How badly has COVID-19 hurt Utah’s construction, real estate and retail trades? It depends on whom you ask.
At a recent webinar on the topic, speakers gave mixed answers. For example, housing prices are up only slightly over a year earlier but home sales are down by one-fourth and new construction shrunk 45 percent. Retailers, restaurants, entertainment venues and the hospitality industry have been hit hard. Meanwhile, the construction industry is maintaining its early-year momentum, while the virus has set the stage for possible long-term changes in industrial and office settings.
About 300,000 jobs, about one-fourth of Utah’s total, are tied to the construction, real estate and retail trade industries, according to Natalie Gochnour, director of the University of Utah’s Kem C. Gardner Policy Institute.
Before the virus hit, Utah’s new-housing market had the potential to make 2020 a record year, according to Dejan Eskic, research associate at the Gardner Institute. The first quarter had record levels of permitting for new units.
But while prices did not change much in April compared to a year earlier, up 6.3 percent, and rent was up only 0.8 percent, the number of existing homes that sold was down 24 percent and new construction had slipped 45 percent.
“As you all know, we’re in a housing shortage. We have been for a good five years or so. And the demand is still there, so this will continue to add more pressure on the housing shortage,” Eskic said. “But we are starting to see a bit of activity pick up. Some builders have looked at their April numbers and they are not as bad as they projected when this whole thing started.”
Widespread unemployment among office-using workers, those using industrial buildings, or those working in construction or the retail sectors “translates into serious headaches for the real estate sectors,” he said. Many renters are unemployed and facing financial issues, which could lead to an increase in evictions and forbearances.
“The demand for a starter home price point is virtually endless in our market,” Eskic said. “We’re a younger demographic. Affordability is likely to become an even bigger challenge was we face this thing right now.
“We’re experiencing decrease in supply, record unemployment and lenders stricter in lending requirements. So, it makes buying a home very difficult for everyone right now, but especially for those first-time homebuyers. We’re likely to see a little bump up in credit score requirements or down payments.”
The construction industry likewise started the year strong. “The construction industry, be it commercial or residential construction, carried tremendous momentum into the teeth of this pandemic,” said David Layton, president and CEO of Layton Construction. “Whether you were a small homebuilder or a large commercial contractor like ourselves, backlog and our book of business was very robust. That puts us in a little different circumstance than so many other businesses throughout the country.”
Construction also has been deemed essential, so companies have been able to continue their work, even if faced with new job-site protocols to ensure safety and health of workers.
“As an industry, we’re going to have to really look forward,” Layton said. “I think the momentum has really tempered the impact thus far, but I foresee the next 7 1/2 months being very telling of where our industry ends up going into ’21 and ’22.”
The industrial market will have to adjust as clients go from a “just in time” inventory to a “just in case” inventory, according to Steve Price, founder and CEO of Price Real Estate. That means that manufacturers and companies distributing consumer product goods will carry larger inventories and thus need more space.
Brandon Fugal, Utah chairman of commercial real estate company Colliers International, predicted the office market is “going to experience some difficulty,” although not as much as in retail and hospitality. Office users will take a close look at their densities and workspace environments and the ability for employees to telework and likely will reverse the decade-long trend of cramming more employees into less space. Replacing it will be more space between workers in the office.
The current remote-work structure, he said, comes at a cost.
“I think with a few exceptions, it is impossible to maintain a corporate culture, a unique company culture and also accountability in a long-term remote working, Zoom, ‘Brady Bunch’ tile, videoconferencing world,” Fugal said.
While a great tool for productivity, it cannot replace collaboration and ideas that come from “the casual collisions” in the workplace, the ability to see coworkers and drive innovation, he said. The current crisis, he hopes, will underscore the importance of interaction with coworkers and lead companies to make the most of meetings and opportunities to interact in the workplace.
In the retail sector, City Creek Center has been in the early stages of reopening after having been closed March 20. Linda Wardell, general manager, predicted that City Creek would survive the current crisis, making it among only 250-300 of the 1,200 shopping centers in the U.S. she believes will do so over the next few years.
A key in emerging from the virus crisis will be to make patrons feel safe, she said.
“We think that people will feel safe about coming back downtown and hopefully about coming back to their work environments in downtown Salt Lake City, as well,” she said.
“We think if people don’t feel safe, they won’t come out of their homes, so even if we do motivate them to leave their homes, once they get here, if they don’t feel safe, they certainly are not going to stay, they won’t spend money and then they won’t make a return trip.
“And, unfortunately, if we do motivate them to come to City Creek Center and they have a bad experience, they may not go anywhere else. So it’s very important that we get it right so [people] do feel safe.”
Fugal said helping retailers, restaurants, entertainment venues and hospitality companies “really is on all of our shoulders going forward.”
“I think we as a community have learned first-hand over the course of the last six weeks how interconnected and codependent we really are,” he said. “And I think being positive, being responsive, being supportive of each other and being quick and nimble to offer solutions will be what sets Utah apart from the rest of the country.”