Commercial, Industrial and Retail Market Study
February 12, 2007

Economic Notes:

This Weeks Leads:

Extra Credit Reading



Commerce CRG Year-End 2006 Market Study

Salt Lake County - Industrial

Market Trends
  • An upsurge in industrial activity reflects Utah’s exceptionally robust economy.
  • The abundance of big box construction in 2006 led to a slight uptick in total market vacancy.
  • The vast majority of new construction has been centered in speculative big box facilities.
  • The total number of new construction projects in 2006 was evenly split between owner/users and speculative developers.
  • A significant rise in lease rates can be traced to the high cost of new construction.
  • The marked increase in lease rates has contributed to a rise in sales activity.
  • Prices for quality developable land continue to rise. Industrial land values have increased more than 25 percent over the past year.
Market Forecast
  • The industrial market will remain strong and steady in 2007.
  • Rental rates and sales prices will continue to rise next year.
  • A marked slowdown in speculative big box development will occur in the coming year.
  • Utah’s pool of available labor should be sufficient for industrial users.

Salt Lake County - Retail

Market Trends
  • The retail market demonstrated remarkable growth in 2006.
  • Activity levels have maintained an extraordinary pace, with nearly two million square feet absorbed over the past 12 months.
  • New retail construction is approaching an historical high.
  • Lease rates are stabilizing after a sustained upward trend.
  • The market exhibits a wide disparity in available retail space.
  • Utah’s appealing market conditions have attracted an influx of new retail tenants.
  • Regional malls are planning major retrofits to stay abreast of current development trends.
Market Forecast
  • Retail construction will slow in 2007.
  • Redevelopment of retail centers in older, well- developed areas will become more commonplace.
  • Residential construction will begin to plateau in the coming year.
  • The high cost of land is becoming a deterrent to new development in some areas.
  • The new IKEA store under construction in Draper will lure additional retail development.
  • No significant change in rental rates is expected in the next 12 months.

Salt Lake County - Office

Market Trends
  • The Salt Lake area office market remains strong and balanced.
  • The relocation of tenants from downtown’s Key Bank Tower fueled a steep decline in Class A direct vacancy in the CBD and periphery.
  • An increasing number of office users with large space requirements are opting to build their own facilities.
  • The high cost of new construction contributed to a sharp increase in lease rates in 2006.
  • Utah’s thriving economy is drawing increased interest from out-of-state office users, as well as existing in-state expansions.
  • Market Forecast
    • A slight increase in total direct market vacancy is expected in 2007.
    • A limited amount of Class A office space will be available in the downtown area in the coming year.
    • Developers will continue retrofitting Class B and C properties as an antidote to the high cost of new buildings.
    • Lease rates will continue to rise in 2007.

    Utah County

    Market Overview
    • In 2006 the Utah County markets have gained significant strength and momentum.
    • Industrial space in Utah County is experiencing record breaking occupancy.
    • Available industrial space in north Utah County is virtually non existent, with a vacancy rate of less than 1%.
    • The central and south counties are both encountering the same tight market as the north county.
    • The retail segment of Utah County remains healthy and vibrant; fueled by the growth in the residential market.
    • Completion of Costco and Lowe’s is driving even more retailers to the retail boom area of American Fork and Lehi.
    • Redevelopment is bringing new life to the Provo/Orem area which has seen lack luster performance over the past two years.
    • Demand for office space in Utah County continues to outpace the ability for developers to deliver product.
    • The lack of office space in the central county will be offset in the coming year with the announcement of new office developments.
    • Four new hotels have been announced for development in the county, two in Pleasant Grove and two near Thanksgiving Point.

    Weber County

    Market Overview
    • New construction is the driving force in the office market in Weber County.
    • The Ogden Mall redevelopment project, now called The Junction, is well underway, bringing a hotbed of retail activity to the area.
    • Industrial space in Weber County continues to be occupied almost as quickly as it can be constructed.
    • Multi-family housing experienced a sharp increase in rental rates over the past 12 months.
    • Ogden will continue its vibrant growth as business entities move to the fast expanding community, creating new jobs and business opportunities.

