As a city with a highly educated employee base, one with a substantial multilingual component, Salt Lake City is an attractive area for business development and growth. This applies to the full gamut of business operations, from call centers to industrial facilities. The fact that the current office market is conducive to company relocation or lease re-negotiation makes the area even more appealing to businesses. The opportunity has translated over to Salt Lake City’s retail sector as many national and regional retailers have staked an aggressive claim to the market. Of course, none of this would be possible if Salt Lake City didn’t offer its residents so much more like affordable living, friendly western values and tremendous natural beauty.

Office

The greater Salt Lake City office market is on an upswing. While not all key indicators are positive, Utah’s unemployment rate remains almost a point below the national average. The lack of new office construction combined with slightly declining lease rates driven by the competitive sublease market has helped Salt Lake experience some positive absorption through the first half of the year — large enough in the Class A sector to outweigh the negative absorption in the Class B and C properties.

Most office leases being executed in the Salt Lake Valley involve relocations within the market. Tenants are taking the opportunity to upgrade their images and/or decrease real estate costs and create longer-term lease value through re-negotiations with landlords. One executive with Ray Quinney Nebeker, a prominent local law firm, recently remarked that, thanks to market conditions and the help of its real estate broker, the firm was able to realize savings of more than $1 million on its move.

Significant office projects completed this year include the 125,000-square-foot first phase of Valley Center Towers, located at Interstate 15 and 5300 South. The University of Phoenix and Lincoln Financial are the anchor tenants there. Construction has begun on the first building at Center Square in Salt Lake City; the facility will be 55,000 square feet.

Riverpark Corporate Center broke ground in late September on its second building, which will add approximately 100,000 square feet to the market. Construction on Gateway’s 113,000 square-foot Gateway III office building has resumed. The owners of the first phase of Millrock Corporate Center, which is approximately 490,000 square feet, and Union Heights, a mixed-use project with approximately 160,000 square feet of Class A office space, have announced their plans for new construction in the very near future.

Wasatch Property Management recently announced that the law firm of Holmes, Roberts and Owens will occupy 30,000 square feet of the Wells Fargo building, its property in downtown Salt Lake. Also, the CBS affiliate KUTV Channel 2 will relocate from its long-time suburban location to approximately 50,000 square feet of space in the central business district to house its new television studios.

In Sandy, a suburb of Salt Lake City, a 200,000-square-foot civic center is planned. In the southeast quadrant, at the Cottonwood Corporate Center, officials announced that Kern River moved into approximately 50,000 feet of space at this large Class A office complex.

Because Salt Lake City has become known as one of the most “wired” parts of the country, with more computer users per capita than most other areas, and because of its highly educated and hard-working employee base, it holds great appeal for new or expanding businesses. The Miller Business Innovation Center (MBIC) recently opened in Sandy. The MBIC is a 30,000-square-foot non-profit business incubator, which gives new small businesses tools that would otherwise be financially out of reach. Some of the tools are high-speed connectivity, business publications, databases, fully furnished workrooms and media-wired conference rooms.

Salt Lake City, like other cities in the western United States, is experiencing opportunity with regard to office relocation or lease re-negotiation. The greater Salt Lake market is still known as the “home of the call center” in that dozens of call centers of significant size have located in the Utah market primarily due to the competitive rates, the highly educated workforce and — important for those doing international work — the availability of bi- and trilingual employees. Utah is known for the highest number of bilingual residents in the world, which is due to the Latter Day Saints missionary program that spans the globe. Call centers benefit from this since there is virtually no language that cannot be covered in the market.

— Tab Cornelison, Norm Marquardson and Peggy Garcia are office specialists at Prime Commercial Inc. in Salt Lake City.

Retail

The greater Salt Lake City market continues to see strong expansion by many national and regional retailers. The area was chosen as a test market for Wal-Mart and its neighborhood market grocery concept and, as of this date, several stores are either open or in the development stage. The influx of the Wal-Mart Neighborhood Market and the continued strong expansion of Wal-Mart Supercenters definitely are having an effect on existing national grocery chains and especially the smaller local and regional food operators.

