Office vacancy rate dips

New job growth and in-migration by national companies are pushing down Salt Lake County's office vacancy rates, according to a report released Monday by Commerce CRG.

For the six months ended June 30, the office vacancy rate — excluding sublease space — fell to 13.72 percent, down from 15.13 percent during the same six-month period in 2004.

Bill Martin, co-managing partner of Commerce CRG, said Salt Lake City is once again capturing the attention of national tenants, like NovaStar Financial and Encover Inc., both of which leased new space in Utah in the first half of this year.

In fact, Martin predicts more than 1 million square feet of office space will be absorbed by the end of 2005, giving the year one of the highest office absorption levels seen since 2001.

A report this month from the Utah Department of Workforce Services said the state's total employment increased by about 37,000 jobs, or 3.4 percent, in May compared to a year earlier.

Despite the decline in vacancy rates, lease rates have not significantly increased in the past two quarters. The overall lease rate so far this year is at $17.37 per square foot, nearly flat compared to $17.28 a year ago.

Martin said a glut of older office space, or so-called "Class C" space, is holding down office lease rates.

And with more than 1 million square feet of new office space proposed or already under construction, downward pressure may continue to hamper office lease rates.

On the industrial front, vacancies declined to 7.62 percent, down from 9.60 percent a year earlier.

"We've got half a million square feet of new industrial space that is in speculative building already, and almost all of that is pre-leased," Martin said. "Vacancies came down in industrial for some of the same reasons office vacancies did. We didn't build a lot of buildings during that period of time."

Martin said higher fuel costs are likely to shift more distribution businesses to Salt Lake City, a geographical hub for other Western states.

Retail vacancy rates are expected to be released next week.

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E-mail: danderton@desnews.com