Salt Lake tech companies second only to Silicon Valley as real estate driver

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SALT LAKE CITY — Evidence of the growing economic impacts of technology and innovation industries on Utah continues to mount with a new report highlighting the sector has become the No. 1 driver of commercial real estate leasing in the Salt Lake area.

A report released last week by national real estate service provider Cushman and Wakefield notes the Salt Lake City metropolitan statistical area, a federal designation that includes Salt Lake and Tooele counties, trailed only Silicon Valley in the percentage of commercial leases signed by tech companies in 2018.

"As might be expected, the tech sector accounted for the lion’s share of leasing in Silicon Valley, 78.1 percent, and San Francisco, 60.9 percent," wrote Ken McCarthy, report author and Cushman and Wakefield principal economist.

"But it was also dominant in some unexpected places in 2018. In Salt Lake City, the tech sector accounted for two-thirds, 66.4 percent, of the major leases signed."

In an interview, McCarthy said the number of tech-educated millennials and the area’s growing attraction to venture capital firms was helping fuel Salt Lake Valley’s ascending stature among the nation’s tech hubs.

"We found Salt Lake City to be one of the most attractive cities to tech," McCarthy said. "It’s an up-and-comer, no question."

The findings came as no surprise to Downtown Alliance Executive Director Dee Brewer, who said downtown Salt Lake City has become a destination target for tech companies looking to open new office space or expand existing facilities.

"Right now there are over 80 tech offices in the central business district," Brewer said. "That number is growing, and one of the main drivers is workforce. Finding and recruiting talent is the name of the game for these companies.

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"While tech is growing all over Utah, we’re seeing a lot of companies saying, ‘This is where my employee base wants to live, with easy access to transit and the urban amenities and cultural assets so close to hand.’"

Brewer said commercial developers were also responding to the changing demographic in both arenas, and noted one of the newest office buildings going up in downtown — the towering, 395-foot skyscraper that recently began construction at 95 S. State, just east of the downtown Harmons grocer — was catering specifically to the needs of potential tech tenants.

"This is the building of the future," Brewer said. "Everything from the layout of the floors, the amenities, food service, a gym. … It’s aimed squarely at what tech businesses are looking for."

Brewer said commercial space in Salt Lake City also has an advantage from a purely economic standpoint. A 2018 report issued by the Downtown Alliance in partnership with commercial real estate investment firm CBRE shows average commercial lease rates in Utah’s capital city — about $24 per square foot — are just a fraction of the notoriously pricey Bay Area, where a square foot of office space runs more than $76 on average.

But Brewer said even compared with Western cities with less-inflated economies, Salt Lake City rates rank as a high-value proposition when it comes to office space.

Recursion Pharmaceuticals, a Utah-born research and drug development effort that made the move from Research Park to a massive space in downtown Salt Lake City last year, was motivated to seek out an urban location for the very reasons Brewer highlighted.

In a recent Deseret News interview, Recursion Chief Operating Officer Tina Larson said the 100,000-plus-square-foot space, formerly occupied by Dick’s Sporting Goods, not only created an open, collaborative environment the company lacked in previous locations, but noted the downtown setting was a plus when it comes to recruitment.

"We’re competing with a lot of other companies out there for talent, and being downtown is another enticement," Larson said. "Being able to just walk to work or take transit … and close to the cultural center is a big plus."

Levi Pace, senior research economist for the University of Utah’s Kem C. Gardner Policy Institute, said the report mirrored findings of his research on the state’s booming tech sector, some results of which were released in an ‘industry snapshot’ earlier this year.

"This Cushman Wakefield report is striking," Pace said. "Tech and the life sciences industries are big users of space, by the nature of the work they do. The study did a great job in pointing out that tech is growing faster than other industries … data that was also reflected in our report."

Pace also noted the over half, 51.9 percent, of statewide office space construction, based on dollar value, is in Utah’s so-called Silicon Slopes corridor. And investments are massive.

Construction from 2017 to the present in the category "office, bank, professional" was $668.4 billion in the Silicon Slopes corridor and $1.3 trillion statewide, with an annual average of $297.1 billion in the corridor and $571.9 billion statewide, adjusted for inflation.

Pace’s recent research provides a stark accounting of how significant a role technology and innovation industries have come to play in Utah’s overall economy. In 2017, tech directly and indirectly employed over 300,000 workers, paid out over $20 billion in wages and generated some $29.9 billion of the state’s GDP, or about one-sixth of total economic output.

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