    Summit County

    Market Overview
    • After several years of exceptional growth, the Park City market has begun to stabilize.
    • Although lease and sales rates on Main Street have seen little increase over the past year, they still remain very strong.
    • The Prospector Square area continues to absorb overflow from Main Street, both from the lack of space available on Main Street, and from businesses looking for more reasonable lease rates.
    • Office vacancy in the Snyderville Basin area has experienced a slight rise in vacancy; due in part to the growth and development of the Kimball Junction area.
    • The Silver Creek area is experiencing an increase in commercial activity due to the residential expansion beyond the city limits of Park City.

    Las Vegas, Clark County, NV

    Market Overview
    • By the close of 2006, the overall economic climate continued to press forward with only select areas of concern. Strength in population in-migration has held residential pricing within a relatively tight range despite rises in inventory levels.
    • The Las Vegas office market reported record- setting completions with 3.7 million square feet coming on-line during 2006, resulting in a valley-wide inventory of 41.0 million square feet.
    • By year-end,ClassA product continued to report below-average vacancies of 5.2 percent, while average asking rates reached $2.64 per square foot per month (the highest level on record).
    • Class B properties represented the lion’s share of new construction and absorption during 2006,partially driven by for-sale office condominium product.
    • Potential limitations on long-run industrial development activity remain a concern due to premium land prices and a lack of availability.
    • During 2006, the market demanded 5.1 million square feet, a figure on par with the year’s completion total.
    • While existing inventory is 87.9 million square feet, future supply is dominated by construction of distribution space (5.3 million square feet), particularly in the southwest submarket.
    • Consistent with historical trends, the retail real estate market continues to pace residential development activity in a bold effort to track with the region’s rate of growth.
    • Approximately 1.9 million square feet of space was completed during 2006 while the market demanded (absorbed) over 1.8 million square feet.
    • The new cost structure has forced developers to escalate average-asking rents that reached $2.04 per square foot per month by year-end, and represented a 21-percent premium over the rates reported at the close of 2005.

