January 4th

Economic Snapshot

Economic Notes:

This Weeks Leads


Gross Taxable Retail Sales – August 2006

  • The “Top Ten” represent 44% of the State- Wide market.
  • The “Top Twenty-Five” represent 65% of all sales.
  • State-wide March increases were 17.6%
  • The “Top 20%” gainers include:
    1. South Jordan +91.5%
    2. Lehi +52.1%
    3. Vernal +45.5%
    4. Lindon +30.4%
    5. Spanish Fork +26.1%
    6. Draper +25.4%
    7. West Valley City +22.2%
  • The “Bottom 10%” include:
    1. Springdale - 6.8%Holladay -3.2%
    2. Moab -3.0%
    3. Morgan City -1.1%
August 06 Retail Sales – Top 25 Cities (Large Monthly Filers Only)
Rank (05) CityAugust 2006 (000) % Change 06/05Mkt Share August 06 (% of State Total)
1Salt Lake City$418,913+11.6% 11.8%
2(3) Orem$175,777+17. 4%5.0%
3(2) Sandy$167,354+11 .5%4.7%
4(6)West Valley$159,939+22.2% 4.5%
5(4) Murray $145,319+5.9% 4.1%
6(5) St George $145,033+6.3% 4.1%
7(7)South Salt Lake$141,462+19.0% 4.0%
8(8) Ogden $99,726+12.7% 2.8%
9(10) West Jordan $99,614+14.4% 2.8%
10(9) Layton $97,732711.0% 2.8%
11(11) Provo$97,189+15.6 %2.7%
12(12) Logan $59,181+11.8% 1.7%
13(13) Riverdale $54,272+8.8% 1.5%
14(14) American Fork $48,754+15.9% 1.4%
15(15) Midvale $48,274+15.3% 1.4%
16(16) Cedar City $45,868+17.8% 1.3%
17(20) Vernal $43,727+45.8% 1.2%
18(17) Draper$43,313+25. 4%1.2%
19(18) Taylorsville$38,638 +15.4%1.1%
20(27) South Jordan $38,569+91.5% 1.1%
21(21) Lindon $38,477+30.4% 1.1%
22(19) Bountiful $32,510+8.1% 0.9%
23(25) Lehi$31,993+52.1 %0.9%
24(-)Cottonwood Heights$27,453- 0.8%
25(22) Park City$26,530+6.7% 0.7%
  • The “Top 15” Major Sectors represent 91% of the market.
  • The “Top Five” represent almost 50% of sales.
  • State-wide November increases were 17.6% - The “Top 5” gainers include:
    1. Mining +170%
    2. Agriculture/Forestry/Fishing +129%
    3. Construction +102%li>Services - Health +35%
    4. Wholesale – Durable +34%
  • Categories with declining sales were led by:
    1. Private Motor Vehicle Sales -24%
    2. Communications --15%
    3. Occasional Retail Sales -15%

Source: Utah State Tax Commission

2007 Forecasts More of the Same

The 2006 holiday sales numbers, which posted the weakest growth in four years last week, are a sign of what’s ahead for the United States’ retail market in 2007 – a year of modest expectations. Experts expect retail real estate to remain a stable investment, but it will no longer yield the high returns as experienced in 2004 and 2005.

California remains the top market as far as demand and pricing goes. Average cap rates are at 6.33 percent, while the Midwest region is near the bottom because of troubles in the manufacturing sector. Cap rates there range between 6 percent and 8 percent.

The top five destinations for retail investment this year, based on population growth, will be Washington, D.C., Dallas/Fort Worth, Los Angeles, Houston and Las Vegas, according to the 2007 Real Estate Forecast produced by brokerage firm Grubb & Ellis. This mirrors last year’s forecast, when Washington, D.C., Los Angeles, Phoenix, Ariz., Dallas/Fort Worth and Las Vegas ranked in the top five.
Top 5 Markets
Top 5 Market 2006 Top 5 Market 2007Cap Rate
Washington, D.C. Washington, D.C.6.1%
Los AngelesDallas/Fort Worth7.2%
PhoenixLos Angeles6.2%
Dallas/Fort Worth Houston7.2%
Las VegasAlanta7.2%

Source: Grubb & Ellis

On the operating side, owners can expect another year of modest rent increases, says Robert Bach, senior vice president for research and client services with Grubb & Ellis. In 2006, he says, asking rent increases across the nation averaged 3.5 percent. Outperforming markets included Dallas/Fort Worth, where asking rents rose 10 percent, to $22.25 per square foot. Also, Orange County, Calif., Jacksonville, Fla. and Nashville posted 10 percent increases in asking rent, reports Grubb & Ellis.

