Policymakers around the world continue to push politically difficult decisions into the future. Consequently, deferred policy decisions and their associated risks are accumulating. Three primary issues maintain the potential to rapidly alter the trajectory of the global economy during the near-term: Europe’s sovereign debt crisis, geopolitical tensions with Iran, and U.S. fiscal policy.

The European debt crisis threatens the global economy through trade ties and financial channels. Developments in the Franco-German alliance and Greek elections in June will determine the course that the crisis takes. Meanwhile negotiations with Iran over its nuclear program will continue, but should talks fail, oil prices will rise.

At home, the United States will face increasing uncertainty. Challenges that will come into focus this fall include: uncertainty dominated by a presidential election, debt ceiling debate, and

questions surrounding the expiration of tax cuts and automatc spending cuts.

The fall 2011 version of this report observed that elections and transfers of power would take place in key areas during 2012. It was also anticipated that political conditions necessary to address issues would be complicated due to an election year dynamic. Recent events are manifestations of that expectation. Policymakers are unlikely to sufficiently address long-term issues in 2012 and as a result, risk will continue to accumulate throughout the year.

International OutlookElections in France and Greece are complicating the European sovereign debt crisis. The recent election of French President Hollande reduces the possibility of a unified strategy as he is opposed to many crisis policies advocated by Germany. In Greece, it is possible that a government opposed to the terms of the country’s recent bailout will emerge, which increases the likelihood of a Greek exit from the European Monetary Union; this means the actual problems and the ability of policymakers to address them are both becoming more complicated. Effects of the crisis on the U.S. economy will largely be determined by the

An Accumulation of RiskEconomic Outlook for Salt Lake County

E C O N O M I C O U T L O O K S P R I N G 2 0 1 2

defeRRed policy decisions And theiR

AssociAted Risks ARe AccumulAting.

2012

Three primary issues maintain the potential to rapidly alter the trajectory of the global economy during the near-term: Europe’s sovereign debt crisis, geopolitical tensions with Iran, and U.S. fiscal policy.

degree of stress experienced in the financial sector.

Geopolitical tensions surrounding Iran’s nuclear program will also affect the U.S. Should negotiations with Iran fail, markets will drive oil prices higher. Also worth noting is slowing growth in emerging markets, particularly China, the world’s second largest economy. China is slowing due to woes in its largest export market (Europe), waning effects of fiscal stimulus, and relatively tight monetary policy. Although growth is expected to remain positive, it will not reach levels experienced over the last several years. This further complicates the global outlook asthe largest economies in the world are unable to drive growth and grapple with unique challenges.

The bottom line: until policymakers adequately address challenges, global economic growth will continue to be restrained.

US OutlookGrowth in the United States is expected toremain sluggish throughout 2012. Gas prices have likely peaked and will continue grinding downward, but will remain somewhat elevated, barring any major shock to the economy. However, questions surrounding geopolitical tensions, refining capacity and hurricane season (threats to supply) could reverse the trend and cause fuel prices to rise.

On a broader level, the first quarter 2012 GDP growth estimate was revised downward from 2.2% to 1.9% according to the Bureau of Economic Analysis. Presently the second quarter appears to be somewhat soft, similar to the first three months of 2012. During the last half of the year, accumulating risk including Europe’s debt crisis, geopolitical tensions with Iran, and uncertainty regarding U.S. fiscal policy will restrain growth. Consequently, real GDP growth is expected to average 2.0% for the year.

UtahIn the face of many challenges, Utah’s economy registered solid performance in 2011 and is expected to outperform national averages again in 2012. Job growth at 2.8% across all sectors is expected, approaching the state’s long-term average of roughly 3%1. However, it should be noted that Utah’s unemployment rate will not necessarily decline with an improving economy.

The most commonly reported unemployment rate is produced by looking at the number of people actively seeking work and the total size of the workforce. Consequently, an improving economy will bring previously discouraged workers back into the workforce, which can temporarily boost the unemployment rate. Although counterintuitive, in the context of an economic recovery, a rising unemployment rate can represent improving conditions.

Over the short-term, Utah will be aided by large investments, both public and private. Notable public projects underway or set to commence soon include: the rebuilding of I-15 in Utah County, light and commuter rail expansions, NSA data center, federal courthouse and rebuilding of Salt Lake City International Airport. All together, these projects represent several billion dollars of investment. In addition to public investments, private sector entities are also investing.

