Jeanette Bennett, BusinessQ: What’s the status of commercial real estate here?
Brandon Fugal, Colliers International: The Utah skyline continues to transform dynamically, capturing local and international attention. With Utah growing from a tertiary market to a secondary market, it has joined the national stage as a key center for growth and activity. The exciting thing is the diversification. It isn’t all tech. It’s health and wellness, financial services, manufacturing — which really speaks to how strong Utah is positioned for the future. This is the greatest time to be alive in the history of the world and frankly, in the state of Utah. If only the pioneers could see us now! The growth has been so rapid and so dramatic it is hard to believe that 10 years ago, there was no Adobe campus at the Point of the Mountain.
Lauren Reber, Parsons Behle & Latimer: There wasn’t much of any commercial development at the Point of the Mountain then.
Fugal, Colliers International: There is an estimated nearly 5 million square feet of Class A office that has been added to the market in just a decade. You’d be hard pressed per capita to find any market in the country that has exhibited the dynamic growth we’ve observed.
Jarrod Hunt, Colliers International: Fueling that growth is institutional investment groups. About 10 to 15 years ago, you could list on one hand the number of institutional owners with positions in Utah. That growth has created liquidity for large projects that might be developed and owned by local groups, and it’s provided them an avenue to sell off that investment property and redeploy that capital again in new development. Governor Herbert deserves a lot of credit for keeping the marketing platform alive for Utah on the national stage. The rankings around marketing actually matter because they get attention. There are hundreds of millions of dollars rolling into our economy every year. That is important for the health and vitality of our continued growth.
Heather Osmond, Osmond Designs: I love the national and international businesses coming in, but I also love the local, homegrown businesses. A lot of the Traverse Mountain and Silicon Slopes areas are homegrown businesses. This is Utah, and we’re known for being entrepreneurs. If we dream it, we do it. The cost of living is incredible here, and people from California love that they can get a huge home for half the price of what they can get in California. A lot of people are multi-lingual, and it’s a family-friendly place to live.
Fugal, Colliers International: Utah is a target-rich environment for not only venture capital, but for mergers and acquisitions. Most national and international companies have entered our market through acquiring our homegrown companies. The biggest M&A deal in Utah was SAP’s acquisition of Qualtrics of $8 billion. That will be a catalyst for more activity and growth for the future. The amount of technology transfer that has occurred in this market is astounding. That’s one thing people underestimate relative to Utah. We are a college town, and that incredible innovation we continue to see from our higher education base differentiates us.
Osmond, Osmond Designs: And I love the renovation of the airport. To have convenient, close proximity to all the growth and excitement is only going to benefit all of us.
Fugal, Colliers International: Within seven minutes of the curb at the Salt Lake International Airport you can be in downtown Salt Lake City — or within 45 minutes be at world-class resorts.
Hunt, Colliers International: The last time I flew out, I timed myself. It was 11 minutes from the time I closed my car door to the time I was standing at the gate.
Reber, Parsons Behle & Latimer: It’s interesting from a legal perspective to see how many clients we get from out of state. We become their local counsel for either acquiring or developing. There are really fun things going on in the downtown Salt Lake City area, such as redevelopment of old buildings that have been vacant forever. If my clients haven’t been to Utah before, the first thing they say is how beautiful it is. You fly in, and the mountains are so close. My out-of-state clients are surprised by the change in availability of good food, good restaurants and nightlife, especially in Salt Lake. That has changed dramatically over the past 10 years. Downtown is very walkable. The availability of Uber and Lyft have also really helped.
Jeff Simonsen, Central Bank: From our perspective, it’s a booming market. We’re community-based — we mainly lend in Utah County and Salt Lake. We see a lot of diversity in requests from office to warehouse to tons of residential. Residential is obviously a large part of what is fueling growth. As a lender, we are cautiously optimistic because we’re in a mature cycle compared to what you see at the beginning of the cycle. We’ve been in an expansion for a long time. Values are high, both in commercial and residential. We also know there’s a limit to every cycle. As a whole, we’re not seeing a slowdown, especially on the residential side. Now is still a good time to invest. I don’t know that even if there is a maturity in the cycle you’re going to see anything you did in the downturn. The demand is out there and we’re not even close to matching our supply-demand on housing. The growth will continue even if there is a lull in the market. Make sure deals work for you. As a bank, we do the same.
