UTAH’S ECONOMY ISSUE 37 • DeceMBER 2007 A monthly report Produced for COMMERCE CRG by Jim Wood, Bureau of Economic and Business Research University of Utah NONRESIDENTIAL CONSTRUCTION NEAR RECORD LEVEL n 2007, nonresidential construction had its best year since 1997. The value of nonresidential construction reached $2.1 billion, just shy of the all-time high of $2.2 billion, (all construction values are in constant 2007 dollars). Last year, nonresidential construction was dominated by a number of mid-sized projects. The Ihighest value permit was $80 million for the IHC Riverton Hospital, followed by the Hamilton Partners’ office building in Salt Lake City at $79 million and the RSL soccer stadium at $60 million. Nonresidential construction has increased steadily over the past six years, growing Nonresidential from $1.2 billion to $2.1 billion, and registering the biggest single-year increase in construction has 2007, with a jump of $400 million, or 23 percent. At this point in the construction increased steadily cycle nonresidential over the past six years, activity always exhibits Chart 1 growing from $1.2 Permit Value of Residential and Nonresidential Construction in Utah greater strength (Constant 2007 Dollars) billion to $2.1 billion, than the residential and registering the $6.0 biggest single-year sector. Nonresidential increase in 2007, with construction generally $5.0 a jump of $400 million, peaks one to three years $4.0 or 23 percent. after the residential $3.0 peak, which was in 2005 in the current $2.0 cycle. Since its peak $1.0 in 2005 the value of $0.0 COMMERCE CRG 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 7 7 7 7 7 8 8 8 8 8 9 9 9 9 9 0 0 0 0 residential construction 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 175 East 400 South, Suite 700 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 Salt Lake City, Utah 84111 has declined by 25 Residential Nonresidential Tel (801) 322-2000 Chart 1 www.commercecrg.com percent, . UTAH’S ECONOMY | DeceMBER 2007 | © Copyright 2007 - All Rights Reser ved 1 UTAH’S ISSUE 37 • December 2007 ECONOMY Over the past thirty years there have been four peaks in nonresidential construction. The peaks generally occur about every ten years and once reached the decline from the peak to the trough takes about four years, with a drop in value of close to 50 percent, Table 1. If the current cycle follows this pattern we will see a steady decline in nonresidential construction from 2009 to 2012, when the value of new nonresidential construction would bottom-out at about $1.2 billion. Table 1 Characteristics of Nonresidential Cycle Peaks Peak Year Peak Value % Decline from Peak to Yrs. From Peak to Trough (billion 2007 dollars) Trough 1979 $1.7 53% 4 yrs. 1985 $1.3 56% 3 yrs. 1997 $2.2 44% 5 yrs. 2008 $2.3(f) unk. unk. (f) forecast. Source: Bureau of Economic and Business Research, Utah’s rapid University of Utah population and employment growth has created the It’s certain that 2008 will be another strong year for nonresidential construction, with demand for new office, much of the work on new projects carrying over into 2009. Unlike last year, there industrial and retail will be at least one mega-project; the City Creek Center in downtown Salt Lake space pushing the value of nonresidential City, which will have a total construction value of over $1.0 billion; however, several construction to near building permits will be issued for the project between 2007 and 2010. A tally of record levels. some of the major proposed nonresidential projects shows that over $3 billion, in permit authorized nonresidential value, is scheduled over the next few years, Table 2. Table 2 Major Nonresidential Projects in Utah - Under Construction 2007 to 2010 (Millions) Type of Use County or City Value in Millions Permit Authorized Amangiri Resort and Spa luxury resort Kane County $125 Ben Lomond Hotel restoration hotel Ogden City $50 City Creek Center* commercial and residential Salt Lake City $1,000 Cottonwood Mall reconstruction of mall Holladay City $176 Dannon Co. Inc. yogurt plant expansion West Jordan City $175 Fashion Place Mall