    Source: Commerce CRG, 2007

  • Greetings!
  • Economic Notes:
    • International Survey of Business Confidence
    • Business confidence is stable and very similar across the globe. Sentiment has remained largely unchanged for nearly six months at a level consistent with growth that is just below the global economy’s potential. There are some hints of renewed optimism, including more positive expectations regarding the outlook six months hence and the winding down of a modest inventory cycle. The downdraft in confidence among real estate and transportation companies that was evident most of last year also appears to be over. Pricing pressures are abating, with the lowest percentage of respondents saying they have recently raised prices for their wares in two years. After a lull late last year, equipment investment has also picked up early this year. Sales and hiring remain soft, however.
    • CHINA
    • The People's Bank of China (PBOC) wants to establish a reasonable value for the yuan to help reduce China's trade surplus and contain economic growth, according to a fourth-quarter monetary report released by the PBOC. The yuan has grown 6.7 percent since the Chinese government ended a fixed peg to the U.S. dollar in July 2005.
    • MBA Mortgage Applications Survey
    • Mortgage demand decreased 0.2% in the week ending February 2. Purchase applications decreased 0.8% and refinance applications increased 0.2%. The market is flat and may coincide with forecasts inherent in the NAHB traffic of potential buyers surveys.
    • Senior Loan Officer Opinion Survey
    • According to the January Senior Loan Officer Opinion Survey, loan demand weakened over the three prior months and lending standards were mixed across different loan types. The ongoing slowdown in the housing market was reflected in weaker demand for residential mortgage loans. Tighter lending standards on residential mortgages reflect concern about deteriorating credit quality.
    • Chain Store Sales
    • Chain store sales grew 3.7% in January, up from 3.3% (revised) in December, according to the ICSC chain store index. Results were above expectations in total although a significant number of retailers surprised on the downside. Colder temperatures, gift card redemptions, lower gasoline prices, large bonus payments and the Super Bowl were all supports to sales.
    • Oil and Gas Inventories
    • Crude oil inventories declined by 0.4 million barrels for the week ending February 2, according to the Energy Information Administration, well below expectations of a 1.4 million barrel build. Distillate inventories fell by 3.7 million barrels, greater than the 3.2 million barrel draw expected. Gasoline stocks rose by 2.6 million barrels, which exceeded expectations of a 1.8 million barrel build. Refinery activity inched up higher, which supported the drop in crude oil inventories. The report will provide fuel for the oil bulls to take energy prices higher.
    • Weekly Natural Gas Storage Report
    • Underground storage of natural gas decreased by 224 billion cubic feet during the week ending February 2. This was slightly above expectations of a 218 Bcf draw. Inventories are now 19% above the five-year average. This report will have a modestly bullish effect on prices.
    • Wholesale Trade (MWTR)
    • Wholesale trade inventories dropped a considerable 0.5% in December, posting their largest month-to-month decline since May 2003 and bucking an expected modest increase for the month. November's gain was revised down slightly to 1.1%. December sales grew 1.8% and the I/S ratio came in at 1.17
    • Quarterly Household Credit Report
    • Credit quality deteriorated further in the fourth quarter as borrowing remained strong. The aggregate dollar delinquency rate jumped to its highest level in over three years. The deterioration in credit quality last year was widespread, although it is being led by mortgages and auto loans. Borrowing in the quarter was led by student and auto loans. Subprime lending accelerated more than prime lending.
    • Consumer Credit (G19)
    • Consumer credit increased in December by $6 billion to $2.4 trillion. The details of the report show that the latest jump in consumer credit was primarily driven by a sharp gain in nonrevolving credit, which increased 4.3% at an annual rate. On the other hand, revolving credit rose a scant 0.8% at an annual rate.
    • Productivity and Costs
    • Nonfarm business productivity growth bounced back in the fourth quarter, coming in at 3.0% (SAAR). This was well above consensus, and much better than the 0.1% decline in the third quarter. Despite the strong fourth quarter number, productivity growth has slowed in recent quarters. Nonfarm unit labor costs grew an annualized 1.7% in the fourth quarter, below consensus. Inflationary pressures from the labor market have faded a bit, but remain a concern.

