Salt Lake office vacancy rates remain at 15.9 percent or higher in 2nd quarter

SALT LAKE CITY — Despite sparkling new architectural gems like the office building at 222 S. Main in Salt Lake City, about three offices of every 20 sit vacant throughout the city, according to a recent study by Commerce Real Estate Solutions.

Even more offices are unused, but tenants are still paying rent for them. This "shadow space" may have resulted from company downsizing and layoffs, according to Commerce researcher Rich Nordlund.

The local office vacancy percentage seems to have topped out in 2009 at 16.2 percent. The Commerce study compiled its numbers through personal interviews with landlords and found that in this year's second quarter, that figure is down to 15.9 percent.

Those numbers are close, but not identical, to figures found by CB Richard Ellis. That company said that at the end of June, the office vacancy rate in Salt Lake County was 17.3 percent, up from 14.2 percent in mid-year 2009. CB Richard Ellis, a multinational firm, does its research based on actual deals between tenants and landlords, plus extensive research about other real estate firms.

Nordlund said high vacancy rates are likely to continue throughout the year, but by this time in 2011, the market should start to turn.

Unfortunately, that turn won't be good news for everyone.

Right now, tenants have the upper hand in office parks throughout the county, Nordlund said. That means landlords are offering extra perks, like free rent and additional move-in allowances.

Those tenants also have the chance to improve the quality of their office space, as a Class C space is likely similar in cost to a Class B space. Class A is considered most valuable.

Referred to as a "flight to quality," this trend is likely to continue benefiting tenants for five to 10 years, Nordlund said. By then, the cycle could have started over between landlords benefiting and tenants benefiting, he said.

Compared to other areas of the U.S., Utah is running in the middle of the pack in terms of used space. The Beehive State is about 1 percent lower in office vacancy than the country as a whole, Nordlund said.

The situation is intimately tied to unemployment, which in Utah is estimated at 7.6 percent. Only when people have jobs will space fill up, representatives of both CB Richard Ellis and Commerce Realty said.

e-mail: rpalmer@desnews.com