“We are still in an expansion cycle,” says Bach. “Retail sales have held up pretty well through 2006 and there weren’t any factors to cause any markets to really sink to the bottom or rise to the top.”

Meanwhile, the two factors that are causing investors’ headaches – the slowing housing market and the mixed forecasts for the national economy – won’t have as much of an impact on the retail sector as many fear, cites Grubb & Ellis. The firm estimates that employers will create an average of 100,000 new payroll jobs a month in 2007, compared with 135,225 per month in 2006, that will keep cash registers ringing.

But job growth and economic health vary across the nation.

“Overall, I think the economy will continue to muddle through and create jobs,” Bach says. “But the manufacturing sector has weakened, so that can have an effect on retail spending and development in manufacturing-sensitive areas.”

Bernie Haddigan, managing director of the national retail group with Marcus & Millichap, an Encino, Calif.-based broker says, coastal and sun belt states and densely populated areas will continue to do well in 2007.

“Michigan and Ohio have gotten their noses bloodied a bit because investors are not as interested in those older, industrial locations,” says Haddigan.

Investors, Haddigan says, are staying in prime markets and concentrating on centers that are anchored by high credit tenants. That is a shift from 2005 and early 2006, when properties in secondary and tertiary markets would entertain multiple bids.

Average cap rates for multi-tenant retail properties hit bottom in the first quarter of 2006, at 6.61 percent, and slowly rose throughout the rest of the year finishing at 7.12 percent, according to Marcus & Millichap.

But investors will be not be flooding the market. Haddigan expects another year of declining deal volume in 2007. In 2006, there were $41.43 billion worth of retail property transactions in the domestic market, down 18 percent from $50.50 billion in 2005, according to Real Capital Analytics.

Meanwhile, real estate investors continue to look for higher returns in developing markets in Asia and Eastern Europe.

Asia’s GDP growth is projected to reach 7.9 percent in 2007, according to the international financial services firm Credit Suisse, while Eastern European countries will experience growth rates averaging between 5 percent and 6 percent. The global rate of growth for 2007 is expected to be 4.9 percent.

Source: Retail Traffic


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  • Economic Snapshot
  • First Five Months FY2007

    • Sales and Use Taxes (Gen Gov’t) +6.2%
    • Corporate Franchise Taxes (Gen Gov’t) +39.7%
    • Individual Income Taxes (Education) +13.5%
    • Severance Taxes (Gen Gov’t) -14.4%
    • Motor Fuel Taxes (Transportation) +1.3%

    Source: Utah State Tax Commission, 12/13/06

    Utah's jobless rate fell to an unprecedented low last month, according to the latest data from the Department of Workforce Services. The state's unemployment rate fell to 2.5 percent for October, down from 2.8 percent in September. At this time last year, the jobless rate was 4.2 percent.

    Source: State of Utah – Workforce Services

    Utah's population estimates, released in November, show Utah's 2006 population at 2,615,129 — an estimated growth of 2.7 percent, or 67,740 people since 2005.

    Source: Bureau of Census

    The number of building permits issued for new houses, condominiums and apartments is falling across Utah, but in Utah County permits are skyrocketing. Residential permits issued across the state from Jan. 1 through Sept. 30 fell to 20,387, down 4.5 percent from 21,347 permits handed out during the same nine-month period in 2005,

    Source: University of Utah's Bureau of Economic and Business Research.