retail mall Murray City $80 Frank Moss Courthouse federal courthouse Salt Lake City $115 Jordan Valley Medical Center hospital expansion West Jordan City $50 Montage Deer Valley luxury hotel Deer Valley, Summit County $250 Pleasant Grove Convention Center convention center and hotel Pleasant Grove City $100 Proctor & Gamble paper towel manufacturing facility Box Elder County $300 Sugar House Granite Block mixed use Salt Lake City $200 The Pointe office center Draper City $100 COMMERCE CRG Trolley Square renovation retail center Salt Lake City $50 175 East 400 South, Suite 700 USTAR research buildings U of U Salt Lake City $200 Salt Lake City, Utah 84111 Tel (801) 322-2000 Valley Fair Mall renovation retail mall West Valley City $50 www.commercecrg.com Total for Permit Authorized $3,021 UTAH’S ECONOMY | DeceMBER 2007 | © Copyright 2007 - All Rights Reser ved 2 UTAH’S ISSUE 37 • December 2007 ECONOMY Table 2 (continued) Major Nonresidential Projects in Utah - Under Construction 2007 to 2010 (Millions) Type of Use County or City Value in Millions Transportation Projects (No Permits) I-15 widening** new bridges and lanes Weber County $230 I-80 widening widening, new bridges and lanes Salt Lake County $200 Legacy Parkway** new highway Davis County $685 Front Runner commuter rail Weber, Davis, Salt Lake $600 Holly/Sinclair Pipeline oil products pipeline Salt Lake to Las Vegas $300 Total for Transportation Projects $2,015 Grand Total --- --- $5,036 *Over $200 million of City Creek Center’s value will be for 750 residential units. **Started in 2006 and will be completed in 2008. Source: Governor’s Office of Planning and Budget and Bureau of Economic and Business Research, University of Utah. In 2008, retail space in Salt Lake County will account for a fair share of nonresidential construction activity. The renovation or expansion of four existing retail malls will total about $350 million; Valley Fair Mall ($50 million), Trolley Square ($50 million), Fashion Place ($80 million) and Cottonwood Mall ($176 million). The 800,000 square feet of new retail space at City Creek Center, plus the construction of new retail buildings on the Granite Block in Sugarhouse, will add another several hundred million in nonresidential construction activity. The largest industrial facilities will be the expansion of the Dannon Yogurt plant ($175 million) in West Jordan and the new Procter and Gamble plant ($300 million) in Box Elder County. Utah’s rapid population and employment growth has created the demand for new Table 3 Projected Change in Employment by Sector in Utah office, industrial and retail space pushing (Increase or Decrease in Jobs) the value of nonresidential construction 2006 2007 2008 2009 to near record levels. Economic growth; Industrial Use however, is projected to slow, with new Manufacturing 5,807 5,551 4,200 3,300 job creation dropping from 55,712 in Retail Space 2006 to 30,391 by 2009. Manufacturing Retail Trade, Trans, Utilities 8,975 12,751 11,600 9,100 employment, which grew by 5,807 in 2006, Office Use is expected to increase by only 3,300 in Information 428 67 250 450 2009. The growth in retail employment is Financial Activity 3,898 3,720 2,600 1,700 Professional & Bus. Services 8,204 7,440 7,250 6,900 projected to drop from 12,751 in 2007 to Healthcare & Education 5,798 5,000 4,900 5,100 9,100 in 2009, with employment gains in Government 2,179 2,267 2,750 3,000 sectors that use office space dropping from Total 20,507 18,494 17,750 17,150 20,507 in 2006 to 17,150 in 2009, Table 3. Miscellaneous Mining 1,541 1,187 900 900 The reduced job growth in 2009 will affect Construction 13,454 10,661 3,174 -4,359 demand for nonresidential construction Leisure & Hospitality 4,261 4,614 3,600 3,100 activity the following year and beyond. For Other 1,167 1,293 1,200 1,200 the present, nonresidential construction has Total 55,712 54,551 42,424 30,391 tremendous momentum and will very likely Source: Utah Department of Workforce Services. hit an all-time high in 2008, reporting its sixth consecutive year of growth. UTAH’S ECONOMY | DeceMBER 2007 | © Copyright 2007 - All Rights Reser ved 3.