Utah real estate 'healthy'
State bucks trend of gloomy forecasts for other markets
The summary of a 2008 nationwide real estate forecast is sprinkled with fearsome words: "greater downside risk," "repricing environment," "vulture-oriented investing," "retrench," "ebbing tenant demand," "tapped-out consumers."
But speakers at a meeting Tuesday about the "Emerging Trends in Real Estate 2008" report said Utah has a hard-charging economy and demographics that will insulate it from a lot of the troubles besetting the real estate industry nationwide.
"Our fundamentals are absolutely outstanding," Michael Richmond, a commercial real estate broker for Commerce CRG/Cushman Wakefield, said at the meeting of the Salt Lake District Council of the Urban Land Institute.
The 29th annual report was undertaken by PricewaterhouseCoopers and the Urban Land Institute, a research and educational group, and is based on surveys of more than 600 industry experts nationwide. The report can be found at www.uli.org.
Salt Lake City was a middle-of-the-pack market in several rankings in the report, including prospects for commercial and multifamily investment and development, and prospects for for-sale homebuilding. But speakers said Utah's strong economy portends continued real estate industry growth.
Dean Schwanke, a senior vice president at the institute and editor, principal researcher and adviser of the report, said he would have ranked Salt Lake higher in the "markets to watch" lists, but he had to base the report on the survey results.
Richmond said Salt Lake's rankings were due to the city being "lumped in" with other secondary and tertiary markets, and the city was "too small to be on the radar screen."
Michael Hansen, director of state and local planning in the Governor's Office of Planning and Budget, said Utah's "white-hot economy" is driven by a booming population and continued job growth, and buoyed by exports and manufacturing, defense spending, quality-of-life amenities and a highly educated work force, in addition to "skyrocketing" home values.
In many respects, Utah is "almost an untapped market" because of the strong economic factors, he said. Those factors will result in continued growth, he said.
Richmond said any white-hot real estate markets in Utah could not be sustained. "If you see headlines about the economy slowing in Utah, yes, but it's not panic," he said. "I think it's being back to more sustainable, more healthy levels."
Office vacancy rates peaked in 2002 but are now "in equilibrium" at about 11 percent. Office absorption remains strong, too. The industrial market features low vacancy rates, still-strong lease absorption and a relatively low construction rate. Utah also is "very, very strong on the retail side," Richmond said, although retail is a source of concern at the national level.
"It's a slower growth that we're going to see here," Richmond predicted of the overall real estate market in Salt Lake.
"With respect on the housing side, we have seen some defaults occur through the financial services and the real estate-related companies. A few of our particular submarkets, especially on the office side in kind of the Union Park area, which has a high concentration of mortgage, title and real estate-related companies there's going to be a little bit of risk there with companies downsizing and shutting down those offices, but that area is valued and in very high demand and I think that space will be filled quickly," he said.
Downtown Salt Lake is aided by continued growth at law firms and banks, he added.
Schwanke said that despite pessimistic comments from survey respondents, about 80 percent were optimistic about the outlook for their business in 2008.
And turmoil actually could be good for the industry because it could lessen the chances of overbuilding, he said."The theme for this year is 'A Dose of Fear,"' Schwanke said. "And I think that's a good thing, because we were a little fat and happy, I think, for the last five years, and it just couldn't last forever."