Salt Lake County Year End Commercial Real Estate Report (from Commerce R.E. Solutions)

Note: For additional detail including charts, graphs: http://bit.ly/Yearend09

SLCO Retail Market Year End 2009
1. The most dynamic part of retail in 2009 was grocery: New WinCo stores, as well as Associated Foods’ purchase of a number of Albertsons’ supermarkets.
2. Restaurants continued to be one of the most active retail categories. Smash Burger and Five Guys Burgers and Fries are new to the market. In-N-Out Burger expanded to Draper.
3. The retail market stabilized during the last half of 2009. Vacancy rates remained statistically unchanged when compared to 2008. Many landlords are expressing relief.
4. Despite a four-fold increase from the first half of the year to the second half, new construction of retail space is still well below normal levels. Virtually all of the new construction in the last half of the year was attributable to the new Winco stores in West Valley and Midvale.
5. In the second half of 2009, we did not see the large-scale national chain closures that took place in early 2009.
6. The future of Cottonwood Mall redevelopment remains in question. The owner/developer has emerged from bankruptcy.
7. After a number of delays, the renovation of Trolley Square is moving forward.
8. A mixed use development scheduled for the Rice-Eccles Stadium parking lot area was cancelled by Inland American Communities Group. The University remains committed to some type of development at that location.

Forecast for 2010
1. Consumer attitudes have had a profound change. We expect this to keep people’s living and spending patterns on the conservative side for years to come.
2. Expect a shift away from the purchase of less durable items and toward products that improve home/property values and boost energy efficiency.
3. Watch for more small business lending, giving smaller local and regional retailers a chance to expand.
4. Teamwork: Vendors, landlords and even some lenders seem willing to support retailers that have solid business plans, even when they are facing temporary difficulties. We expect this behavior to soften business closures during 2010.

SLCO Office Market Year End 2009
1. Salt Lake direct office vacancy climbed to 15.72 percent (up from 12.95 percent in 2008). The good news? If the space in the just-opened 222 Main Street office building is subtracted from the vacancy rate, the numbers would have held steady when compared to 2008.
2. Lease rates did not increase, and office space absorption was positive: 88,000 square feet in 2009 - but a definite decrease over the five year average of 913,000 square feet (all business office classes).
3. New office space construction totaled 768,000 square feet compared to just over a million square feet in 2008. Most of the new space was in the suburbs with the exception of 222 Main Street.
4. Most current office construction began in 2008, before the market began to deteriorate.

Forecast for 2010
1. Positive job growth should return by 3rd quarter of 2010 according to State economists.
2. The office market will lag behind this recovery due to the time it takes for companies to regain confidence, hire, execute new lease agreements and move into new space.
3. Good news: Only 315,000 new square feet of office space will open up in 2010 (2/3 below the historical average) and more than 75 percent of that space has already been leased.
4. More tenants will be looking for LEED buildings, in order to save in energy costs.
5. Landlords will make big concessions to lease space and keep current tenants, including free rent and rent relief in exchange for longer leases.

SLCO Investment Market Year End 2009
1. A decline in investment activity in 2009, but the freefall that began in the 3rd quarter of 2007 seems to be finding a bottom.
2. During most years, there is a 50/50 split of local and out-of-state investors. In 2009, 75 percent of investors were local.
3. Utah is doing well. The number of commercial real estate foreclosures is relatively small compared with neighboring states.
4. Investment in apartment properties held steady, and the vacancy of the overall apartment sector is at seven percent. A majority of landlords are offering tenant concessions. This was not the case in 2008.
5. Lenders were only willing to work with investors with strong credit, thus there were an unusually high number of cash transactions.
6. Class A properties held steady, but class B and C experienced big downward value trends.

Forecast for 2010
1. Utah’s economy is miles ahead of just about every other state in the region, thus investor interest should pick up.
2. High quality properties in every sector will capture the investor’s interest while class B and C properties will continue to be sluggish.
3. Cash sales or low leverage transactions will continue to be the norm until debt capital returns in greater quantity to the marketplace.
4. Investment in retail properties is still a challenge, but we do expect to get more interest from out-of-state retailers.
5. Do not expect a recovery in investments until job growth becomes positive and businesses start hiring and credit becomes more available to businesses.
6. Business closures and layoffs have put a lot of talented entrepreneurial people into the marketplace. This could lead to a resurgence in start-up companies.

SLCO Industrial Year End 2009
1. Many credit-worthy businesses could not expand due to a tight credit market.
2. Industrial vacancy increased only slightly in 2009, weathering the economic challenges well.
3. Landlords are making concessions, including free rent.
4. A number of large national and regional tenants chose to sublease some of space in 2009.
5. The cost to lease industrial space dropped ten percent in 2009. In 2008 the cost was up 23.42 percent.
6. There was a 25 percent decline in the leasing of industrial space.

Forecast for 2010
1. The complete halt of new industrial space construction will extend through 2010.
2. Declining least rates should stabilize.
3. Tenants will continue to purse more short-term lease renewals

About Commerce
Commerce Real Estate Solutions, headquartered in Salt Lake City, with four Utah offices, a Las Vegas office and active real estate involvement throughout the Intermountain West, has been the leading provider of real estate brokerage services in Utah for 30 years. As an Alliance Member of Cushman & Wakefield, Commerce provides consulting, brokerage, tenant representation, property and facilities management and valuation services to corporations, institutions and investors throughout the Rocky Mountain States. The firm is one of 25 members of the Cushman & Wakefield Alliance Program. www.comre.com