Utah Valley Economic Outlook

September 9, 2013

Do you anticipate that home construction is going to be picking up here or is it going to be held back?

SIMONSEN: Home construction is pretty much on fire right now. The problem is builders don’t have ground. They’re snatching up ground as quickly as possible. And the appreciation of lots has just gone crazy, especially in the north end of the county, which is seeing lots double in about 12 months.

The pent-up demand—when we started to come out of the downturn—was a lot greater than the anticipation. There’s quite a bit going to Saratoga Springs, and I’ve got some projects going. But there’s not a lot on the east side of I-15 at all, which is really the housing area that these higher-paying jobs are looking for.

FOTHERINGHAM: For the first time in a while, I’ve seen spec office buildings being built. We had some built during the downturn at Thanksgiving Park. We had a 70,000-square-foot building that just had groundbreaking this last week. I’d like to see the same thing with some manufacturing buildings because we just don’t have a lot of those. I try to convince some of the construction companies to work with their investors to get them to build some spec buildings. I haven’t been very successful.

FUGAL: It’s still very difficult to get a project financed. Truth be known, the majority of the projects that have gone vertical the last few years—and even this year—with rare exception are pre-leased, have had tenant commitments in place. Because it’s still very difficult for developers, for companies to obtain financing. We’re still dealing with the challenging banking environment.

HUNT: Lease rates for industrial space have not kept pace with construction costs. One of the challenges that developers face is justifying new building when we’ve not seen tenants willing to pay the higher rates. As soon as that starts to happen, we’ll see more construction; but right now, when you look at the cheap lease rates versus cost of construction, it’s a pretty tight margin. It’s a lot of risk to ask somebody to drop $6 or $8 million on a building and be happy with the paltry returns that are out there. But that will change, as it always does.

GARFIELD: A few years back, our weakness was infrastructure. We were talking about all the things that we didn’t have. Now, one of our strengths is the investment that has been put into infrastructure. I-15 is a great corridor now. With FrontRunner coming down, with all of the public transportation that we have, with some flights now coming in and out of Provo Airport, I’ve really seen our weaknesses shift from infrastructure to other areas. But one of our strengths now is the ease of getting in and out of the county. 

What is it that makes our environment so rich with entrepreneurialism?

HUNT: It gets back to some of that pioneer heritage, where we’re confident of ourselves and we’re confident that we will work through any problems that we face.

Most of my clients are companies that have started with an idea, whether it be a year ago or 20 years ago, and they just continue to work hard and work through the challenges that they face. It gets back to their own competence level. When you step back from it and look at all of the things that they put at risk to do what they’re doing, it’s quite remarkable. And some aren’t successful, but most are because they’re very committed to what they’re trying to accomplish.

SCOTT: There’s a ton of support infrastructure around here. It’s like everybody you know is starting a business. And there’s all these organizations like BoomStartup, LaunchUp and Startup Dojo, that just foster it. When you start getting in groups that are fostering and supporting and helping, it becomes contagious and people feed off that energy.

RICHARDS: BYU is one of the top five entrepreneurship schools, and we have the highest number of entrepreneurs per capita. And it just naturally spins off. There’s also the Mormon mecca effect of people that come here for BYU or other reasons, and they stay here and start businesses.

HUNT: Definitely a conveyer belt of cash coming from California to Utah.

FUGAL: Not enough, though. Not near enough. If you want to talk about a weakness—and maybe my perspective is a little bit different—but companies are still having a difficult time raising capital in Utah, especially, the young, emerging, pre-revenue companies.

RICHARDS: There’s not enough capital for all the startups. That’s for sure.

FUGAL: It’s very challenging. It is a lot easier to raise money in Silicon Valley than it is in Utah. That’s a fact. Yet we have some unique opportunities for those angel investors that can identify the right companies that are looking to grow.

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