Increased activity and record amounts of positive net absorption created a new commercial landscape across the Wasatch Front. The majority of 2016 leasing activity was a result of tenants occupying new space that was pre-leased during 2015. While sublease availability increased over each quarter, overall market indicators like local population growth and continued economic development will remain strong into 2017.
The Salt Lake County office market grew by an additional 1.7 million square feet in 2016, primarily in the South submarket. More than 1.5 million square feet of space was under construction at the close of 2016. This product will be introduced to the market by mid-year 2017. Vacancy rates increased slightly from 8.6 percent in 2015 to 8.74 percent at the end of 2016.
Notable Salt Lake office projects completed in 2016 include 111 South Main (440,000 square feet); Vista Stations 4 through 8 (655,000 square feet); The Pointe I (77,703 square feet); the Overstock Peace Coliseum (231,000 square feet); and Town Ridge Center I & II (250,000 square feet), to name a few. An additional 1.5 million square feet of space was under construction at the end of the year. Buildings like 53rd Center 1 (200,000 square feet); 136 Center 1 (162,000 square feet); Sandy Center Plaza (327,000 square feet); Sandy Commerce Office Park (120,000 square feet); Sandy Towers East (150,000 square feet), SoJo Station (180,000 square feet); and View 72 (or CHG at 281,663 square feet) are scheduled for completion in 2017.
The Utah County office market has recently experienced an imbalanced market activity. The North quadrant saw the most positive net absorption, which accounted for 1.06 million square feet of the 1.13-million-square-foot total. Asking lease rates increased from $18.54 full service at the end of 2015 to $23.08 at the end of 2016. This was caused by the large amounts of new Class A office space that was introduced in 2016. Some areas of Utah County saw a slight slowing of activity as tenants who pre-leased space moved in. Class A office space in the North quadrant experienced record-breaking positive absorption of more than 1 million square feet. Class A space reached 87,141 square feet of net positive absorption in the Central quadrant and 38,500 square feet in the South quadrant. The overall vacancy rate increased from 4.3 percent to 6.8 percent, caused mainly by the completion of 1.6 million square feet of construction in 2016. More than 357,000 square feet of construction will be completed by mid-2017. This new Class A office space will afford tenants looking for move-in-ready space more options than they have seen in the past two years.
Projections estimate that the market will settle into its expanded office inventory by year-end 2017. Lease rates should remain relatively unchanged as new product and the remaining older generation of office space keeps lease rates competitive. Landlords will focus on filling the remainder of available space, possibly offering tenant improvement incentives. Sublease space will continue to be an option for tenants throughout the year.
— By Lana Howell, Director of Market Research, CBC Advisors. This article first appeared in the March 2017 issue of Western Real Estate Business.