Osmond, Osmond Designs: There’s always a great deal. I don’t care if it’s a booming market or a low market. I think it’s just being patient and doing your research.
Fugal, Colliers International: You can argue that any time in the past was a good time to invest. I started my career in 1991 — which really dates me — and it was a down market. We were coming out of a recession. This was right before the Clinton years. I look back, and it was a wonderful time to launch a career even though it was a challenging time.
Hunt, Colliers International: The lessons learned were less expensive.
Osmond, Osmond Designs: Looking back, if I had a crystal ball, I would have invested more money and just purchased more things. We can’t do that, so let’s get in right now because the opportunities are still there.
Fugal, Colliers International: Every five years, I look back and think, “Why didn’t I take advantage of that?” There is relative scarcity of develop-able property today compared to years ago. Utah is actually quite land constrained, especially along the Wasatch Front with the mountains on one side and the lakes on the other. It creates a very narrow development corridor to work within. That scarcity is just starting to become prevalent. In five to 10 years, we’ll be discussing how critical this window of opportunity was.
Osmond, Osmond Designs: My grandpa owned a lot of the north side of the Alpine-Highland area and sold it back in the day. Even when I was a little girl, I remember him telling my parents, “I should have just held onto it.” But who knew?
Reber, Parsons Behle & Latimer: The nice thing about scarcity is there are always options to redevelop. There are so many aging properties. Even once all those properties are taken out, there will be a lot of opportunity.
Osmond, Osmond Designs: There’s that quote that says, “Invest in land, they’re not making it anymore.” I looked for land for over two years in the Traverse Mountain area and cold-called landowners to see if people would sell. Finally, I bought a parcel by the Traverse Mountain Outlets next to Strap Tank. I purchased 1.5 acres and put a sign saying, “Osmond Designs Coming Soon.” Less than 24 hours later I had multiple phone calls saying, “Would you consider selling?” We threw up a crazy number, which was more than what we actually had paid for the entire parcel, and they just wanted to buy half.
Bennett, BusinessQ: Congrats on that deal! What are some of the current trends in office design here in Utah County?
Fugal, Colliers International: If you’re in professional services, you’re still seeing private offices and enclosed workspace due to the confidentiality of the industry. In technology, design is more creative, making work spaces more collaborative, open and modular. We’re seeing more diversity in space programming and design than ever before. People are really pushing the envelope with amenities they incorporate into their space.
Osmond, Osmond Designs: There are basketball courts, salons and all sorts of things going in offices.
Fugal, Colliers International: With record low unemployment in Utah, employers are being more creative with recruitment and retention of employees and leveraging their workspace. They are creating ways to differentiate themselves from their competition with dynamic space programming. It is one of the driving factors in our market.
Hunt, Colliers International: A lot more attention is being paid to work space ergonomics and making work more efficient through layout. For example, in the industrial world, they’re trying to take as many touches as they can out of the process of getting product from point A to B. And when an employee is actually involved in movement, they are looking at ways to make that movement safer and less strenuous using technology. Then the employee can perform that function over a much longer life cycle. Also, the workforce is changing. Much of our population is aging, and a lot of that aging population is very interested in showing up for work every day. They’re not in a financial or emotional position to retire. They can find enjoyable, satisfying careers (or second careers). If companies will take design into consideration, they have a lot of options.
Osmond, Osmond Designs: Utah does a great job creating family-first in the workplace. There’s flexibility with time and resources. Some of these businesses provide childcare and opportunities for women specifically to be a mom and be in the workplace. We all have that in common — trying to juggle and do a great job at home and at work. It’s a challenge for both men and women.
Reber, Parsons Behle & Latimer: For the majority of people with young kids — I know I’m one of them — it’s pretty tough. Having those options is a huge recruiting tool and a very big way to keep anybody, but women especially. I sit on the recruiting committee of our law firm and it is a constant question for younger people coming in. What are the flex time options? What happens when you have a kid? Are you punished for it? For the upcoming generation, pretty much everyone’s going to have to work. It’s not going to be single income families anymore.
Osmond, Osmond Designs: As a woman, I would take a pay-cut for childcare — quality over quantity. There’s only a certain amount of productivity that someone has in the workplace anyway. If they’re there for four hours versus eight and can accomplish the same things because they’re happy in their home life, as well as their workplace — I think that’s very important, too.
