Downturn is tough in Utah County: Commercial real estate market is analyzed at conference

PROVO — The commercial real estate market along the Wasatch Front is facing tough economic challenges, and Utah County is no exception.

Every sector of the market is experiencing difficulties brought on by the downturn in the state and national economies, according to analysts at the Utah County commercial real estate conference on Tuesday.

For instance, Utah County has seen its retail vacancy rate jump 31 percent in 2008, said Jon Anderson, partner and principal broker for the Orem office of real estate firm Commerce CRG.

"We slid down from about an 11 percent vacancy rate in 2004 to 3.5 percent in 2007, and 2008 we came in at about 4.6 percent," Anderson said. A vacancy rate of 5 percent is considered a healthy market, he said.

He added that those recent figures likely will increase in the coming months, rising to about 5.5 percent as the economy continues to struggle.

However, he noted that there are indications that the national economy may be on the verge of improving, which could bode well locally as well.

"We are seeing some of the same thing, and we believe our recession or downturn will be shorter-lived than the national (recession)," he said.

In the office sector, vacancies have also been on the rise, according to Cody Black, office specialist with Coldwell Banker Commercial NRT in Orem. During his presentation to the audience of about 60 people in the Tahitian Noni auditorium, Black noted that the availability of office space in the county is increasing and lease rates are falling.

"What we're seeing … is shorter-term deals — usually two- to three-year deals — but it's not uncommon to see one-year deals," he said. Property owners also are offering major concessions to attract prospective tenants, he added.

"They've become a lot more aggressive in trying to procure the tenants that are out there in the market," he said. Among the enticements being offered is free rent for part of the term of potential lease agreements, Black stated.

While the retail and office markets are feeling the strain of the economy, the industrial and investment sectors are facing equally challenging issues.

According to Jarrod Hunt, vice president of commercial real estate company CB Richard Ellis, land for industrial use is plentiful, with just half of the available land in Utah County currently leased.

Hunt told the audience of commercial real estate professionals that costs for industrial space will remain low as the local economy adjusts over the coming year or two. He also warned not to expect any new construction for six to eight months, until all the current space is absorbed.

With the commercial real estate market in such flux, acquiring funding for prospective projects is compounding the problems facing the industry, Hunt added.

"As a developer, trying to get construction money in this environment is nearly impossible," he said. "Lenders are unwilling to lend on new construction projects because of the potential downside."

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