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Commercial building: worst field to be in?

Even though job losses in Utah have slowed, the Department of Workforce Services continues to report increasing unemployment. Many of those jobs are in construction and there’s one aspect of the industry that isn’t expected to improve anytime soon.

Until the "For Lease" signs disappear from office, retail and manufacturing spaces in Summit County it is inconceivable to imagine new commercial construction, say local developers.

Non-residential building has had its sharpest decline on record and is now tied with the early 1980s for the worst period ever for the industry, according to a recent report from the University of Utah’s Bureau of Economic and Business Research (BEBR) compiled for Commerce Real Estate Solutions.

There’s certainly little happening locally. Park City’s building department said it received one new building application in all of 2009 and none so far this year. That’s also true for much of the East Side. An exception to that is Kamas City, which approved six projects this year.

Developer Mark Fischer, owner of Bonanza Park who also has projects under review in Kamas, said he expects the timeframe for improvement to be about three to five years.

that time the recession should be over and Park City is likely to see an influx of retiring Baby Boomers, he explained.

Because it takes several years for any new commercial development to get approval from a city or county, he said the recession is being used by people in his profession for "behind-the-scenes" planning.

But empty commercial spaces will need to be filled before there’s demand for new places, he said.

Rory Murphy, developer of the Silver Star Plaza, said he agrees with that assessment and time line.

"Current inventory will get pretty darn close to capacity before anybody will be willing to pour a whole bunch of money into new inventory," he said.

Park City has reason to be more optimistic than most Utah communities, he said, because of the resort component. There will always be a need for lodges, restaurants, ski shops and gift shops.

"I think you’re going to start seeing more of a focus on neighborhood stuff," he said. "We’ll always have a resort component in this town that’s viable."

Alan Rindlisbacher is the director of marketing for Layton Construction, the firm currently working on The Montage and that recently completed a renovation of Stein Eriksen Lodge.

He, too, agreed with a prediction of three-to-five years for significant recovery and acknowledged there aren’t a lot of new projects planned for Summit County.

Still, many in the industry are finding reason for hope. Even though the statistics seem dire, surveys in the industry reveal increasing optimism over the next 18 months, Rindlisbacher said.

That supports an estimate made by BEBR that significant job gains will be seen in 2011 not enough to negate job losses thus far, but still an increase after nearly two years of decline.

Another thing to consider is that smaller projects that don’t have a big impact on statistics are ongoing. Those keep companies in business and people employed, he said. Unfortunately, they’re not in Summit County.

But there’s never been better time to build, he said, and people taking advantage of that are keeping the industry afloat.

"We’re staying alive," he said.

Coalville’s DeAnn Geary is the owner of the local construction firm Geary Construction. She said federally-funded projects for cities and counties are keeping her afloat. Because Geary is a small business, a woman-owned business and is located in a HUB Zone (a federal classification applying to most rural areas), it has had a significant advantage in winning bids for government-funded work.

Again, most of those jobs are outside Summit County. Most employees are local, however, helping with job numbers.

As might be expected, residential construction is picking up a little, but not commercial.

After three to five years Geary believes improvement will come, but it will never again be like the boom years peaking in 2007, she predicted.

Bill Martin, founder of Park City CRG, is an expert on existing commercial real estate. He said significant in-migration is needed before Park City will see improvement.

"It’s important to get that," he said. "People in this town don’t really comprehend the pressure placed on the retail and commercial market."

People wanting to lease are making offers too low and owners aren’t negotiating enough. But regardless of pricing, Martin said there just aren’t enough people looking and banks aren’t loaning.

Part of the problem is that the residential building boom gave many businesses more customers. Because those workers aren’t coming back, neither are the companies that sold them lunch and nails, he said.

What construction work there is is being done mostly by Salt Lake City firms. That’s further hurting the commercial real estate market, he said.

"We just need more people here," Martin added. "2010 will be better but not enough to get enthusiasm going."

Besides lost jobs, the most significant impact of the building drought on Summit County is loss of tax dollars.

"Commercial gives stability to an area. When we see a decline in activity, it’s more impactful than with residential," said Summit County Assessor Barbara Kresser.

Commercial property tax is a significant source of revenue, and no new places means no new tax dollars.

Kresser said it’s not a source of worry, however. The current dip has been taken into account in her office’s five-year funding projection.

"There’s impact there, but as far as taxes and tax collection, it will be OK," she said.


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