    Source: Economy.com, Financial Times

  • This Weeks Leads:
    • Bloomingdale’s and Macy’s Northwest
    • Federated Department Stores trades as Bloomingdale’s and Macy’s Northwest.
    • Bloomingdale’s operates 38 locations throughout CA, FL, GA, IL, MA, MD, MN, NJ, NV, PA and VA.
    • The upscale department stores occupy spaces of 150,000 sq.ft. to 230,000 sq.ft. in freestanding locations and malls.
    • Growth opportunities are sought nationwide in major metro markets.
    • Macy’s Northwest operates 70 locations throughout ID, MT, OR, UT, WA and WY.
    • The department stores occupy spaces of 100,000 sq.ft. to 150,000 sq.ft. in malls, power, specialty and strip centers. Growth opportunities are sought throughout the existing markets during the coming 18 months.
    • Typical leases run 20 years.
    • Preferred demographics include a population of 50,000 within 15 miles earning $45,000 as the average household income.
    • For details, contact
      • Carl Goertemoeller,
      • Federated Department Stores,
      • 7 West 7th Street,
      • Cincinnati, OH 45202;
      • 513- 579-7666,
      • Fax 513-579-7513;
      • Web site: www.federated-fds.com
    • Bachrach
    • Bachrach Clothing, Inc. trades as Bachrach at 34 locations nationwide.
    • The men’s apparel stores occupy spaces of 4,000 sq.ft. to 5,000 sq.ft. in malls.
    • Plans call for five to 10 openings nationwide during the coming 18 months.
    • Typical leases run 10 years.
    • For more information, contact
      • Adam Cummings,
      • Bachrach Clothing, Inc.,
      • 4 Causeway Road, Vineyard Haven,
      • MA 02568;
      • 508-693-3300,
      • Fax 508-693- 7316;
      • Web site: www.bachrach.com.
    • Bostonian / Clarks Outlet and Clarks Shoes
    • The Clarks Co. of North America trades as Bostonian / Clarks Outlet and Clarks Shoes.
    • The company trades as Bostonian / Clarks Outlet at 73 locations nationwide.
    • The shoe stores occupy spaces of 3,000 sq.ft. in malls, lifestyle, outlet and tourist centers.
    • Plans call for five to 10 openings nationwide in upscale major metro markets during the coming 18 months.
    • Typical leases run 10 years. Preferred cotenants include Ann Taylor, Chicos and Coldwater Creek. Competition is cited as Factory Brands, Naturalizer and Nine West.
    • The company also trades as Clarks Shoes at 86 locations nationwide.
    • The men and women’s shoe stores occupy spaces of 2,400 sq.ft. to 2,700 sq.ft. in malls and lifestyle centers.
    • Plans call for 25 to 35 openings throughout upscale markets in Gilbert, AZ; Santa Monica, CA; Orlando, FL; Columbia, MD; MI, Bloomington, MN; Old Bridge, NJ; Las Vegas, NV and Lancaster and Philadelphia, PA during the coming 18 months.
    • Typical leases run 10 years.
    • Preferred cotenants include Ann Taylor, Chicos and Coldwater Creek.
    • Competition is cited as Factory Brands, Naturalizer and Nine West.
    • For details, contact
      • Criss Nigro,
      • The Clarks Co. of North America,
      • 156 Oak Street,
      • Newton Upper Falls,
      • MA 02464;
      • 617-243- 4194,
      • Fax 617-243-4210,
      • Web site: www.clarksusa.com

  • Extra Credit Reading
  • Strategic Management

    The Auto Industry: On the Road to Disaster or Recovery?

    Last May, Knowledge@Wharton spoke with John Paul MacDuffie, a management professor at Wharton and co-director of the International Motor Vehicle Program, about the state of the auto industry. It seems that not much has changed since then, except maybe for the worse. 2006 was the first year since 1991 that Detroit's Big Three were all in the red. Ford's situation seems direr than ever; Chrysler, which was profitable until mid 2006, is now preparing a restructuring plan to roll out this month; and Toyota has claimed the number-two spot in the U.S. auto market, just behind GM. Knowledge@Wharton asked MacDuffie whether he expects any surprises, or new strategies, in 2007.

    http://knowledge.wharton.upenn.edu/article/1656 .cfm

    Law and Public Policy

    It's Not Easy Going Green: Environmentalism May Help Your Corporate Image, but Will It Keep You in the Black?

    On February 2, a long-awaited report from the Intergovernmental Panel on Climate Change (IPCC) was released citing "unequivocal" proof of global warming. Meanwhile, some of the biggest corporations in the world, including Wal-Mart, Ford, General Electric and BP, have adopted highly visible "green" strategies. But what does "going green" mean for the bottom line? Whether motivated by desire to do what is right, or to polish their public image and fend off government regulation, companies can profit from environmental initiatives, according to Wharton faculty and analysts.

    http://knowledge.wharton.upenn.edu/article/1653 .cfm

    Managing Technology

    Why Software Business Models of the Future Probably Won't Come in a Box

    Microsoft's Vista operating system should give the company a revenue stream that will run for years, but experts at Wharton say the January 30 launch of the consumer versions of Microsoft's flagship software may be among the last of its kind -- a product sold for a flat fee in a shrink-wrapped box. Indeed, many wonder if the software business model that has made Microsoft so dominant may begin to fade as new software business models -- from open source to advertising supported -- gain increasing traction.

