Utah is long known for its open space, serene surroundings and tight-knit communities. It doesn’t exactly lend itself to the sexy retail products many Western investors have sought out in places like Los Angeles, San Francisco, Seattle and Las Vegas. And that’s just the way Utah likes it. While the blockbuster deals may commence farther along the coast, Utah is perfectly content to build upon its strengths — namely, an abundance of developable land, a growing, educated population and improving infrastructure — as it creates the perfect storm of investment opportunity for those keen enough to take notice.
“With an expanding, highly educated population and space to grow, Utah has the ability to grow more than other parts of the Western market,” says Jeremy McChesney, senior vice president of Hanley Investment Group (HIG). “We are seeing more companies move into the Salt Lake region and the need for retail and housing continues to increase. There are currently a number of California investors and developers that are looking to move capital to the Northern Utah markets of Provo and Salt Lake.”
HIG may be based in the Orange County, Calif., submarket of Corona Del Mar, but the furry of retail and overall development activity in Utah has led brokers like McChesney to keep a close eye on this mountain state.
“Utah has long been a very stable market,” McChesney continues. “We have not seen the same degree of roller-coaster value and development that we have seen in Southern California, Phoenix, Arizona and Las Vegas. This stability has not gone unnoticed. After the last economic downturn many investors have turned their eyes to the Utah market as a hedge against the volatility of other Western markets.”
As one might expect, the state’s family focus and growing population means retail staples and wholesome entertainment are almost always in demand. HIG’s latest Utah transaction is an example of this. The firm’s Eric Wohl recently represented a private Texas-based investment company in the purchase of Cedar South Shopping Center, a 118,319-square foot shopping center in Cedar City. This area is known for being the largest trade area between Provo and St. George, with a population base of 43,000 and an average annual household income of $51,860.
The center includes Marshalls, Bealls, Staples and Dollar Tree. It is shadow co-anchored by IFA Country Store, which ofers supplies for everything, including lawn and garden, farm and ranch, and pets and family.
Food For Thought
Investors near and far are happy to snatch up any properties that do hit the market, as Utah’s retail fundamentals don’t lie. Leasing vacancy statewide was down to an average of 5.8 percent by year-end 2015, according to Cushman & Wakefeld/Commerce.
Nick Clark, a senior director in the firm’s Salt Lake City office, partially attributes this low vacancy rate to the strong grocer tenants that attract other retailers like flies to honey.
“The major players that are currently active are Walmart, Kroger with their Smith’s brand, and Harmons, a local grocer,” he says. “Most of the leasing activity has remained steady throughout the past 12 years. Food users pushed the market rates up in 2015, specifically in A-plus and major anchored centers. Major anchors can still complete deals that are affordable, but as land prices climb it will be become more difficult for tenants to make deals that work.”
Natural Grocers, which focuses on fresh, organic foods and healthy living, is one grocer expanding within the state. It recently nabbed 17,290 square feet in the 4th South Market shopping center in Salt Lake City. The new store is Utah’s third location, but the first within Salt Lake Valley.
“We are very excited to announce that we will be opening this new location,” read a statement from the company put out this past August. “This store will be our first along the Wasatch Front, and we are very excited to bring the Natural Grocer shopping experience to Salt Lake City. Natural Grocers has over 100 locations west of the Mississippi and is expanding aggressively throughout the Utah market.”
The grocer was represented by Andy Mofitt of Mountain West Retail and Investment (MWRI) and James Craddock of Craddock Commercial.
The proximity to grocer options was also emphasized as a selling point in the Cedar South Shopping Center deal, as HIG noted the center was near Smith’s Food and Drug and Walmart.
Then there was the sale of Kane Creek Shopping Center, a 43,790-square-foot property in Moab that is fully occupied by nine tenants, including grocer anchor Village Market. Canyon Center, a 51,914-squarefoot shopping center in Sandy that is anchored by Smith’s and Shopko, also changed hands this past November. Chris Hatch of MWRI represented the sellers, along with Newmark Grubb ACRES’ Bryce Blanchard, on both transactions.
“Grocery inventory is extremely scarce in our market,” Hatch says. “In fact, these are the frst groceryanchored retail acquisitions in Utah in over two years.”