  • Economic Notes:
    • Global Business Confidence
    • Global business confidence improved during the last week of the year, although these results should be discounted given the typically low response rate during the week between Christmas and New Year's. Sentiment declined more or less throughout 2006, ending the year near levels last experienced in the summer of 2003, and consistent with global growth that is below potential. Confidence is weakest among vehicle and transportation companies, followed closely by residential real estate firms. The most upbeat respondents are from South America, and retailers were generally happy with Christmas sales. The best news from the survey is that pricing pressures are off sharply from their summer peaks.
    • Construction Spending (C30)
    • Construction spending decreased 0.2% in November. Private construction decreased 0.6%, due to a 1.6% decline in residential construction. In addition, public construction increased 1.0%.
    • MBA Mortgage Applications Survey
    • Mortgage demand increased 3.6% in the week ending December 26. Purchase applications increased 4.3% and refinance applications increased 2.2%.
    • Vehicle Sales – AutoData
    • Vehicle sales improved in December to 16.7 million units, from 16 million in November thanks to the year- end incentive push. However, the year did not end on a happy note for U.S. manufacturers. Most of the gains were garnered by international manufacturers and the Big Three market share fell to 52%, a record low.
    • Chain Store Sales
    • Chain store sales grew 3.1% in December, up from 2.5% (revised) in November, according to the ICSC chain store index. Results were modestly above expectations in total although more retailers disappointed than surprised on the upside. Warm, wet weather was blamed for weak apparel sales. The holiday season was decent, in line with our expectations.
    • Manufacturing Index
    • The national ISM manufacturing index posted an unexpected expansion in December, rising to 51.4 from 49.5 in November. Both new orders and production boosted the overall index back into expansionary territory. Employment and inventories continue to contract.
    • Jobless Claims
    • Initial jobless claims rose 10,000 to 329,000 for the week ending December 30, a larger than anticipated increase. The four-week moving average, which adjusts for week-to-week fluctuations and is more representative of the true trend, edged up to 317,500.
    • Factory Orders (M3)
    • Factory orders rose 0.9% in November, slightly less than expected. The manufacturing sector is still struggling with some excess inventories here and there, but once these excesses are worked off, orders and shipments should improve by mid-2007 against a strong fundamental backdrop.
    • Weekly Natural Gas Storage Report
    • Underground storage of natural gas decreased by 47 billion cubic feet during the week ending December 29, less than the expected draw of 55 Bcf. Inventories are now 15.3% above the five-year average. This report will put more bearish pressure on prices. Underground storage of natural gas decreased by 47 billion cubic feet during the week ending December 29, less than the expected draw of 55 Bcf. Inventories are now 15.3% above the five- year average. This report will put more bearish pressure on prices.
    • Oil and Gas Inventories
    • Crude oil inventories fell by 1.3 million barrels for the week ending December 29, according to the Energy Information Administration. The drop was above expectations of a drawdown of 800,000 barrels. Distillate inventories rose by 2 million barrels. Gasoline stocks rose by 5.6 million barrels, well above expectations. Refinery activity slightly increased. The report will provide no relief to the oil bulls as oil will continue to trade down.