Target, Costco, Barnes & Noble, Best Buy, Bed Bath & Beyond, Petco, Big 5 Sporting Goods, Ross Dress For Less, T.J. Maxx, The Home Depot, Lowe’s Home Improvement Warehouse, Albertsons, Smith’s Food King and local grocers Macey’s and Harmon’s continue to show strong expansion in the area. Many new sit-down restaurant chains such as Noodles, Baja Fresh, Mimi’s Café, California Pizza Kitchen, Fleming’s Steak House, IHOP and P.F. Chang’s are finding that the Salt Lake market still has room to accommodate them.

Also important to the retail equation is the smaller regional and national restaurant tenants. Del Taco, Carl’s Jr., Der Weinerschnitzel, Sonic Burger, Pei Wei (P.F. Chang’s fast food concept) and, of course, the standbys like Wendy’s, Taco Bell and Subway continue to expand in this region. Small national clients like Fantastic Sams, Kinko’s, Payless Shoes, RadioShack and others are helping to fill inline shop space. In the automotive arena, Les Schwab, Discount Tire, Big O Tires and Checker Auto are the most aggressive in the area. There are two large automotive malls with several dealerships that have remained viable despite their close proximity to many different auto dealers.

Other significant developments in the Salt Lake retail market include the final phase of expansion at the University Mall, a Woodbury Corporation regional mall in Orem, Utah, just south of Salt Lake. Costco, Gart and Nordstrom were added in the new renovation there. In nearby American Fork, Woodbury Corporation also has a development, which is anchored by The Home Depot, Wal-Mart Supercenter, a 12-screen Cinemark Theater and Kohl’s. Next to that, Miller Weingarten of Denver developed the Alpine Valley Shopping Center and recently opened a Target. The company is expanding with several mid-size and small retailers at the highly visible location just off I-15. Dozens of new grocery-anchored centers have opened in the region as well. The anchors include Harmon’s in Draper, Smith’s Food King in Lehi/Saratoga Springs and Herriman, Macey’s in Pleasant Grove and Albertsons in Holladay.

One of the largest developments is the Russell Grosse Development project, Jordan Landing, which features several big-box retailers including the new Sears Grand, a 200,000-square-foot prototype store. With a strong tenant mix, this property has become one of the most dynamic shopping areas on the west side of Salt Lake City.

The Gateway Lifestyle Center in downtown Salt Lake City continues to expand with its developer, The Boyer Company, working closely with Salt Lake City to get Nordstrom to relocate there from an older downtown mall. The Childrens Museum, a new planetarium and new restaurants add to the vibrancy of the center.

Zions Securities Real Estate division recently acquired the Crossroads Mall in downtown Salt Lake City, giving it control of two regional malls in the area (the other being the ZCMI Center). The Home Depot and Lowe’s are both aggressively addressing the market with the former recently opening new stores in Sandy and Park City, building another in American Fork and acquiring property in the central east portion of Salt Lake near The Brickyard Center. Lowe’s opened new stores in West Jordan and Ogden.

Best Buy recently opened four stores in the market and will continue their expansion mode with new stores in Utah County.

Kohl’s market presence will be felt with five confirmed locations for new stores. The city of Ogden, just north of Salt Lake, has demolished an old mall property and is now working with the developer to transform the site. Other new developments across the area, including the long-awaited start of the Redstone Lifestyle Center in Park City, confirm the fact that the greater Salt Lake area is a vibrant and strong market for retailers and developers.

— Steven Bogden is president and principal broker of Prime Commercial Inc. in Salt Lake City.

Industrial

In the past decade, the Salt Lake City industrial market has grown dramatically into a strong and vibrant sector. Some major factors that have contributed to this real estate growth are the capital investment in infrastructure improvements, the low cost of doing business, a well-educated workforce and the high quality of life. The Salt Lake industrial market base, including Salt Lake and Davis counties, contains more than 110 million square feet of space.