The state’s business friendly environment and workforce are important considerations driving growth, particularly for high value tech companies. The Association of University Technology Managers ranked the University of Utah as number one in the U.S. for most tech

2012

chAnges in employment in selected WesteRn stAtes

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

2006 2007 2008 2009 2010 2011 2012 YTD

Change in Employment in Selected Western States

CA

AZ

CO

NV

UT

ID

Source: Salt Lake County, Utah

4.1%

2.9%2.6%

3.5%

7.3%

8.2%

7.0%6.6%

4.9%

3.5%3.1%

4.0%

8.3%

9.5%

8.1%

7.6%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Q42009

Q42008

Q42007

Q42008

Q42009

Q42010

Q42011

Q12012

U-3, "Headline" Unemployment Rate U-4, Unemployed + Discouraged Workers U-5, Unemployed + Discouraged Workers + Marginally Attached

Source: US Bureau of Labor StatisticsNote: Rates are model-based and may vary from other published reports, see http://www.bls.gov/lau/stalt.htm for details.

utAh unemployment - discouRAged WoRkeRs Headline Unemployment Rate & Select Alternative Measures

SOURCE: US Bureau of Labor Statistics2

Taxable sales increased by 10.9% in the fourth quarter of 2011 with double digit gains in many sectors including motor vehicles and retail sales. The massive City Creek Center completion earlier this spring brought with it more than 80 retailers and over 500 residential units and is expected to be a major selling point for both tourism and hospitality downtown. According to the Salt Lake City Mayor’s Office, approximately 4,000 jobs were created by the project since it was announced in October 2006 and of that initial number, about 2,000 jobs will remain4.

Another factor contributing to the county’s ability to grow is the substantial expansion to Utah’s passenger rail system. The Utah Transit Authority (UTA) has three expansion projects currently underway and a fourth announced in Sugar House creating jobs for local construction workers. These projects will give passengers the ability to use affordable public transit from Ogden to Provo.

Housing is one area that has not fully recovered in Salt Lake. Continued low interest rates and new lender incentives should stimulate activity. According to the Salt Lake Board of Realtors 2012 Housing Forecast, while home sales are projected to rise 15%, home prices are projected to decrease between 3% and 5% during 2012. As the year progresses and existing inventory is absorbed, prices should begin to stabilize.

While local investments in infrastructure and projects like City Creek Center will stimulate the Salt Lake County economy in the near-term, continued global uncertainty and likely election year policy paralysis in the U.S. could slow growth in the latter part of 2012.

startups, followed by MIT and BYU rounding out the top three. It is no wonder that a developing tech corridor extending from southern Salt Lake County into Utah County (now referred to by some as “silicon slopes”) is home to some of the world’s most recognizable names. Firms with a presence in the area include: eBay, Microsoft, Oracle and Twitter, but Adobe is making a particularly significant investment. Adobe is spending $100 million to construct a new 280,000 square foot office building, with plans to triple its footprint in a new campus located in northern Utah County.

The contrast between economic conditions in Utah and the broader U.S. is clear. Nationally, policy paralysis is restraining growth. In Utah, consistent economic stewardship is fostering growth. While the state is outperformingnational averages and making progress onmany fronts, education continues to be anarea of concern. Leaders must adequatelyinvest in education to ensure the state’s abilityto continue providing businesses of the future with an educated workforce.

Salt Lake CountyAmid lingering economic concerns and the continuation of turmoil abroad, Salt Lake County is poised to continue growing at a healthy rate in the near-term. Construction and major project completions are strengthening the local economy and creating needed job growth. County employment grew at a rate of 2.3% in 2011 and is estimated to grow at the same rate in 2012, outperforming the national average of 1.4%3.

Exceeding previous projections, non-residential construction grew approximately 81% in 2011 with much of the funding coming from private equity.

2012

sAlt lAke non-fARm employment ApRil 2011 to ApRil 2012

SOURCE: US Bureau of Labor Statistics, Preliminary Data for April 2012

3.4%

0.0%

8.5%

3.6%

1.6%

1.2%

3.1%

4.2%

1.4%

6.8%

3.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

Government

Leisure & Hospitality

Education & Health Services

Profesional and Business Services

Financial Activities

Information

Trade, Transportation, Utilities

Manufacturing

Mining Loding and Construction

Other Services

Total

chAnge in home VAlues

SOURCE: Federal Housing Finance Agency, 4 Quarter Percent Change

Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012Salt Lake Metro Home

Prices 18.8% 4.2% -5.7% -10.2% -4.8% 0.3%

Utah Home Prices 16.5% 1.8% -10.4% -9.0% -7.4% 3.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Perc

ent C

hang

e

Commercial Real Estate & The Salt Lake EconomyEconomists at CBRE frequently refer to commercial real estate as the ‘economy in a box.’ Commercial real estate houses organizations of commerce and by examining the relationship between the broader economy and commercial real estate, much insight can be gained. In all property types, there is a direct relationship to macro-economic indicators and the overall makeup of Salt Lake’s economy.

