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The Salt Lake office market will hopefully continue to improve throughout the next year. At the end of the third quarter, overall direct vacancy rates were 13.6 percent, down from the 14.9 percent rate recorded this time last year. Overall asking lease rates for the same period have also seen a slight increase of 41 cents per square foot to the now average asking lease rate of $19.92 per square foot, per year, full service.
Although a healthy appetite for Class A office space has dropped vacancy rates in this category to below 10 percent, Class B space lags behind with vacancy rates close to 17 percent as of the end of the third quarter.
There has been considerable buzz around the Downtown submarket, due mostly to the new City Creek retail center that was estimated to cost $1.5 billion. The project was developed by The Church of Jesus Christ of Latter-day Saints affiliate City Creek Reserve, in collaboration with their partner Taubman Centers. The retail complex is located in the core of Salt Lake’s CBD and came online in March of this year. Despite this unique development, vacancy rates remain high in this submarket. Overall direct vacancy rates for the Downtown area hover around 18.2 percent as of the end of the third quarter. One of the contributing factors to the high vacancy rate in the CBD submarket is the Questar Corporation’s recent relocation to its new 170,000-square-foot facility located at 333 S. State Street. This left more than 200,000 square feet available for lease at Questar’s former facility, which is located at 180 E. 100 South.
New developments are finally starting to emerge after a long hibernation period in this sector. Developments are planned and construction is starting to commence in multiple submarkets across Salt Lake County. The most favorable section of the valley for new development is the southeast, which is experiencing direct vacancy rates of less than 7.5 percent. New developments like the 100,000-square-foot Minuteman Office Park 4 and The Pointe 6, which will boast about 120,000 square feet, will likely be well received by this heavy tech-oriented market sector.
Salt Lake and the neighboring Utah County continue to be hotbeds of activity for tech companies. Adobe, Ebay and Fusion-io have grown their presence in these markets and continue to add employees and demand for office space. Fusion-io has continued to eat up quite a bit of vacant space in this market, while Ebay and Adobe have built new campus facilities. A few recent acquisitions have also taken place in these markets, including the purchase of the 225,000-square-foot former Salt Lake Hardware building in Salt Lake by KBS Capital Advisors and the Southtowne Corporate Center I & II buildings in Sandy by Hines. From all this activity, it is evident Salt Lake is back on the radar of institutional investors.
— Casey Mills, vice president, NAI West in Salt Lake City