    http://knowledge.wharton.upenn.edu/article/1651 .cfm

    Leadership and Change

    The World Economic Forum: A Call to Exercise Global Leadership, Not Just Self Interest

    This year's convening of The World Economic Forum in Davos, Switzerland, brought together approximately 2,400 corporate executives, heads of government and leaders of organizations like the World Bank and Human Rights Watch to debate issues ranging from global warming to the rise of the Internet and the future of the Middle East. Michael Useem, director of Wharton's Center for Leadership and Change Management, attended the five-day event. He offers his report on what he calls Davos' "culture of transcendent leadership," which he defines as "a willingness by those with company or country responsibilities to make decisions that benefit those far beyond the decision maker's own organization or nation."

    http://knowledge.wharton.upenn.edu/article/1649 .cfm

    Finance and Investment

    Do Americans Save Enough? It Depends on What Calculator You Use

    Every week one financial services firm or another releases findings of its latest retirement study: Americans aren't saving enough. Americans are saving too much. The savings rate is abysmal. People are borrowing against their homes to pay for luxuries, and so forth. Who's right? It turns out, not surprisingly, that the future is hard to predict, and that many calculators designed to make those predictions are flawed in their basic assumptions. Wharton experts try to help navigate the challenges of planning for retirement. http://knowledge.wharton.upenn.edu/article/1650.cfm

    Sports and Entertainment

    Fantasy Sports: The Players, the Platforms and the Profits

    According to some industry estimates, fantasy sports is now a $4 billion industry and growing quickly. What is fantasy sports, who provides fantasy sports platforms, what are the most popular fantasy sports, and -- coming off the Indianapolis Colts' recent Super Bowl win -- can we assume there will be a Super Bowl for fantasy football, or for baseball, basketball or hockey? Knowledge@Wharton asked Kent Smetters, professor of insurance and risk management, to bring us up to speed on the future of this industry.

    http://knowledge.wharton.upenn.edu/article/1655 .cfm

    Innovation and Entrepreneurship

    Mike McCue's Vision for the Convergence of the Phone and the Web

    When Mike McCue founded Tellme in 1999, its initial product was a voice-driven information service, what might be termed a "voice portal." Today, the company's voice-recognition systems power directory assistance services from AT&T, Verizon and Cingular along with automated 800-number customer help lines at companies like Merrill Lynch and Federal Express. But McCue still harbors dreams of a broader voice-driven web, one which will provide consumers with new ways of using the phone to interact with the universe of information. He discussed this vision, and others, during a recent interview with Knowledge@Wharton in Tellme's Mountain View, Calif., offices.

    http://knowledge.wharton.upenn.edu/article/1652 .cfm

    Source: The Wharton School

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    • Financial Analysis
    • Urban Renewal & Redevelopment Analysis and Budgets
    • Strategy and Policy Analysis
    • Economic and Fiscal Impact Analysis
    • Statistical and Survey Research

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    If we can help, please call or email us at

    • Bob
      • 801-364-5300
      • BobSpring@BonnevilleResearch.com
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      • 801-746-5706
      • JonSpring@BonnevilleResearch.com

  • Eagle Days at Farmington Bay
  • Celebrating the annual arrival of the Bald Eagles and the new site of the Great Salt Lake Learning Center.

    • 10:00 a.m.
    • Goose Egg Island
    • Farmington Bay WMA
    • 1325 West Glover Lane
    • Farmington, UT

    Directions to Farmington Bay

    • Drive north on I-15 and take the Centerville Exit.
    • Turn left and head north past the McDonalds on the frontage road.
    • Turn left on the Glover Lane bridge and drive West until you come to the power lines.
    • Turn left and drive into the Farmington Bay Wildlife Management Area.
    • Proceed past the shops until you see the eagles.

    Enjoy the greatest concentration of Bald Eagles in the "lower 48".

    Free Bring the kids!

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