  • This Weeks Leads
    • Coach
    • Coach Inc. trades as Coach. The 235-unit chain operates locations nationwide and internationally.
    • The stores, specializing in leather accessories for men and women, occupy spaces of 2,500 sq.ft. in freestanding locations, malls and urban/downtown areas.
    • Plans call for 30 openings nationwide during the coming 18 months.
    • For details, contact:
      • Tony Galvin
      • Coach Inc.
      • 516 West 34th Street
      • New York, NY 10001
      • 212-615-2070, Fax 212-615-2508
      • Email: tgalvin@coach.com
      • Web site: www.coach.com
    • Dillard’s
    • Dillard’s, Inc. trades as Dillard’s.
    • The 340-unit chain operates locations throughout the midwest, southern and western states.
    • The stores occupy spaces of 70,000 sq.ft. to 300,000 sq.ft. in malls.
    • Growth opportunities are sought nationwide during the coming 18 months.
    • For more information, contact:
      • Wes Cherry
      • Dillard's Inc.
      • 1600 Cantrell Road
      • Little Rock, AR 72201
      • Web site: www.dillards.com
    • Fred Meyer Jewelers, Littman Jewelers and Barclay Jewelers
    • Fred Meyer Jewelers trades as Fred Meyer Jewelers, Littman Jewelers and Barclay Jewelers.
    • The 420-unit chain operates locations nationwide.
    • The jewelry stores occupy spaces of 1,400 sq.ft. in malls.
    • Plans call for 10 openings throughout CA, DE, FL, MD, NJ, NY, OR, PA and WA during the coming 18 months.
    • Typical leases are 10 years.
    • Preferred demographics include a population of 200,000 within five miles earning $48,000 to $50,000 as the average household income.
    • Preferred cotenants include jewelers and upscale fashion retailers.
    • For details, contact:
      • Dave Schmidt
      • Fred Meyer Jewelers
      • 3800 South East 22nd Street
      • Portland, OR 97202
      • 503-797-3874, Fax 503-797-7797
      • Email: dave.schmidt@fredmeyer.com
      • Web site: www.fredmeyerjewelers.com
    • Dunn Brothers Coffee
    • Dunn Bros. Coffee Franchising, Inc. trades as Dunn Brothers Coffee at 78 locations throughout IA, KS, MI, MN, MO, ND, SD, TN, TX and WI.
    • The coffee shops occupy spaces of 1,200 sq.ft. to 1,400 sq.ft. in freestanding locations, malls, lifestyle, outlet, power, specialty, strip and tourist centers and urban/downtown areas.
    • Plans call for 30 openings throughout the existing markets during the coming 18 months.
    • Typical leases run 10 years.
    • A vanilla shell is required.
    • Competition is cited as Caribou Coffee, It’s a Grind and Starbucks.
    • For more information, contact
      • Chris Eilers, Dunn Bros.
      • Coffee Franchising, Inc.,
      • 111 3rd Avenue South, Suite 220,
      • Minneapolis, MN 55401;
      • 612-334-9746,
      • Fax 612-334-9749;
      • Email: chris@dunnbros.com;
      • Web site: www.dunnbros.com.
    • Wish, Duo, Fabrik, Habita and Method
    • AA Concepts trades as Wish, Duo, Fabrik, Habita and Method at 25 locations throughout the south and southwestern regions.
    • The apparel stores occupy spaces of 2,000 sq.ft. to 5,000 sq.ft. in lifestyle centers and urban/downtown areas.
    • Plans call for 20 openings throughout the existing markets during the coming 18 months, with representation by Wulfe & Co.
    • Typical leases run 10 years with options.
    • A vanilla shell is required.
    • For more information, contact
      • Adam Brackman,
      • Wulfe & Co.,
      • 12 Greenway Plaza, Suite 1500,
      • Houston, TX 77046;
      • 713-621- 1700,
      • Fax 713-621-3244;
      • Email: abrackman@wulfe.com;
      • Web site: www.wulfeurban.com.
    • Big Dog Sportswear
    • Big Dog USA trades as Big Dog Sportswear at 155 locations nationwide, excluding AR, MT, ND, SD and WY.
    • The stores, offering t-shirts, shorts, outwear, caps, watches and bags, occupy spaces of 1,500 sq.ft. to 3,000 sq.ft. in outlet centers.
    • Plans call for three openings nationwide during the coming 18 months.
    • Typical leases run five years. A vanilla shell and specific improvements are required.
    • Preferred cotenants include Carters, Dress Barn, Famous Footwear and Target.
    • Preferred demographics include a population of 200,000 within 10 miles earning $40,000 to $45,000 as the average household income.
    • For more information, contact
      • Joe Cattivera,
      • Big Dog USA,
      • 121 Gray Avenue,
      • Santa Barbara, CA 93101;
      • 805-963-8727,
      • Fax 805-962- 6460;
      • Email: joec@bigdogs.com;
      • Website: www.bigdogs.com.
    • California Pizza Kitchen
    • California Pizza Kitchen, Inc. trades as California Pizza Kitchen at 200 locations nationwide and internationally.
    • The pizzerias occupy spaces of 5,000 sq.ft. to 6,000 sq.ft. in malls, entertainment, mixed-use, and specialty centers and urban/downtown areas.
    • Growth opportunities are sought nationwide during the coming 18 months. Typical leases run 10 years.
    • Preferred cotenants include Barnes & Noble, Neiman Marcus, Nordstrom and Saks.
    • Preferred demographics include a population of 250,000 within five miles earning $70,000 as the average household income.
    • For more information, contact
      • Cal Marsh, Ed Schwartz, Kevin Rielly,
      • California Pizza Kitchen, Inc.,
      • 6053 West Century Boulevard,
      • Los Angeles, CA 90045;
      • 310-342-4619;
      • Email: chowell@cpk.com;
      • Website: www.cpk.com.

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