Brokerage Outlook: Utah

• Utah Retail

• Salt Lake City Industrial

• Salt Lake City Multifamily

• Salt Lake City Office

Utah Retail Palmer Submitted by Brett Palmer, Retail and Investment property specialist with Salt Lake City-based NAI Utah Commercial Real Estate. Posted 03/03/08. What area is your expertise? • Retail property leasing and investment sales What trends do you see presently in retail development in your area? • 2007 enjoyed robust construction of new property, healthy absorption of that space, high land and construction costs, increasing lease rates and strong retail sales performances by most retailers. 2008 will bring lower construction costs and more stringent lending requirements and will most likely bring stabilized to slightly decreasing land costs and lease rates. Retailers will become increasingly calculated and cautious. CAP rates will increase slightly. The Utah economy is among the very healthiest in the country and arguable the strongest amid the economic change. New developments in the growth areas of our market will be affected the most by the slowdown in the housing markets. What type of retail product is doing well in your area? • As always, grocer anchored and discount/general merchandise retail anchored (Target, Wal-Mart, Costco) centers are the backbone and doing well. More and more power centers that blend entertainment and lifestyle components with the traditional retail mix are being developed and doing well. Nearly all of our regional/interior malls are being redeveloped or have plans to be redeveloped in the near future. What retailers are new to your area? • IKEA, Sunflower Market, Sports Chalet, Cost Plus World Market, Hobby Lobby, Cheesecake Factory, Sears Home Appliance Centers, The Egg and I Restaurants, El Pollo Loco, Shari’s, In-N-Out, Chipotle, Steve & Barry’s, DSW and others. Who are the active retail developers in your area? • Wright Development Group, The Boyer Company, Johansen-Thackeray and Woodbury Corporation Please name one or two significant retail developments in your area. What impact will these projects have on the market? • Park Plaza in Clinton anchored by Lowe’s Home Improvement Warehouse, Kohl’s and PetSmart. This center further defines the strength of the Clinton trade area as separate from Layton and Riverdale and as an area that retailers want to be and need to be. The expansion of two existing strong shopping centers — The Meadows (American Fork) and The District @ South Jordan (South Jordan) — further solidifies these two centers and the trade areas they satisfy. Where is the majority of development taking place? Why is this area doing well? • The growth areas – the south and southwest area of Salt Lake County (South Jordan, Riverton, Draper); the west portions of north Davis County (Clinton, West Point, Syracuse); the west areas of south Weber County (Clinton) and the north portions of Weber County (North Ogden, Pleasant View); the northern most parts of Utah County (American Fork, Highland, Lehi) and the most southern portions of Utah County (Springville, Spanish Fork); Cache County (Logan); and Washington County (St. George). These areas are doing well because of continued, although slower, growth and more developable land. Retail properties in some of the weaker, more susceptible growth areas will be affected. What area do you expect to be the next big retail development market? Why? • Clinton, North Ogden, Farmington, South Jordan, Riverton, Draper, Spanish Fork and Springville. Please describe the retail leasing activity in your area. • The retail leasing activity is active, but slowing slightly. Retailers are still expanding, but have become more calculated in their decisions and now come into the negotiations with the edge. Vacancy is still low, retail properties are not overbuilt and there is job and population growth, albeit slower. Please give a measure of retail vacancy rates. Please give a measure of available sublease space. • Anchorless centers, depending on the area of the market and the quality of the property, have a wide range of vacancy rates ranging from 1 percent to 14 percent. Neighborhood centers, again depending on the trade area and the quality of the property, range from 2 percent to 9 percent, most at 3-5 percent. Community centers, depending on the same variables, range from 2 percent to 9 percent with most of them at 4 to 5 percent. Finally, Regional centers range from 1 to 10 percent, most at about 3 to 4 percent. What types of retailers should look into your market in the coming year? What type of retail is needed? • All. The sales performances from recent openings by Cabella’s, IKEA, Cheesecake Factory, Ruth’s Chris Steakhouse, Hobby Lobby, Steve & Barry’s and others prove that the Utah market can fulfill, or exceed, the expectations of most retailers. Would you like to make any additional observations about the retail market in your area? • The credit crunch and the change in the economy will force a focus on quality for the lender, the retailer, the developer and the investors. The “one-off” properties, especially if overpriced, are going to get hit. The retail commercial property industry will move forward at a healthy pace, just a little slower and more cautiously. In 2007, we were going 85 mph and in 2008 we will most likely move along at about 65 mph. We’re not speeding, but we’re definitely not the Granny on the road.

