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Utah economy bolstering commercial real estate market, analyst says

SHARE Utah economy bolstering commercial real estate market, analyst says

Darin Mellott, the Americas director of research at CBRE, addresses an audience at the annual NAIOP Utah Commercial Real Estate Symposium at the Vivint Smart Home Arena in Salt Lake City on Thursday, Jan. 23, 2020.

Jared Kenitzer

SALT LAKE CITY — Utah’s economic strength is powering a booming commercial real estate market. For that expansion to continue, local business and civic leaders will have to be purposeful in the way they plan for growth in the months and years ahead, a real estate researcher said.

“If we don’t proactively look toward the future and we take our eye off the ball, we’re going to have a lot of the same problems of growth as other markets, and it’s going to diminish our attractiveness and quality of life,” said Darin Mellott, the Americas director of research at CBRE — a global commercial real estate firm with offices in downtown Salt Lake City. He was the keynote speaker Thursday at the annual NAIOP Utah Commercial Real Estate Symposium.

NAIOP is a commercial real estate development association with members throughout North America. The half-day event was hosted at Vivint Smart Home Arena.

Mellott said that planning for the future starts with educating the local workforce to ensure the state is investing in homegrown talent. Next is making sure the Wasatch Front is equipped to accommodate the influx of new people and businesses that will populate the area.

“It’s also a matter of (building) infrastructure, which is extremely important,” he told the audience of nearly 700 attendees. “Now is the time to almost overinvest in infrastructure. You want to stay ahead of the curve.”

He noted the $4 billion Salt Lake City International Airport redevelopment project will be extremely important to the area’s future.

“The airport is not a big deal just because of the purpose that it serves in our economy as infrastructure, but it’s going to change perceptions of our community and that’s a really important thing,” he said.

Maintaining business friendliness and paying attention to the live, work and play environment is also important to future growth, he added. Another issue will be the sheer number of people as the state continues to increase in population.

“Right now our demographics are actually quite good, but the birth rates (in Utah) have fallen below replacement, so in 20 years we’re really going to have a problem,” Mellott said. “So that’s why I’m saying we have to proactively be thinking toward the future, and not just let things happen to us.”

Citing California as an example of poor planning, he noted that for every five new households, only one housing unit has been built in the state in recent years.

“So you want to talk about housing affordability? It is a supply issue there. And why is it a supply issue? Because you’ve got a lot of regulations and a lot of communities that didn’t zone properly,” he explained. “So now L.A. is trying to zone for higher densities and height around transit stops and things like that. Well, we can be ahead of the curve.

“We can be thinking proactively about those things so that we grow in a way that is inclusive and people can prosper in the community and live comfortably no matter what income they are,” Mellott said.

He said the state’s low unemployment rate is having an impact on the commercial real estate industry’s ability to grow to its full capability mainly because of a shortage of skilled talent in the construction field.

“When we’re talking about talent, a lot of times we think about the people that are going to go in and code at a building in Silicon Slopes,” he explained. “It also goes to secondary training and making sure that we have enough electricians and other (skills) of that sort.

“So, when I talk about investing in education and our workforce, it extends into these industries as well,” he added. The lack of trained talent is already having an effect on construction costs for project development across northern Utah, he noted.

“Prices start getting bidded up, the market works, you don’t have enough bodies to build a building, well they’re going to go to the highest (bid) price,” Mellott said. In the short-term, costs will rise and some delays may occur due to the labor shortage, but thoughtful planning can help mitigate some of the challenges in the long run, he added.

“I don’t see anything that’s really going to dramatically move the needle one way or the other right now. But now, it’s more expensive to construct a building today than it was in 2010. There’s no doubt about it,” he said.

“It has a lot to do with the fact that the economy has been in expansion mode for quite some time. You’ve got low labor; you’ve got higher material costs — all those things feed into it. But generally speaking, I think the next year is a pretty good year for real estate.”