Office space at premium

Businesses looking to rent office space in Salt Lake County likely will have to shell out more money for less space.

According to a report released Monday by Commerce CRG, Salt Lake County needs to build 1 million square feet of office space every year to keep up with demand.

The office vacancy rate rose to 10.14 percent in this year's second quarter — up 0.45 percent from last quarter and down 0.78 percent from last year's second quarter.

And, according to the report, vacancy rates will remain tight throughout 2007.

"It's really a landlord's market," said Rich Nordlund, office specialist for Commerce CRG. Landlords are able to increase the lease price because of space issues, he said. The report stated lease rates rose 12 percent downtown and 5 percent throughout the Salt Lake Valley. The southwest side of the valley, predominately Draper and South Jordan, boomed with the need for office space. Office vacancy dropped from 23 percent last year to just 8 percent this year.

Huge population growth is one reason for the lack of office space, and a lack of prime space is another, Nordlund said.

"(Another) factor is there's just a lot of people looking for space down there because they can employ people from both Utah County and Salt Lake County," Nordlund said.

Creating office space in the suburbs involves companies being people-oriented, Nordlund said. For example, customers in the suburbs don't have to pay for parking, he said.

The valley adds about 54,000 jobs every year. The majority of the growth is taking place from the midvalley to Draper, Nordlund said. Office buildings totaling 1.3 million square feet will be finished this year in those areas.

The huge increase in rent and decrease in available rental space stimulated upgrades to older downtown buildings, including the Walker Center and the Boston Building, the report said. The company also reported the absorption rate — the amount of space taken off the market because of new occupancy — was 20 percent higher than last year.

Commerce CRG also reported a low percentage of industrial and retail space available. Available industrial space was 5.41 percent at the end of the first half of the year. Retail stood at 7.22, while the vacancy rate for apartments was 3.2 percent, according to the report.

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E-mail: cmith@desnews.com