Posted Jan 25, 2019, 6:07 PM
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https://www.ksl.com/article/46475554...-estate-market
Labor shortage could impact strong Utah commercial real estate market
Quote:
SALT LAKE CITY — After a dramatic climb over the past several years, analysts say Utah's strong commercial real estate market could take a hit from a lack of available qualified labor needed to meet the ongoing demand.
Speaking Thursday at the 2019 National Association of Industrial and Office Professionals Commercial Real Estate Symposium in downtown Salt Lake City, the executive director of investment for Newmark Grubbs ACRES said the state has experienced double-digit growth in the amount investors are willing put into local development projects.
"We've set all-time records of sales volumes in the last five years," said Bryce Blanchard. "This year, we were 44 percent higher in the number of transactions and dollars spent on Utah commercial real estate than 2017 — which was already a previous all-time high."
He noted that the trend upward began after the market hit "the bottom" in 2009, in the wake of the Great Recession. Since then, investment has increased annually, he said.
"We've had consistent growth in our market now going on 10 years," he said. "It's been a 10-year run of appreciation, of transaction volume increases, of pricing increases (and) absorption — all across the board in commercial real estate."
He said the upward trend is expected to continue for the foreseeable future based on the state's strong economic fundamentals.
"Utah right now is leading the country in population growth (and) we're also double the national average of job growth," Blanchard said. "Those two drivers create the desire for people to build real estate (and) absorb real estate. Those are significant factors of the growth metrics of our community."
He said most of the commercial investment money is coming from out-of-state investors.
'Headwinds' coming
While a decade of robust growth is something to be optimistic about, there may be some "headwinds" coming, including rising interest rates, global economic unrest and the U.S. trade conflict with China.
"There are some 'bogeys' out there that could take a little bit of the exuberance out of the marketplace, but we live in a world of cycles," he said. "The nice thing about Utah is we are economically resilient because of the diversity of our economy."
He said having various strong industry sectors to rely on for economic growth helps the state from falling too swiftly during a down cycle.
Fortunately, the local market is robust, construction is booming, and growth is fast, said Josh Caldwell, director of Business Development for Big-D Construction.
While growth is good, it is having a major impact on labor, project performance and the cost of construction, he said.
Finding manpower to meet demand
He said due to the negative impact of the economic downturn in 2008, the construction industry is still fighting to find the manpower needed to meet the continuing demand.
"While the industry as a whole has bounced back, the workforce has been notably diminished," he said. According to the U.S. Bureau of Labor Statistics, the construction workforce went from a high of about 11.7 million in 2005 to 10.8 million in 2010, which dwindled to 10.2 million in 2016, he said.
In the meantime, the U.S. population continues to grow — an estimated 9.4 percent increase from 2005 — resulting in greater demands in housing, office space, healthcare facilities, and hospitality.
"Simply put — there are plenty of construction jobs available, but not enough workers to fill those jobs," Caldwell said.
In addition, the cost of construction materials is also increasing, he said. Since late 2017, materials costs have been rising rapidly — at a 6.6 percent rate from October 2017 to October 2018, he said. Meanwhile, labor costs have also picked up, rising 3.8 percent in the past year.
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