tremendous amount of development along the Wasatch. But to thoughtful decision makers, catchy accolades and shiny new buildings bring with them a host of important follow-up questions: Is the economy really as good as we say it is? How long can we sustain this kind of growth? Where is Utah’s economy headed in the long-run? Does any of this change how I should do business? If you want answers, commercial real estate (CRE) provides a valuable lens for looking at the situation. Here’s how we see things at CBRE.
Growth is not cosmetic
There is no question Utah’s economy is undergoing an expansion. With 774,000 sq. ft. of new office construction completed so far in 2015, it’s shaping up to be the strongest year for office construction since 2008. Remarkably, close to 70% of this new space is already leased by long-term tenants, suggesting development is both justified and demand-driven.
The absorption of office space, which shows how much space is being filled versus vacated, has been positive every quarter over the past five years. This means new businesses are forming or locating in Utah, and local businesses are expanding. Overall, only 10.4% of all leasable office space in Salt Lake County is vacant; that’s both historically and relatively low. Compare that to 12.9% in Denver, and 20.0% in Phoenix. This high level of occupancy, even amidst development, reflects the story we’ve been hearing: employment growth in Utah is among the strongest in the nation.
Popping the Utah bubble
Those who say Utah exists in an isolated “bubble” will have to argue against several major CRE trends. Not only do we see an increasing number of out-of-state companies choosing to locate in Utah, but 75% of all dollars spent on investment properties in Utah during the first half of 2015 came from out-of-state investors. Interest extends across all property types, and only seems to be limited by the number of existing owners willing to sell. This increase in domestic and foreign interest in Utah signifies a critical point for the business environment; Utah is passing a threshold into national (and even global) influence.
More locally, trends in industrial real estate suggest that Salt Lake continues to secure its position as a crucial hub for commerce in the west. Of the top 10 industrial user transactions (in terms of square footage) in 2015, 78% were distribution and logistics operations. Commerce that doesn’t originate in Utah certainly passes through it, benefitting from intermodal transportation options. So far this year, 4.1 million sq. ft. of industrial product has been leased and over 2.8 million sq. ft. has been constructed—the majority of which is distribution and warehousing space.
Can this growth continue?
2015 has shaped up to be one of the best years for Utah’s commercial real estate market post-recession (and by some measures, of all time). With record levels of construction and an expansion of global significance, it’s natural to ask how sustainable such growth really is. Our data suggest that there is still room to run. While the supply of CRE has surged, absorption levels indicate a healthy balance with demand. Vacancy remains low, and unlike conditions in prior economic crises, underwriting standards for debt and financing haven’t become over-relaxed. The increase in both development and investment represents long-term confidence in the local economy from those with significant amounts of capital. While economies ebb and flow, it seems we haven’t yet hit our peak in this particular cycle.
What does this mean for you?
So the economy is expanding—in size, diversity, and influence—but what does that mean for Utah’s business owners and decision makers? The reality is that though business is certainly good, it is not business as usual. CRE trends show a shifting landscape of preferences and business needs. For instance, data show significant amounts of relocation and redevelopment, supporting the idea that businesses are using CRE as a means to attract and retain both customers and employees. Businesses are also turning to CRE to help their bottom lines, implementing energy efficiency and space-use effectiveness strategies to cut costs. The influx of national and global players, as well as the outward expansion of Utah-based companies, has elevated competition across the market.
As Utah’s business environment matures, keep a close eye on commercial real estate—both in a general sense as well as specific to your own business operations. It may give you the edge you need to move forward, and not be left behind.
- Forbes, October 2015.
- ALEC, April 2015.
- Entrepreneur, August 2015.
- Money Magazine, August 2015.
Joseph Farrell is the Industrial Research Analyst in the Salt Lake City office of CBRE. Within this role, Joseph is responsible for all data and analysis related to industrial real estate in the greater Salt Lake area. Joseph also serves as Team Lead for the CBRE’s local research department, overseeing research practices and personnel across office, retail, industrial, and investment properties