By ANDREW A. ADAMS
While realtors and city officials generally agree there is a glut of office space in Orem and Provo, their opinions vary as to why.
Local realty company heads attribute the increase in office space to technology company layoffs, loans advantageous to business investors and county growth.
Meanwhile, as developers continue to build offices regardless of how profitable they are in the market, city planners say it isn’t their responsibility to determine the viability of a project.
Don Blackwelder, the “D” of D&B Commercial Property, said mass layoffs within local technological companies like Novell and Word Perfect were the big bang to the Provo/Orem office boom.
Blackwelder said laid-off workers going into business for themselves sparked a continuing cycle of office development demand as their newfangled businesses increased staffs and looked for more room.
“Each time they were able to shed old lease agreements on to the developer in trade for new space,” said Blackwelder, who also said developers then re-lease the offices to newer, smaller companies. “The technological business is what has fueled the advance here.”
Blackwelder and Colliers Clark CRG President John Anderson said Small Business Administration loans help. Such loans can account for as much as 90 percent of a lease or purchase cost, and are funded cooperatively between banks and the government.
Anderson said the SBA loans make increases in office space prices acceptable to potential buyers. He said developers can ask for 50 percent more from a business for a residential construction property, and such loans can help defray the added cost.
Anderson said he thinks there were bigger factors in the office boom.
“Primarily a lot of the boom is from growth in the county, which is substantial,” Anderson said. “Along with an artificial boom caused by developers thinking they could sell office condominiums, those are the biggest factors.”
Despite the amount of office space, developers in Orem and Provo continue to build business buildings and condominiums.
“There’s no question we have an overbuilt market,” Blackwelder said. “But in the overbuilt makret, I’ve recently sold 112,000 of 129,000 square feet of Stratford Park. “It’s the concept of having smaller buildings owned by smaller companies who then lease out extra space.”
To some, however, leasing can be a factor. Blackwelder said 62 percent of Stratford Park is sold or leased for businesses to occupy. Anderson said, however, that Colliers Clark CRG estimates 15 to 20 percent of office space in Orem and Provo is vacant. He distinguishes between commercial construction properties like Courtyard at Jamestown, which his business leases, and office condominiums, which he said carry a 30 percent vacancy rate.
“It’s true a lot can be sold, but often there can also be few rent guarantees,” Anderson said.
Besides the prevalence of office condominiums, Anderson said another problem arises when developers don’t complete a full, two-part market analysis.
Anderson said developers complete the first phase, where square foot building costs and subsequent rent charges are determined in order to figure a desired net profit. He said in the second phase, the developer decides whether the established rental rate will be viable in the market, and what time frame is needed to lease or sell.
“Their return is only going to be there if they are going to lease those offices,” Anderson said.
City planners from both Provo and Orem said they are not responsible, regardless of the market, to determine whether a development will be profitable before it can be approved and zoned.
“We don’t look at specific use,” said Benjamin Thompson, an Orem planner in charge of commercial development. “We have not been tracking what the current demand is because it doesn’t affect our zoning.”
That is because Orem City Council’s long standing tradition is to interfere as little as possible with people’s property rights, Thompson said.
Orem Economic Development Director Brad Whitaker concurred with Thompson.
“We try to get information on available space, but as far as any market analysis work for anyone–we don’t do that,” Whitaker said. “That’s up to the private sector.”
Provo Economic Development Director Leland Gamette said Provo Planning and Zoning has the ability to analyze the market, but often does not because proposals that make it to the body have already leased out about 70 percent and therefore are on solid financial ground.
“We try to help businesses who are looking for a space and who would like to be in our community,” said Gamette.