Hunt, Colliers International: Then when they’re at work, they’re not distracted worrying about their child. The child is in the same building or adjacent and they have means to check in regularly throughout the day so they can focus on their work.
Simonsen, Central Bank: It comes down to life-work balance. Our industry has been a little bit behind in offering perks and creating a work environment that allows employees to have work-life balance. I think we’ve done a good job at Central Bank in creating that environment. We’ve had to because of the challenge of getting good employees and retaining them. It’s not always about the money anymore. It’s really about what their lifestyle is: being able to take the time off to go to a basketball game or to go home with the kids.
Bennett, BusinessQ: What are the office design priorities of 2020?
Hunt, Colliers International: So my world is exactly opposite of Brandon’s because I want to drive the conversation to efficiency as quickly as I possibly can. It is all about price. Nobody makes any money in a warehouse. A warehouse is an expense. Driving every bit of cost out of that supply chain is always the goal. I always try and divert the conversation away from price per square foot because that’s only one aspect of the cost qualification. Let’s look at the efficiency. Let’s talk about cost per pallet because that’s what matters to most companies. From truck access to shipping routes, all those things are very mechanical and very black and white. My clients don’t spend a lot of time worrying about visual aesthetics because it’s the dirty part of the business. It’s where stuff just has to get done.
Fugal, Colliers International: In contrast, the office market decisions are being driven by access, amenities and quality. They want to leverage their office space and facilities to enhance employee recruitment and retention. People ask all the time why so much of the market activity and absorption has been centered in Lehi and Draper, and it is simply because of access.
Hunt, Colliers International: Right now, not so much. The access blows, but it’s going to get better!
Fugal, Colliers International: That depends on which side of the freeway you’re on. But the Point of the Mountain has become a center of gravity because companies have identified that area as being optimal for recruitment and retention from both Salt Lake and Utah County. In a highly competitive market, the ability to draw from the two largest demographic pools is key.
Reber, Parsons Behle & Latimer: Do you also see that transportation is a big factor?
Fugal, Colliers International: Yes, in fact, the number one question we’re getting from national site selectors when they first arrive to tour sites is typically oriented around transit and access to transit-oriented development.
Reber, Parsons Behle & Latimer: Even in Salt Lake it’s extremely limited.
Fugal, Colliers International: One of the greatest challenges Utah County faces is relative to our transportation infrastructure. We are very dependent upon I-15 and State Street as primary arterials, and that has always been the case. We desperately need to see Trax brought over the Point of the Mountain and all the way into Utah County and Provo if we are to really meet the demands being placed on our infrastructure.
Reber, Parsons Behle & Latimer: That’s our biggest concern right now. We are not able to handle the amount of people who have come.
Osmond, Osmond Designs: Lehi didn’t realize how much that area was going to boom. I think a lot of the development has come down to status. When you see the names on some of those buildings, it’s an ego thing to be in that area. It’s like driving the Porsche.
Simonsen, Central Bank: Pioneer Crossing toward Saratoga and Eagle Mountain at 5 p.m. is crazy. We’re at the very beginning of what that road out there is going to be and the transportation is already blocked.
Reber, Parsons Behle & Latimer: Everyone living here is getting really frustrated. It also goes to the commercial issue of businesses. They’re going to stop coming here if these problems continue. If people can’t afford to live near work, and then they can’t get to work, it becomes a real issue. And that’s people being priced out of the markets anywhere near the central hubs of both Lehi and Salt Lake. As that continues to happen, it’s going to be a lot harder to recruit younger talent.
Bennett, BusinessQ: How does the residential housing market affect or respond to the commercial real estate market?
Osmond, Osmond Designs: If transportation in Utah makes your commute 45 minutes to two hours, that’s a challenge. People will have to move closer to be within walking distance. That’s why Salt Lake City has been doing all of those high-density residential condo complexes. There’s a need and no availability. With walking distance to restaurants, work and convenience stores, think about how much time you’re saving!
Reber, Parsons Behle & Latimer: I don’t think younger homeowners care as much about having a big house with a big yard. They want to live somewhere they can walk, can get places and can get to work without having it be two hours.
Osmond, Osmond Designs: Life is just getting so busy for all of us. We don’t want to spend our time doing home maintenance, like fixing the fence. If you can simplify, even if it’s having a smaller home, it’s less liability and you can go to your kids’ activities and enjoy restaurants or a concert.