Salt Lake City Industrial Heaton Submitted by Jeff Heaton, Industrial specialist with Salt Lake City-based NAI Utah Commercial Real Estate. Posted 03/03/08. What area is your expertise? • Industrial real estate in the greater Salt Lake area. A current, but growing base of 107 million square feet. What trends do you see presently in industrial development in your area? • Bigger does mean better. The Salt Lake industrial market is growing up.  Large, bulk distribution buildings (300,000 square feet+) are becoming common place as the consolidation of business has created a need for larger space and as Salt Lake becomes a preferred choice for distributors in the Western U.S. Prime industrial land is very hard to find. Values have doubled over the past 4 years. Increasing land values have also contributed to large lease rate increases across the board, from smaller incubator units to large bulk distribution facilities. What type of industrial product is doing well in your area? • All types, especially the 50,000-square-foot+ segment. Rates have risen, on average, by $.03 per square foot among all building types and square footages in the last 12-month period. The most significant rise in price per square foot has been in the 0-10,000 square foot spaces. Increases in values are attributed to the limited supply of buildings for sale, the relatively low cost of money and the rising price of land. Who are the active industrial developers in your area? • Freeport West, IDI, Buzz Oates, First Industrial. Bulk distribution space has been the primary driving factor in new construction. Only a select few developers have ventured to building with increments under 20,000 square feet. These developers are now gaining traction in the market. Please name one or two significant industrial developments in your area. What impact will these projects have on the market? First Park Mountain View by First Industrial — Their 420,000-square-foot large land holdings and Class A industrial development are located in the heart of Salt Lake City’s transportation corridor. This will provide for many years of development close to the fully functioning intermodal hub facility. Freeport West — The California-based developer is a major player in the distribution market and has substantial land holdings. Freeport is under construction now on an approximate 600,000-square-foot building with divisible increments no smaller than 50,000 square feet. Both these projects will add much needed high cube distribution space to the market. Where is the majority of development taking place? Why is this area doing well? • The 5600 West corridor on the west end of the valley, due primarily to proximity to aforementioned intermodal hub as well as 5600 West’s location in path of development. What area do you expect to be the next big industrial development market? Why? • Land is extremely limited for future industrial developments. Outlying areas close to Salt Lake will be premier areas for future developments. Please describe the industrial leasing and sales activity in your area. • Leasing and sales activity are very strong. Current vacancy is 5.5 percent. Please give a measure of industrial vacancy rates. Please give a measure of available sublease space. • 5.5 percent vacancy with a very limited sublease basis. Demand remains high and supply low. 2007 saw 3.5 million square feet of positive absorption. What impact do current interest rates have on the industrial market? What predictions do you have for interest rates and their effect on the industrial market? • The flux of capital markets in late 2007 has made borrowing a difficult process. Interest rates are likely to drop as the national economy struggles. Owner/user financing will still remain a great option. What industries do you expect to expand in 2008 to absorb a great deal of industrial space? What areas will be affected? • Two reports in 2008 have ranked Utah #1 for Economic Competitiveness. Companies in many sectors continue to look to Utah. Examples of new firm openings and major expansions of existing firms of 100 or more workers in 2007 included: Adam Aircraft Industries (business jet manufacturing) Affiliated Computer Services Inc. (call center) Amer Winter & Outdoor U.S. (ski equipment headquarters) Backcountry.com (outdoor retailer and distributor) Comcast (cable TV and Internet service) Dannon Co. (yogurt products) Fresenius Medical Care (dialysis products) Hunter Douglas (window coverings) IKEA (home furnisher) IM Flash Technologies (flash memory) KraftMaid Cabinetry (cabinets) MedQuist (medical transcription) MountainStar Healthcare (hospital) Orgill Inc. (home improvement products) Sorenson Communications (IP relays) Spring Canyon Energy (natural gas power plant) St. Regis (five-star hotel and condos) Viracon (glass products) West Liberty Foods LLC (meat processor) Utah will continue in 2008 to focus on recruiting industries to Utah such as Defense, Energy and Minerals, High Technology, Aerospace, Composite Industries, and Life Sciences. Would you like to make any additional observations about the industrial market in your area? • All in all, Salt Lake should remain a very strong market in 2008. Given historical demand, there is currently just over one year of remaining product. A strong local economy, consistent population growth and good basics should serve for another year of positive growth for industrial real estate.

