Manufacturing a breakthrough: Construction insiders see storm clouds dissipating over industrial and manufacturing construction as economic threats recede

Taylor Larsen

Listen to any local talk about Utah weather and the discussion tends to go something like this: “You never know what it’s going to do.”

That same response has been shared by many involved in construction —signs of an overheated market in the past few years turned to frosty forecasts for many sectors in 2023 and beyond. For those in industrial and manufacturing construction, the view forward is cautiously optimistic as they wait to see how much the storm clouds in the industry show an arduous future or are merely a bluster that needs to be waited out.

Building Continues in Industrial and Manufacturing Sectors

As demand has exploded for these types of{mprestriction ids="1,3"} buildings, the Salt Lake City market has appeared as a secondary hub for the Mountain West to meet the needs of consumers today, instead of next week.

According to Colliers, the total amount of industrial space under construction in Utah County reached over 4.18 million square feet during the first quarter of the 2023, with the industrial vacancy rate in Utah County increasing from 1.74 percent in the fourth quarter of 2022 to 2.57 percent currently.

Salt Lake County has 5 million square feet of industrial space under construction, according to Colliers, with a direct vacancy rate just over 3 percent.

According to Bryan Utley, vice president of Big-D Construction’s Salt Lake City group, the “need it now” mentality of consumers, supplied by product availability from multinational retailers like Amazon, has shifted the market to focus extensively on the last mile of the delivery process. In construction, that means more warehousing and fulfillment, but also all the manufacturing centers to create those products.

Forrest McNabb, president of Big-D’s National Food & Beverage-Northern Utah Division, said manufacturing is such a deep sector of industrial construction that it will sustain itself through the ebbs and flows of the recent economic uncertainty. The growth of industrial hubs like Freeport West, Business Depot Ogden, Copper Crossing and others have seen new construction and renovation to existing spaces bring more manufacturing companies to Utah.

Sustaining the breakneck pace set over the past few years was always a tall task for builders, as economic headwinds have changed the course for many developers and owners, as shown by low-to-negative absorption in many of the state’s industrial submarkets.

Tilt-Up Domination

Executives said that tilt-up concrete spaces will continue to dominate the industrial and manufacturing market, especially since the building style is synonymous with speed-to-market due to the standardization of processes and materials that go in to making these types of buildings.

Tilt-up concrete, McNabb said, has the customizability, efficiency and flexibility benefits wanted by owners. Add to that the durability component of tilt-up, he said, and manufacturing and industrial owners can develop inside and accommodate their unique needs without modifying the walls and roof — saving owners months bringing their building online.

The walls and roof are important, but more important is a perfectly level floor. Utley said that “when you are buying the warehouse, you are really buying the floor.”

He said that, as owners have looked to robotics as an answer to their labor shortage, efficiencies in fulfillment and distribution have led to higher racking to store their goods. The physics of all of it means that construction teams must be dedicating their all to placing and installing perfectly level floors.

Holding Pattern for Much of Construction

Ongoing construction has been simmering in industrial and manufacturing construction and Big-D executives said that they are cautiously optimistic about future construction getting on the books. While elevated interest rates, high construction costs and long lead times have iced out much of the interest in pursuing such projects, other factors that are soon to shift are doing a number on manufacturing construction.

One of the few dynamic points was recent code changes enacted on July 1, pushing developers in all sectors to finish their permitting. While that is encouraging on the construction front, Steve Kieffer, Big-D’s vice president of business development, said that does not mean projects will pull the trigger and break ground the next day, especially as other factors surrounding industrial and manufacturing development remain static.

Executives said that land transactions have slowed drastically over the past few months. Six to eight months ago, developers with land were selling off land for 50 percent more than they would be selling the same land for today.

Simply put, Kieffer, said, “No one knows what the true cost of land is.”

Banks have tightened their purse strings as developers ride out the uncertain future, a sea change from the ubiquity of available investment just a few years ago. The demand for projects still exists, according to all the executives, especially as consumer confidence ticked back up after a rough start to 2023 — especially in Utah. But with lenders unwilling to dole out the funds for construction, industrial and manufacturing projects will continue to hold steady.

For new deals, “Someone who may have been stretched to pencil a new deal when interest rates were good” doesn’t have that same luxury today, Kieffer continued. But more important, Kieffer pointed to the $1.5 trillion in commercial real estate debt to be refinanced or repaid before the end of 2023. Even as leasing rates rise, the next few months will be the reset button to help builders, developers and owners fully understand the future and respond accordingly to demand and opportunity.

Silver Lining in a Cloudy Future

As construction prices stabilize, lead times decrease and interest rates level out, there are opportunities out there for savvy owners, said McNabb, especially those who are dialed in on where their needs are in relation to the supply chain.

Even in a murky future, efforts from owners and suppliers to reach more customers and increase market share are paying off in the construction world as it pays off for consumers. Even if retail consumer needs slow, manufacturing’s broad reach means the need for space to assemble, ship and store products in Utah will remain — from mining to medicine to military.

Hill Air Force Base, the Air Force’s second-largest base by population and size, continues to be a major economic driver in Utah. McNabb said that the influx of aerospace and defense contractor enterprises over the past few years should only continue, bringing new jobs and manufacturing operations in tow.

Owners who take Wayne Gretzky’s “I skate to where the puck is going to be, not where it has been” mantra and apply it to their construction and development plan will be in the best shape, he said. Since most supply chain issues currently require 12-plus month lead times, McNabb said those with the foresight to see their window of success will complete successful construction projects on the industrial and manufacturing side and keep their businesses humming.

“Utah is a unique state,” McNabb said. “Other states are doing just fine, but Utah is a leader at many levels.” He noted the state’s progressive work to build a solid business environment for resident and incoming companies, as well as the workforce that fills the tens of thousands of manufacturing and industrial roles across the Beehive State.

Taylor Larsen is a brand journalist for Big-D Cos. in Salt Lake City.{/mprestriction}