Office space scarce

Strong job growth and the soon-to-be-demolished Key Bank Tower downtown pushed office vacancies in Salt Lake County to 10.28 percent in the fourth quarter, the lowest rate in six years, according to a report released Tuesday by Commerce CRG.

The fourth-quarter vacancy rate dropped below the third-quarter rate of 10.76 percent. It also was down from 10.81 percent in the fourth quarter of 2005. The last time office vacancies were lower was in the fourth quarter of 2000, when a grab for office space by technology companies pushed the rate down to 8.9 percent.

Mike Richmond, associate broker for Commerce CRG, said downtown premium office space is difficult to find, creating an unhealthy market.

"It gives very limited options for companies that are growing," Richmond said. "There is very little relief on the way immediately. The only real relief we see is the fact that Fidelity will be vacating their existing space when they move to The Gateway this summer."

Fidelity Investments is expected to leave 175,000 square feet of downtown office space when it moves into a new eight-story office tower encompassing 230,000 square feet at The Gateway shopping center.

The next office building to be completed in downtown likely will be a 63,000-square-foot building known as Gateway 5 at The Gateway, according to Jake Boyer, president of the Boyer Co.

Boyer said construction on the building, located at 500 W. 200 South, is beginning this week, with a completion date set for this fall.

At present, The Gateway has roughly 600,000 square feet of office space. All of the space is leased, Boyer said.

"Any relief beyond the Gateway building is probably going to be a couple of years out," Richmond said. "A high-rise building in the core of downtown will typically take about 24 months to build."

Richmond said about 900,000 square feet of office space was absorbed in 2006. Newly built space in 2006 added about 800,000 square feet. This year more than 1 million square feet of office space is expected to be built.

"The nice thing that we're seeing right now is very diversified growth ... in the market," Richmond said. "We're not seeing just one industry — all technology — like we saw in the late 1990s. That diversity includes financial service companies, law firms and research and development companies."

The Commerce CRG report noted that industrial space vacancies rose to 7.4 percent in the fourth quarter, up from 6.83 percent in the third quarter and 7.27 percent in the fourth quarter of 2005.

"The easy availability of capital has driven developers to pursue large buildings, particularly in the freeway-friendly northwest corridor," the report said. "This is typical of a mature market and demonstrates developers' confidence in the economy of the Salt Lake area."

The report said retail construction will slow in 2007, as the high cost of land is becoming a deterrent to new development. Nearly 2 million square feet of retail space has been absorbed over the past year, the report said.

The vacancy rate for retail space in Salt Lake County fell to 7.79 percent in the fourth quarter, down from 10.28 percent in the fourth quarter of 2005.

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E-mail: danderton@desnews.com