Salt Lake City Multifamily Submitted by Kent Nelson, associate partner/principle broker for the Salt Lake City, Utah, office of Hendricks & Partners. Posted 09/27/07. What area is your expertise? • I specialize in the multifamily markets throughout Utah, but primarily in Salt Lake, Davis, Utah and Weber counties. What trends do you see presently in multifamily development in your area? • One trend is the difficulty in obtaining entitlements for rental multifamily. Once a developer gets the entitlements, they then see the quick profit of selling off units as condos, rather than rental, so they make their multifamily condo sales. There are strong barriers of entry primarily being political, such as NIMBY or “not in my backyard,” as well as the rising costs of construction. Who are the active multifamily developers in your area? • Active developers include Cowboy Properties/Proswood; Castlewood Development (an old Trammell Crow partner); Millwood Development, although they focus on affordable housing or Section 42 projects; and Triton Development. Cowboy Properties has the most new development projects in the pipeline, equating to roughly 1,000 units. Please name one or two significant multifamily developments in your area. What impact will these projects have on the market? • Serengeti Springs is under construction and is being developed by Triton Development. This is the first phase of a two-phase, 600-unit development in the southwest part of Salt Lake County. This is the first major project developed on the far west part of Salt Lake County and is a bit of a pioneering effort. The property has, however, accumulated a large list of prospective residents during its construction, and it appears that it will lease-up quickly. Where is the majority of development taking place? Why is this area doing well? • The majority of the development is taking place in the southwest part of Salt Lake County. The Salt Lake area has the Wasatch Mountain Range on the east, the Great Salt Lake on the West, so the only real areas for new development are the southwest and southern regions of Salt Lake County. As a result, most of the development is taking place in those areas. It is successful mostly because our market is so strong and job growth is expanding so rapidly. Another area that is doing well is the downtown area of Salt Lake City. The Latter Day Saints Church is launching a huge new mall in the downtown area that will cost almost $1 billion dollars. This will revitalize the downtown area by pulling a lot of new jobs and making it a very attractive place to live. What area do you expect to be the next big development market? Why? • The southwest part of Salt Lake County and the downtown area of Salt Lake City should be the next big development markets due to the availability of developable land. What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing? • Currently there is not a slow area anywhere in the state. All properties have occupancies in the high 90 percent range (many have waiting lists) and there is no evidence of this letting up for at least the next 24 months. Please give a measure of apartment vacancy rates. • The apartment vacancy for all of the major cities in Utah is less than 5 percent and no concessions. Rental growth is expected to be more than 5 percent per year for the next 3 years. Please give a measure of condo sales activity in the area. • The new construction condos and townhouses primarily in Salt Lake, Davis and Utah counties are being sold as fast as the developers can build, which equates to roughly 200 units per month. These are considered entry-level dwelling units and are priced from $130,000 to more than $350,000 per unit. What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year? • An increase of 100 bps in interest rate will remove about 10 percent of the qualified buyers for entry-level homes. If interest rates continue to increase, rent growth will rise way over the predicted 5 percent annual rent growth. Rents will eventually be priced over where most people can afford, creating somewhat of a housing crisis. An increase in interest rates could be very detrimental to the entire economy of Utah because the demand for employees is so great and not having an affordable place to live is going to impact the Utah economy. What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market? The job growth is huge, more than 4 percent per year. Utah is one of the top three states in the country for job growth and it is expected to continue. Most jobs are coming from homegrown businesses, health care and construction. Would you like to make any additional observations about the multifamily market in your area? • The demand for apartment properties and apartment development is at its highest level in the past 25 years and will most likely continue. Cap rates are shrinking rapidly for the Class B and above. The barriers of entry will continue as well as the high cost of construction forcing even higher rent growth. Hopefully, there will be some release of the political barriers so that higher density dwelling units can begin.

