Colliers International, a commercial real estate services organization, recently released its third-quarter market reports for industrial, office and retail real estate in Utah County.
The reports show that office space was hurt the most by the pandemic, while tenants are pursuing industrial space and local retail space is recovering after an initial hit due to the onset of COVID-19.
The thing that stuck out to Lana Howell, Colliers senior director of research and marketing in Utah, was the trouble that office space has been seeing.
“There’s definitely some nervousness in the market relative to office space,” Howell said. “A lot of things are still moving, but they have just slowed down so much and as landlords and tenants are looking around, they’re noticing there are no cars in the parking lot. They are noticing that people haven’t fully come back to their office setting and they are figuring out how that is going to work while doing it safely. Especially with the amount of tech companies here from the Point of the Mountain all the way to Provo.”
Brokers are keeping an eye on office space in Utah County, but another big concern is how the workspace will look going forward with the ongoing COVID-19 pandemic.
Will workers be spaced out more, will they have plexiglass or plastic for safety reasons? These are just a number of questions that tenants and landlords have right now, according to Howell.
It also doesn’t help that construction is up and vacancy rates are up based on third-quarter numbers from last year.
“It’s kind of a carry over of what’s been happening for the last five years,” Howell said. “If you think about it, it’s not like they can just stop. This happened so quickly that the developers were still in the midst of building their product. Most of it is speculative, it’s not owner user space, and it was all planned in the last two years. Now they’re halfway or almost finished with these products that they invested in a couple years ago and looking at the market statistics a couple years ago, why wouldn’t you build more speculative space?”
Speculative space is that which has not been leased out to a tenant prior to construction, and Howell said the county needs this space.
She added that 45% of buildings are still being pre-leased in comparison to 60% or 70% last year. It is not too concerning for Howell, saying it’s just the wave following the COVID-19 pandemic.
For retail space, Howell said she will be on national calls that are very doom and gloom. That same doom and gloom has not been the case in Utah County.
“I don’t know if you noticed as you were driving around Utah County after the pandemic (hit), some of these soda shops had lines out to the road and the quick service restaurants were still getting people doing the drive-up,” Howell said. “We even had an ice cream shop open in downtown Provo and they had a ribbon-cutting and everything, it seemed like business as usual. It was a very interesting difference, you could tell that there was something different happening in Utah County than what was happening on our national calls.”
Retail space was hit early on in the pandemic but those who were able to stick around are now seeing the light at the end of the tunnel in some way. However, many large stores that were seeing struggles prior to the onset of COVID-19 did close their doors in response.
For many smaller and local stores, as long as long as they were not forced to close, they were able to adjust and they did that in a timely manner. Because of this innovation, Howell said those developments will continue on after the pandemic.
For industrial space, Utah County saw the biggest percentage of construction on the western side.
“That’s Tyson Foods and the big Facebook being built out there, those guys are moving quickly,” Howell said. “The thing about industrial is that no city ever wants that in their area because it’s looked at as this ugly box product, but now because of the Amazons, Facebooks and Tyson Foods that are building these giant warehouses, they have been able to weather the recession better than any product type. West is practically the only place to go so you’re going to see a whole lot of new industrial development going out that direction as long as it has good access to the freeway.”
According to Howell, Utah County is being looked at nationally with the possibility to service the Western states through trucking. While the land prices are beginning to rise, local developers are becoming more hesitant while national developers see the land costs as affordable in comparison to other states.
“Utah County has this conservative mindset about making things as cheap as possible,” Howell said. “It’s not going to be long before this wave of people from other states, and it’s all relative, they’ll say, ‘What are you guys crying about? This is a hot commodity.’ ”
The tech industry feeds into the warehouses and so on, said Howell, adding that Utah County and Utah have too many different eggs in their baskets so they always weather storms better than other areas.
She even pointed to the recession in 2017, citing how Utah was not hit as hard as other states. Jobs recovered quicker and the state is positioned well to recover quickly from the COVID-19 pandemic.
As for the one big message to take from the reports, Howell urged people to be realistic and optimistic.
“To be realistic, the market isn’t perfect right now, so let’s be real — but let’s be optimistic because statistically we have a lot of good things going for us in the state,” Howell said. “Also be realistic, it’s definitely painful and there are definitely some small businesses that didn’t make it. You walk a fine line of telling the reality of the story and making sure people are staying optimistic.”
Howell added that conditions may not be great right now, but there is so much good in Utah County that it will bounce back, making it the perfect time for people to take advantage of investment opportunities.