Park City commercial real estate market still frozen

Commercial real estate market still frozen
Landlords say they can't afford to lower rates any further
by Andrew Kirk, The Park Record
Posted:01/08/2010 04:51:44 PM MST

It's hard to go shopping anywhere in Park City without seeing vacant storefronts. Some strip malls have had empty spaces for nearly a year. But retail, with a 9 percent vacancy rate, is actually the bright spot in Park City's commercial real estate market.

According to Chris Donaldson, an appraiser with Cushman & Wakefield, about 15 and a half percent of the area's office space is vacant and 16 and a half percent of industrial space is.

For various reasons, vacancy isn't distributed evenly. The Tanger Outlet Center is nearly 100 percent full while Quarry Village further up Landmark Drive is at 50 percent. That's according to a report Donaldson produced for Commerce CRG that recently split into Commerce Real Estate Solutions and CRG Utah.

Management for Tanger and Quarry Village were contacted but could not be reached.

Residential-property owners are often willing to sit on a home rather than sell it for too low a price. Commercial landlords don't have that worry since they retain ownership, but Donaldson said there are many reasons they allow space to remain vacant.

One is shoppers, like home buyers, are waiting until they're sure the market has hit bottom. Donaldson works in six states and he sees the same trends everywhere. With vacant residential lots and commercial spaces, owners can lower the price 75 percent and still not have takers. Price is inconsequential if buyers aren't buying, he said.

Reasons they aren't buying can be lack of credit or some businesses can't survive in a recession.

With these pressures decreasing demand, Park City is oversupplied. The recently completed retail spaces at Newpark between Jupiter Bowl and Best Buy sit empty, as do the industrial spaces off U.S. 40 in The Park City Business Center. Adding pressure on the West Side, the relatively new Summit Center on Rasmussen Road still has several openings.

Melissa Young is trying to lease out office space in Jeremy Ranch near the Jeremy Store. She said the last taker was a year and a half ago. There's so much supply, shoppers offer rates that are barely break-even for owners.

Bill Martin, formerly majority owner of Commerce CRG, now head of CRG Park City and CRG Utah, said part of Young's problem is location. Sure Jeremy Ranch is closer for businesses with workers and clients in Salt Lake, but if a business can get a lease in Park City proper, the outskirts of town become less desirable.

A few years ago the cheaper rent in the Basin or bordering U.S. 40 was attractive. Right now Park City is affordable. Donaldson's report said space on Main Street is going for about 22 percent less.

Sharon Stear with The Pyramid Group that owns the strip on Bonanza Drive with Einstein Bagels and Spencer's Smokin' Grill said it doesn't work to just lower the rent until a lease is signed.

"They talk," she said. "The other tenants complain."

Everyone starts asking for lower rent.

"It's a snowball effect," she said. "Sometimes having it empty is better."

Some landlords are signing special-circumstance, short-term leases to fill space, but Stear said it's a lot of paperwork and usually isn't worth it.

Her company has only done one in the last 14 years.

Young said callers she's talked to want $6 or $7 a square foot not enough to cover the utilities and maintenance. Even if she offers half price ($14 a square foot) they demand a five-year contract too long at such a low rate.

Adding to the problem, Stear said, is some businesses are in obsolete industries. The Bonanza Drive strip used to have a packaging store and a photo developer. Those tasks are now cheaper to do oneself.

Quarry Village lost Blockbuster Video last October. Even though the company didn't respond to an email requesting the reason, its website said the corporation plans to close about 18 percent of its stores by the end of this year because of competition from other movie vendors.

That's why start-up businesses looking for a lease should really be conscientious when presenting their financial strength and credit worthiness to a prospective landlord, Martin said.

"There are so few really good tenants around," he explained. "Landlords really have to think hard when looking at new startups."

Charlie and Mary Wintzer, whose Wintzer-Wolfe Properties owns the buildings in the Iron Horse District, said they've been lucky that way. With the exception of two construction-related tenants and the Park City Christian Center that moved, their tenants have valiantly survived the recession.

Still, Bill Martin calls the Wintzers a success story because they've had so few problems with vacancies.

Charlie Wintzer said it's because they really focus on service.

"We pride ourselves as being partners with our tenants," he said. "We spend a lot of time building relationships over the years."

He's socialized with tenants, physically helped them move units, supported open houses and encouraged friends to take advantage of their special offers.

"If they're successful, we're successful," he added.

Another factor is rates. He said they've traditionally tried to have the lowest rates in town, so he's not had a problem with businesses bailing on him to move elsewhere. That strategy allowed him to attract strong companies that have been able to continue paying during tough months.

It hasn't helped with filling the current vacancies because of the same challenges other owners are facing, but Mary said she's optimistic things are improving.

For eight months they went without serious lookers, but things have recently picked up. Martin also said the agents in his office are more hopeful than a year ago.

"People are not as scared as they were," he said. "We've gotten through."