Salt Lake City Office Johnson Submitted by Barbara Johnson, Office specialist with Salt Lake City-based NAI Utah Commercial Real Estate. Posted 03/03/08. What area is your expertise? • Office leasing and sales in Salt Lake County What trends do you see presently in office development in your area? • The office market continues to show positive net absorption and a sustained demand for office product. Developers and the capital markets have not been over-zealous by creating a large supply of speculative office product. Most of the new office construction has had substantial pre-leasing activity.There is also a greater interest in creating a more green and sustainable office buildings. Who are the active office developers in your area? • DDRS, Boyer Company, Woodbury Corporation and Hamilton Partners Please name one or two significant office developments in your area. What impact will these projects have on the market? • The Gateway in the downtown area of Salt Lake City continues to have an impact on the office market. Large and notable companies such as Fidelity and Ernst and Young continue to locate in this mixed-use project. Tenants seek to have amenities such as restaurants, shopping, entertainment, condos, and light-rail transportation at their doorstep. This project will continue to be the “pace-setter” in office development and will be the development that will have little, if any, vacancy. Where is the majority of development taking place? Why is this area doing well? • The South end of the Salt Lake Valley along the Interstate 15 corridor is experiencing continuing increases in office demand. This area experiences growth due to new residential development. With a tight labor market of below 4 percent unemployment, Tenants want to retain their employees so their commutes lessen. What area do you expect to be the next growth area? • Northern Utah County will continue to grow due to land availability and the continued residential growth in Southern Salt Lake County. What areas are doing well in terms of office leasing? Which areas are struggling with office leasing? • Central Business District is very tight especially in Class “A” office space. Class “C” properties tend to have the largest vacancy in all regions. The northwest region by Salt Lake International Airport tends to lag behind the other regions. Please give a measure of office vacancy rates. Please give a measure of available sublease space. • Overall vacancy in Salt Lake County is about 11 percent and about 1 percent in sublease vacancy. What impact do current interest rates have on the office market? What predictions do you have for interest rates and their effect on the office market? • Few speculative office buildings will be built due to current interest rates and the underwriting of loans. With fewer new speculative office buildings, office space will continue to be absorbed. Salt Lake County Market should absorb around 800,000 to one million square feet by end of year. What is the status of job growth/(un)employment rates and what bearing will it have on the office market? •Job growth continues with new companies coming to the market and local companies expanding. The Utah jobless rate averaged 2.6 percent during 2007’s first 10 months after averaging 2.9 percent in 2006, among the lowest rates in the nation. One critical factor helping labor availability has been a high level of net immigration. A record 44,250 more people moved into Utah than out during the 12-month period ending in July 2007. This surge of new residents has been at high levels since 2005, providing needed workers. Is there any type of office tenant absorbing a majority of space? What industries do you expect to expand to absorb a great deal of office space? What areas will be affected? • The financial sector continues to be strong. For example, Fidelity Investments continues to expand in Utah with another service center of approximately 50,000 square feet in Northern Utah County and their new occupancy of 230,000 square feet in Salt Lake City. The multi-level marketing companies with Utah’s entrepreneurial spirit continue to absorb large blocks of space. Back office requirements will remain strong due to lower costs in Utah. Would you like to make any additional observations about the office market in your area? • With a pro-business governor, Utah has been making great strides in recruiting new companies to come to Utah. The beauty and recreational aspects of Utah continue to attract both companies and employees to locate in Utah. The well-educated work force with strong research universities in the Greater Wasatch Front allows companies to remain on the cutting edge. Transportation is king. With more funding of public transportation to connect the four major counties in the Wasatch Front, employees will be able to commute easily to their jobs. The added bonus of funding for major expressways will only increase business and keep the local economy very healthy.