Hatch attributes the lack of available inventory to a few factors.
“One main challenge we experience in this market is the tight-knit nature of the community, which can make it difcult to source investment sale listings,” he says. “In general, investment properties don’t change hands often.” A focus on family may be one of the traits that makes Utah great, but as Hatch and McChesney can attest to, it can also provide steep challenges to brokers and large barriers to entry for out-of-state investors.
“The majority of retail properties in the Salt Lake and Provo markets are owned by local companies and family trusts — many of them generational,” McChesney says. “These are investors that want to keep what they have in this market. Because of that, turnover is slow.”
Dee’s Inc., Canyon Center’s seller, is one example of this. Dee’s is a third-generation, family-owned real estate company. Canyon Center’s buyer, however, was Pacifc Castle, a Southern California-based institutional investor, proving that outsiders can penetrate the market, though, as Hatch noted, it is rare.
Developing A Future
Many investors have begun chasing development opportunities as little inventory changes hands.
“Retail construction has ramped up over the past 12 months and looks to continue, specifcally in the southwest portion of Salt Lake County and the northern portion of Utah County,” Clark says. “Quality property is currently difcult to acquire in Utah, which is expected to continue throughout the year. There are a number of local and out-of-state investors looking to invest money in the Utah market for quality real estate.”
Utah added 346,913 square feet of new retail construction last year, which included the Salt Lake City Costco expansion of 85,000 square feet. Smith’s (Kroger), Walmart and Sprouts also expanded within the state. On the entertainment front, the Cinemark Theater at Sugarhouse in Salt Lake City received a complete renovation. Its counterpart at Jordan Landing in West Jordan will also undergo improvements to introduce the luxury theater experience to this southwest Salt Lake City submarket.
AMC is re-entering the market with a complete redevelopment of the former Carmike Cinemas into a luxury seating venue situated at 90th and Redwood. Top Golf is expected to open at View 72 in Midvale during the frst half of 2016.
The Family Center in Taylorsville is also undergoing extensive renovations, which include the addition of a Regal Cinema. Finally, Fashion Place will add an additional 50,000 square feet of new space. It will also receive a Macy’s, which is relocating from Cottonwood Mall.
Cushman & Wakefield/Commerce is working with Anthem Commercial on a new development and expansion of retail space west of Daybreak, a master-planned community in South Jordan. The project will be situated along the Mountain View Corridor and 11800 South. Anthem currently has 1,500 to 100,000 square feet of new retail space available for lease. This deal came on the heels of Utah Gov. Gary Herbert’s announcement this past October that the state’s population had surpassed 3 million.
“Every 30 seconds a baby is born, every minute a person dies and every 90 minutes a person moves to Utah,” the governor said at the time.
Clark notes that although Utah is experiencing a lot of activity, it is doing so at its own pace — and in its own way.
“We are not seeing the large influx of new national tenants that Arizona, Nevada and Colorado are currently experiencing,” he says. “However, Utah is in a better situation than many of the surrounding states. The current residential construction rate, influx of people moving into the state and the internal growth that Utah has always experienced continues to move our market above many other surrounding states.”
New shop space is commanding rents in the $30 to $34 per square foot range, Clark cites, as demand increases and more companies and residents take note of what the state has to offer.
“The affordability and quality of life combination does not exist in any other state,” he continues. “A decent size city with land to grow and afordable housing makes Utah an attractive state to relocate to. In surrounding states you will see retail centers pop up before the residential growth has flled in. Here in Utah, most retail centers follow the residential growth.”
Hatch further points to the major tech companies making their presence known within the state. These include Adobe, eBay and Xactware. These three companies are in addition to the more than 4,300 technology companies that call Utah home. The tech sector in general accounts for 9 percent of statewide jobs, giving Utah the recent nickname “Silicon Slopes.” “Utah is at the crossroads of the West,” McChesney says. “With the 80 and 15 freeways coming together in the heart of Salt Lake, the sustainable population growth, and a well-educated demographic; companies, developers and investors are recognizing the value in the market. Oh, and the skiing is great, too!”