The gurus who monitor Utah's economy are all of one mind as the new year gets under way: 1994 is going to be another great year for the state's economy.
William L. Chillingworth couldn't agree more. "Fabulous" is the way he describes Utah's prospects for the next 12 months.But there's this little problem he wants to share with all the people going around giving each other metaphorical high fives over the state of the state: Unless lending institutions start loosening the purse strings for loans to build new office and industrial buildings, the state's efforts to attract new companies will by stymied for the most basic of reasons - there won't be any place to put them.
"Commercial lending for speculative development is almost non-existent," said Chillingworth, senior vice president and managing officer of the Salt Lake office of CB Commercial Real Estate.
In an interview prior to CB Commercial's annual Real Estate Forecast 1994 Thursday morning at The Marriott Hotel downtown, Chillingworth said he really doesn't blame lenders for being overly cautious about making commercial real-estate loans. "It's a backlash from the savings and loan debacle," he said.
Lenders still remember the massive write-offs they had to make on commercial real-estate loans in the 1980s, and Chillingworth believes it will be years before confidence returns.
Meanwhile, the lack of available facilities, particularly office and industrial properties, means Utah could lose out in the economic development race to cities such as Boise, Tucson, Phoenix, Denver, Colorado Springs and others as companies bypass Salt Lake City, their first choice, in favor of those that have ready space available.
"Worse yet," said Chillingworth, "we risk having successful Utah companies move their organizations, or their expansion requirements, out of the state due to the lack of alternatives."
This isn't just bad news for people who make their living selling and leasing real estate. Chillingworth points out that the lack of facilities creates a negative chain reaction: no new space - no new business - no expansion of local business - no new jobs.
He points to the many new Utahns who have sold their expensive homes in such locales as Southern California, moved here, bought a house, and are now "waiting for a fabulous employment opportunity to appear."
Without new companies moving in, they may wait a long time.
What to do? It's no good pointing the finger at the Tax Reform Act of 1986, government regulators or the lending policies of the banks, said Chillingworth. "The solution lies in the relaxing of lending guidelines for commercial real-estate development and the ability for builders to construct new properties of all product types . . ."
How bad is the problem? Scott Wilmarth, first vice president - office, at CB Commercial, said the Salt Lake market absorbed more than 1 million square feet of office space in 1993 as the overall metropolitan vacancy rate fell seven points to a year-end low of 11.4 percent.
Since new construction was minimal, that represented a decrease in available space of 40 percent. While this is good news for owners of office buildings, their tenants can expect to see their lease rates continue on an upward trend.
On the industrial side, Rad Dye, first vice president - industrial, said some 4.2 million square feet of space was sold or leased in 1993, one of the strongest years ever.
The result is what Dye terms an "unbelievable" 2.78 percent vacancy rate, leaving about a year's supply.
But even though lease rates for industrial space are moving upward as the supply/demand cycle changes, Dye said they still are not at a level that would afford an adequate return for the risk of speculative development.