OfficeSalt Lake’s office market turned a corner in 2011. In sectors relating to office demand, job creation over the 12 months ending in April of 2012 can be characterized as healthy. Financial services expanded by 3.1%, while professional and business services expanded by 4.2% over the same period5. This is significant due to the fact that sectors relating to office demand are growing above the state’s overall long-term average, which is a little over 3%6.

Further bolstering the outlook for office properties in Salt Lake is a developing tech corridor extending from southern Salt Lake County into northern Utah County. The corridor is home to firms such as eBay, Microsoft, Oracle, Twitter and a new campus being constructed by Adobe. The area’s growth will also be supported by a large number of startups and expansion of existing firms.

Looking ahead, positive net absorption in the range of 500,000 to 600,000 square feet can be expected during 2012. However, 2011’s rate of

improvement in vacancy will not be maintained. Over 900,000 square feet of single and multi-tenant office space will be completed in 2012. Additional space from both new construction and large users moving to dedicated single-tenant office buildings will heavily influence the market. As such, vacancy will edge downward across the metro area and climb in select submarkets, particularly downtown. Lease rates are expected to stabilize, with isolated increases as demand continues to be somewhat subdued and new supply enters the market.

IndustrialSalt Lake’s ability to attract large corporations is a significant factor in continued industrial market stability. Utah’s growing intermodal freight sector and high truck traffic make it an enticing home for many large manufacturers and distributors. One of Union Pacific’s largest intermodal freight terminals is located in Salt Lake City and much of its west coast seaport freight passes through Utah on its way to midwestern and eastern destinations7. Consequently, Utah’s total rail volume posted major gains over the

histoRicAl VAcAncy & unemployment RAtes in sAlt lAke county

2012

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Unemployment Rate 5.9% 5.8% 5.1% 4.1% 3.0% 2.7% 3.3% 6.7% 7.3% 6.8% 5.9%

Office Vacancy 19.7% 20.5% 18.9% 12.8% 11.3% 11.7% 13.7% 17.2% 17.1% 15.3% 15.5%

Industrial Vacancy 8.6% 9.9% 8.1% 5.6% 5.9% 6.2% 5.9% 6.8% 6.5% 6.2% 6.4%

Retail Vacancy 7.0% 7.3% 8.0% 7.2% 6.6% 6.2% 7.4% 9.1% 9.4% 9.6% 9.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Une

mpl

oym

ent R

ate

*Preliminary Unemployment rate as of March 2012. All other rates are year-end averages over the 12 month period each year. Vacancy data as of Q1 2012 for Office and Industrial. Retail as of Q4 2011.

Un

emp

loym

ent

Rat

e

Vacan

cy Rate

sAlt lAke metRo office VAcAncy

SOURCE: CBRE, Q1 2012 Market View

2007 2008 2009 2010 2011 2012 (est)Vacancy 11.7% 13.7% 17.2% 17.1% 15.3% 15.0%

0%

5%

10%

15%

20%

past two years since its lowest point in 2009. In addition to rail volume, the Utah Department of Transportation boasts, “Utah is already the crossroads for long-distance trucking in western America, having the highest truck traffic percentage (23% of total traffic on Utah highways is large trucks) of all 50 states.” Regionally, Salt Lake continues to maintain one of the lowest industrial availability rates.

Construction continues to be a focal point for the Salt Lake industrial market, and projects currently under construction total approximately 736,000 square feet. Completions are on the rise with over 733,000 square feet of warehouse/distribution space completed. Notably, projects that began as multi-tenant developments managed to find large single-user tenants that require longer leases. For example, Sun Products preleased the Landmark 7 project and Rockefeller Building E will be completely preleased in the coming months by FedEx. Future job growth and a stronger industrial employment sector are expected results, as major industrial tenants such as Boeing, OnTrac and ITT Corporation make plans to stay in the Salt Lake area.

RetailIndicators that help paint a picture of the retail market are unemployment, housing, and consumer spending. Currently at 6.0%, Utah’s unemployment rate is among the lowest in the nation8. While this is still roughly double the rates experienced in 2007, the state is headed in the right direction. With respect to housing, according to the Salt Lake Board of Realtors, home sales increased 18% in the first quarter of 2012; on a year-over-year comparison, home sales experienced 10 consecutive months of gains. Lastly, consumer spending had a big boost at the end of 2011 due to increased clothing and motor vehicle sales, although this increase in spending is not expected to maintain itself and is estimated to end the year around 5.0%.