Reber, Parsons Behle & Latimer: The priorities are different. In Utah, people cannot afford to buy a house. First-time homebuyers cannot afford to live near their work, which is why you’re getting the expansion of homes everywhere else. But then you’re dealing with the transportation issue, which is why I think the rental market is going to continue for a long time. The cost of living is going up a ton and wages are not keeping up.
Simonsen, Central Bank: A lot of cities, such as Vineyard, are looking at concentrating in higher density and transit or rail-oriented communities to create affordability.
Reber, Parsons Behle & Latimer: The mixed-use is also a big help.
Simonsen, Central Bank: House affordability is a challenge in retail, especially on the Wasatch Front. You see it in financing because it gets to a point where people just can’t afford it. The higher segment of the real estate market has slowed a bit and it’s because it’s just hit the unaffordable level.
Osmond, Osmond Designs: Retail is doing well. It’s the nail salon, the hairdresser and services you can’t buy online but are close to where you live. That commercial real estate cannot be replaced.
Bennett, BusinessQ: What’s your opinion on the trend of co-working spaces?
Hunt, Colliers International: The mindset is like a hotel or apartment. When you’re staying in a hotel, nobody does the math of how this relates to a 30-day hotel stay relative to a mortgage. You’re buying a convenience. For a lot of businesses that are coworking, that temporary space is an ideal solution because it’s a month-to-month or a 90-day commitment. They can test a theory relatively inexpensively. If the business doesn’t work, they can move on and not have a three-year lease and $40,000 worth of furniture that’s now worth $4,000.
Reber, Parsons Behle & Latimer: I think it’ll consolidate. There will be a few co-working spaces that survive. There are contract workers who don’t have a place of business or people who don’t want to work from home or people who are working remotely. There are a lot of people who may benefit from this option. But it’s oversaturated right now.
Bennett, BusinessQ: What are some misconceptions about real estate in Utah right now?
Simonsen, Central Bank: On the finance side, one misconception is that you have to be well-established to get financing to purchase real estate. That’s not necessarily the case. Small businesses can get funding right now. They can shop around and find the best deal and create relationships with banks. If they really do research, there are lots of options on the SBA side. A lot of small businesses in Utah County have taken advantage of the SBA financing banks offer.
Reber, Parsons Behle & Latimer: From the legal side, one misconception is it’s really expensive to have a lease reviewed by an attorney. It’s extremely important and can save you so much pain.
Hunt, Colliers International: It’s more expensive not to.
Reber, Parsons Behle & Latimer: It can cause so many problems if a tenant goes in and thinks they don’t have negotiating power. Or they don’t even read the lease, and they sign it because they think they have to. It is so important to understand your lease and know what you’re getting into. Even if you can’t negotiate it, you need to have the conversation about what those things mean.
Osmond, Osmond Designs: A lot of people are hesitant to get in the market. They keep thinking, “I’m not going to get in right now because it’s going to go down.” There’s some hesitancy. In a low market, you can overpay, and in a high market, you can overpay. It’s just finding a great deal in any market.
Hunt, Colliers International: Everybody thinks we’re going to have another 2008 correction. That was a once-in-a-lifetime deal. It was a market correction hyper-focused on real estate because real estate and loan frauds were the problem. That’s not the problem now. The coronavirus, that’s a problem. A lot of tenants need to be prepared for a much higher level of scrutiny on the part of the landlord looking at financial performance. That’s probably the hurdle I spend the most time trying to get people to overcome. They come in asking for a TI package that is hundreds of thousands of dollars but they have no net worth. They have marginal profitability. It’s a new business and the landlord says it’s a bad deal and a risk they’re not willing to take. Get your finances in order before you come to the landlord rather than after because if the deal isn’t resolved in a matter of a few weeks, the likelihood that it’s going to get resolved is pretty low. Everybody just gets tired of talking about it and we move on.
Simonsen, Central Bank: One challenge for small businesses and entrepreneurs in Utah County is understanding what it takes to obtain funding. They’re brought up in an entrepreneur system where they constantly get money fed to them because of their great ideas. Then they get to a level where they try and obtain finances, and they get a little bit of a different perspective.
Bennett, BusinessQ: Great insights today. Thank you for teaching us!
Originally published in the Spring 2020 issue of Utah Valley BusinessQ.