By: Ben Johnson
Salt Lake City has a rich history in retailing that dates back nearly 150 years to the opening of the first department store in the U.S. Against the backdrop of that tradition, this year is set to be the city’s best for retail growth since 2007. Fueling this growth are some bright demographic trends. 2016 was one of the city’s strongest retail years on record, spurred by a low jobless rate of only 2.5 percent, together with a job growth increase of 3.5 percent. The Salt Lake City population grew by nearly 40,000 last year, and observers are expecting an additional 41,000 for this year. “You have a one-two punch of strong population growth with strong economic growth,” said Darin Mellott, regional director of research and analysis at CBRE. “So you have more people, and they’ve got money to spend, which is a good recipe for retailers.”
The average family size in Salt Lake City is greater than that in any other U.S. major metro. “Those strong family ties along with the quality of life mean that word spreads quickly between retailers,” said J.R. Moore, a first vice president and retail specialist at CBRE. “As soon as they start hearing the strong sales volumes that they are seeing in Utah, along with the strong workforce, Utah becomes a very luring location for these retailers.”
Recent data show that the area’s retail vacancy rate fell by 40 basis points to 5.4 percent last year and that rents jumped from $18.38 per square foot in 2015 to $20.86 per square foot in 2016, according to Cushman & Wakefield. The explosive population growth has generated a residential construction boom. “A lot of people are calling Salt Lake City how Denver looked 10 years ago,” said Nick Clark, senior director of retail at Cushman & Wakefield and a 20-year veteran of the local market. “The amount of housing growth cannot be overstated here.”
Most of that residential construction is concentrated in the southwest portion of Salt Lake County and the northern portion of Utah County and involves both single-family and apartment-complex development. Thus the bulk of the recent retail construction is occurring in those same areas. To serve this growing population, supermarket chains have been particularly active in the Salt Lake market.
“They continue to be the gold standard for local retail,” said Clark. Salt Lake City–based Smith’s Food & Drug is set to open units in Saratoga Springs and Springville this year, while Whole Foods is on track to open in a new center in Park City, and a Lee’s Marketplace is to open in North Salt Lake. “In the next three to five years, barring a slowdown or a hiccup in the economy, I think you’ll continue to see more retail construction here just following the massive amount of housing,” said Clark. “You’re going to start seeing a lot more out-of-state developers looking in this market as well.”
In the growing southwestern quadrant are the 2 million-square-foot District and the 1.5 million-square-foot Jordan Landing centers, both of which dominate the market just now. But more retail is needed. “Due to the residential growth, those two projects are now not enough to sustain that growth, and so we are seeing some other major projects that are under development or under planning right now,” said Moore. Among these is a mixed-use center called Mountain View Village, which CenterCal Properties is building on an 85-acre site in Riverton, 10 miles south of downtown Salt Lake City, and which is set to open in 2018.
The report of another compelling demographic comes from the University of Utah, which is projecting that upwards of 49,000 state residents yearly will be turning 20 years old over the next 12 years. This trend may bode well for additional urban development, observers say. Though Clark acknowledges that Salt Lake City is still very much a suburban retail market, the growing numbers of younger professionals are driving much of the recent focus on downtown. Over the past two years, 1,500 multifamily units have been developed downtown, and an additional 3,800 units are under construction. There is growth of restaurants, bars and other entertainment in general. “Ten years ago you’d come downtown and there was nobody here on Friday or Saturday nights, everybody was going home,” said Clark. “Now downtown is vibrant, and it’s a lot more fun, quite frankly.”
Salt Lake City is also unique in that there are three major malls located within a mile’s radius of downtown. These are: City Creek Center, Salt Lake City’s premier shopping destination, which features a facade from the original ZCMI (for Zion’s Cooperative Mercantile Institution) department store; The Gateway, an open-air destination center recently purchased by Vestar and Oaktree Capital Management and which is poised for a $30 million redevelopment; and Trolley Square, which was purchased out of bankruptcy in 2013 and will soon see some major redevelopment nearby.
Farther afield from downtown, no fewer than five major suburban malls are currently under redevelopment: the 1 million-square-foot University Place, in Orem, owned by Woodbury Corp., which has just completed the first phase of a $500 million redevelopment, adding upscale apartments, offices and recreational amenities; the Fashion Place mall, in Salt Lake County, which is to include one of only two Macy’s department stores set to open in the U.S. this year; Newgate Mall, in Ogden (which Time Equities purchased last year from GGP for nearly $70 million); Provo Towne Centre (purchased by Brixton Capital last year); and the 1.3 million-square-foot South Towne Center, in Sandy.
The Salt Lake City retail market is not entirely immune from the challenges facing other parts of the country, including rising construction costs and the closure of many mid-box and big-box stores. Kmart, Sears, Shopko and The Sports Authority all closed stores in the locality last year, accounting for some 150,000 square feet of vacant space. More closures have been announced for this year, but most market watchers are in fact excited at the prospects for the repurposing of these spaces.
“Of the four Sports Authority boxes, three of those already have two to four letters of intent to split the box in a couple different ways,” said Clark. “The second they hit the market, offers were already in hand to the developers even leading up to their closures. I think, from a retail standpoint, 2017 will probably prove to be a better year than both 2015 and 2016.”
Reproduced by permission of SCT, a publication of the International Council of Shopping Centers