Current and recently completed construction numbers will be very healthy for the coming year, amounting to roughly 1,000,000 square feet. With its successful completion and opening in March, City Creek Center is and will continue to be a highlight for Salt Lake retail. The center is filled with more than 80 retailers, 20 of which are brand new to the Utah market. City Creek is an outlier in the current retail environment as it is the only regional shopping center scheduled to open in the United States during 2012.

Another project of note is the upcoming completion of a new building for sporting goods giant Scheels. Located in Sandy, the new 220,000 square feet store is expected to open in September of 2012 and will be one of the retailer’s largest buildings. Although the economy is still in recovery, construction completions of major retailers is a positive indication of a retail market headed in the right direction.

2012

2007 2008 2009 2010 2011 Q1 2012

Salt Lake City 7.7% 7.5% 9.9% 8.5% 8.8% 9.4%

Phoenix 16.2% 17.7% 18.7% 17.7% 15.1% 15.4%

Denver 11.3% 11.0% 9.4% 9.6% 8.7% 8.4%

Las Vegas 9.8% 9.7% 11.9% 13.1% 13.1% 13.2%

National 9.7% 12.1% 13.2% 13.3% 13.7% 13.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

SOURCE: CBRE, Q1 2012 Data

histoRicAl industRiAl AVAilABility

chAnge in sAlt lAke county tAXABle sAles

SOURCE: Salt Lake County

12.9%

6.4%

-6.7%

-9.9%

3.1%

6.5%

5.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2006 2007 2008 2009 2010 2011 2012

sAlt lAke county industRiAl constRuction

SOURCE: CBRE

1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012SF Under Construction 852,710 1,259,298 1,659,298 1,244,341 736,879SF Completed 0 0 15,000 925,910 733,388

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

32

32%

24%

ConclusionAs long as major challenges to global growth can be contained, Utah’s economy will continue to perform well and its commercial real estate market will reflect that reality. At the present time, positive trends are expected to continue with improvement in all property types.

In 2010, Federal Reserve Chairman, Ben Bernanke, said that the outlook was “unusually uncertain.” The chairman’s assessment is just as applicable now. As elections and transfers of power are held in critical areas, new and existing leaders will have little time to adjust to altered landscapes before taking action. Major threats to the global economy such as Europe’s debt crisis, geopolitical tensions in the Middle East and U.S. fiscal policy have been years in the making. As sustainable solutions are put off, the timeframe to deal with challenges becomes more compressed. In others words, the margin for error diminishes.

European leaders are testing market patience, and the amount of time the market will allow is not certain. Furthermore, it is widely believed that Iran’s nuclear program will be vulnerable only for a short time longer; meaning decisions regarding any effective military strike must take place soon. In the U.S., if issues surrounding tax increases, spending cuts and the debt ceiling are

not resolved before the election, they will need to be addressed within a period of just weeks before they take effect.

While there is much uncertainty, it is becoming clear that policymakers will not retain the ability to continue delaying politically difficult decisions. It is often said that leaders “kick the can down the road.” However, the end of the road is approaching and the cans are piling up. The next six to nine months will be critically important for the global, national and Utah economies.

Milestones: The following current or future projects in Salt Lake County and around the state of Utah are significant indicators of both public and private commitment to continued economic growth:

- City Creek Center

- Regional Commuter Rail Expansion

- Sugar House Street Car

- New Adobe Campus

- NSA project

- Boeing

- Business Depot Ogden

- Family Dollar Distribution Center (St. George)

- Campbell’s Soup Facility

- New Federal Courthouse

- Station Park Farmington Retail & Multifamily

- SLC International Airport Rebuild

2012

Accumulation of Risk

general 2008 2009 2010 20112012(est)

2013(forecast)