As of second quarter 2003, the vacancy rate for industrial properties was 10 percent, and there was gross activity of 2.7 million square feet of owner/user sales and leases and 1.76 million square feet in investor sales transactions. In 2002, the market absorbed 3.62 million square feet of owner/user lease and sales space and 422,819 square feet in investment transactions. The first three quarters of 2003 have seen an overall increase from the same time last year.

With approximately 50 percent of the industrial base owned by investors, Salt Lake City is known for its low turnover of institutional quality industrial product. Utah’s centralized location in the West led to a well-deserved reputation as a distribution and warehousing hub in the 1990s. Warehouse/distribution space makes up nearly 78 percent of the city’s industrial base, with manufacturing (13 percent) and research & development/ flex space (6 percent) the next largest components.

The demand for income-producing industrial real estate in the Salt Lake City area is extremely high, so much so that cap rates are setting record lows in the marketplace. The low cap rates result from rising prices on investment sale properties, even though there is downward pressure on lease rates in new speculative industrial buildings.

Construction activity in the market has slowed due to the glut of large distribution and flex-space facilities from 2001. Many large distribution facilities have been developed along with smaller office/warehouse and flex-type projects over the past few years.

The average industrial lease rate has declined, especially in the larger units. The smaller units, those less than 50,000 square feet, have maintained better lease rate stability. This trend will reverse itself as the economy improves throughout Utah and the rest of the West. With the lack of new speculative construction in the marketplace, the current low lease rate climate will not last. The possibility is very strong that lease rates will begin to increase within the next 12 months.

Utah continues to enjoy a low unemployment rate of 5.2 percent, which is lower than the national average. Even in the present slow economic environment, the industrial vacancy is at or slightly below the national rate.

The Utah real estate market today has never had so much quality real estate available for sale or lease. Companies coming to Utah to seek a well-educated, hard-working labor force will also have state-of-the-art manufacturing and distribution properties available to them. The climate for manufacturing companies looking to relocate in Utah has never been better. As the U.S. economy continues to rebound to more normal growth in the next year, the Utah industrial real estate market will stay even with if not ahead of the growth curve.

— Rad Dye is a senior vice president at CB Richard Ellis in Salt Lake City.

Multifamily

The overall multifamily vacancy rate in Salt Lake County dropped to 9.5 percent in June 2003. This represents a 13 percent decrease from the December 2002 rate of 10.9 percent. While the improving vacancy rate is welcome, the catalyst for the change has come in the form of decreasing rents and heightened rental concessions. Submarkets near employment centers, main transportation routes and available competing inventories remain relatively strong. Vacancy rates will likely remain between 9 and 10.5 percent until real job growth occurs, and to the extent that only a moderate number of new apartment units are added to existing inventories.

An economy that currently lacks employment vitality, combined with the historically low interest rates that encourage home ownership, has caused the average Salt Lake County multifamily rental rate to decrease $16 per month to $633 during the first 6 months of 2003. This represents an overall decrease of 3.8 percent in rental cost per square foot.

Construction of new multifamily units was moderate during the first half of 2003. A disproportionate ratio of affordable units is presently under construction when compared with prior years.

Following historic trends, if 75 percent of the proposed 2,347 units slated for construction in 2003 and 2004 are eventually built, and if unit deliveries are staggered, the addition of such volume should not negatively affect overall market balance. However, these new units would likely preclude any noticeable increases in rental rates or decreases in rental concessions.

Weak employment growth and the additional 907 new apartment units under construction in Salt Lake County as of June 2003 will create additional competition among landlords. In an effort to retain existing residents and attract new renters, landlords have responded to economic softness and overall competition with the new home market by enhancing services and lowering effective monthly rental costs.

This trend is expected to continue until real economic and job growth occur. Through June 2003, Salt Lake County experienced negative 1.3 percent job growth while the state of Utah posted a negative 0.2 percent job growth rate. The Salt Lake County unemployment rate dropped 0.1 percent in the first half of 2003.

— Mark Millburn is president, co-owner and principal broker at EquiMark Properties Inc. in Salt Lake City.

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.