US Real GDP (Global Insights/GOBP) -0.3% -3.5% 3.0% 1.7% 2.0% 2.2%

US Producers Durable Equipment (% Change) -4.3% -16.0% 14.6% 9.5% 8.6% 7.0%

US Commercial Structures -4.3% -16.0% 14.6% 12.5% 7.2% 1.8%

US Unemployment (Global Insights/GOBP) 5.8% 9.3% 9.6% 9.0% 8.2% 7.9%

US Employment (Global Insights/GOBP) -0.6% -4.4% -0.7% 1.2% 1.6% 1.7%

Utah Unemployment 3.7% 7.1% 8.0% 6.7% 6.7% 6.2%

Utah Employment 0.1% 5.1% -0.6% 2.3% 2.8% 2.8%

Utah Commercial Structures -6.4% -45.1% -12.3% 18.9% 15.8% 18.2%

SL Co. Population 1,007,205 1,018,737 1,033,299 1,048,985 1,063,700 1,078,400

Net Migration -2,642 -2,256 1,624 3,250 1,800 1,800

SL Co. Wages & Salaries ($B) 25.1 24.44 24.83 25.91 27.32 28.78

SL Co. Wages & Salaries (% Change) 2.2% -2.6% 1.6% 4.3% 4.3% 5.8%

SL Co. Employment (000) 602.9 573.6 571.5 584.6 597.2 615.7

SL Co. Employment (% Change) 0.3% -4.9% -0.4% 2.3% 2.3% 3.1%

SL Co. Unemployment Rate (Dec.) 3.3% 6.7% 7.3% 6.8% 6.7% 6.2%

non-farm employment - salt lake county 2008 2009 2010 2011 2012(est)

2013(forecast)

totAl (of all employment sectors) 602,859 573,414 571,290 583,066 597,011 612,552

Manufacturing (31) 55,323 50,360 50,231 51,178 52,595 54,063

Wholesale trade (42) 30,824 29,033 28,415 29,975 30,945 32,048

Retail trade (44) 65,866 62,007 61,543 60,871 60,521 60,017

Transportation and warehousing (48) 27,678 25,451 24,915 26,018 26,682 27,412

Information (51) 17,214 16,545 16,296 16,249 16,430 16,118

Finance and insurance (52) 39,560 38,345 36,497 37,121 38,088 38,980

Real estate and rental and leasing (53) 9,876 9,156 8,806 9,016 9,147 92,248

Professional and technical services (54) 39,136 37,184 36,898 38,047 39,982 41,940

Management of companies and enterprises (55) 16,073 15,398 15,334 15,814 15,657 15,663

commercial Real estate - salt lake county 2008 2009 2010 2011 2012(est)

2013(forecast)

Industrial Availability (% Available) 7.5% 9.9% 8.5% 8.8% 9.0% 9.0%

Office Vacancy (% Vacant) 13.7% 17.2% 17.1% 15.3% 15.0% 13.6%

Completed Construction: Industrial(Square Feet, Single and Multi-Tenant properties)

1,547,260 2,586,961 128,797 925,910 1,470,267 700,000

Completed Construction: Office(Square Feet, Single and Multi-Tenant properties)

1,212,153 562,471 349,500 0 916,980 230,000

SL Co. New Residential Construction Values (% Change) -28.2% 10.4% -32.7% 20.8% 11.2% 35%

SL Co. Metro Average Home Price (% Change ) FHFA, 4 qtr. avg.

-1.0% -7.6% -6.7% -5.1% N/A N/A

SL Co. Number of Homes Sold (Salt Lake Board of Realtors)

8,518 8,903 8,553 7,028 N/A N/A

consumer indicators 2008 2009 2010 2011 2012(est)

2013(forecast)

SL Co. Taxable Sales -- Baseline (% Change) -6.7% -9.9% 3.1% 6.5% 5.0% 6.0%

SL Co. Retail Sales -- Baseline (% Change) -5.1% -10.9% 3.7% 6.9% 3.7% 4.4%

Salt Lake County Indicator Table

2012

AuthorsContent for this report by:

Natalie Gochnour, Executive Vice President and Chief Economist, Salt Lake Chamber

Stephanie Marthakis, Research & Marketing Manager, CBRE, Salt Lake City

Darin Mellott, Sr. Research Analyst, CBRE, Salt Lake City

Curtis Carlson, Research Analyst, CBRE, Salt Lake City

Matt Blank, Researcher, CBRE, Salt Lake City

ContributorsWe would like to thank the following entities for their contribution to this report:

Governor’s Office of Planning and Budget

Salt Lake County Auditor’s Office

Print date: 05/30/12

1 Governor’s Office of Planning and Budget

2 US Bureau of Labor Statistics Note: Rates are model-based and may vary from other published reports, see http://www.bls.gov/lau/stalt.htm for details.

3 US Bureau of Labor Statistics

4 Deseret News; City Creek Center driving economic revival for downtown Salt Lake City, March 17, 2012

5 US Bureau of Labor Statistics

6 Governor’s Office of Planning and Budget

7 Utah Department of Transportation, Transportation Blog 3/15/2012

8 US Bureau of Labor Statistics

Unless otherwise noted, all data herein sourced from the authors and/or contributors to this report.

Sources

© Copyright 2012 CBRE, Inc. Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not

verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness.

Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market.

This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE.

2012