Vacant office space rises 13.8% in S.L. County

The availability of empty office space in Salt Lake County continued to increase during the third quarter, to 13.8 percent, reflecting the weakened national economy, according to a report released Thursday.

The third-quarter increase in vacancies came after an increase of 13.5 percent in the first six months of this year, the report from real-estate firm CB Richard Ellis said.

"Salt Lake County is finally feeling the adverse effects of a weak national economy, as evidenced by more than 1 million square feet of vacant office space this year compared to last year," said Scott Wilmarth, a senior vice president at CB Richard Ellis. "Rising vacancy rates, combined with the effects of the uncertain credit markets, will result in fewer office buildings beginning construction over the next 12 months."

Even so, the report found that despite the increase of available office space, average lease rates increased in the third quarter to $19.19 per square foot, compared with $18.73 per square foot in the second quarter.

The office-vacancy rate downtown was 10.7 percent in the third quarter, and vacancy in the suburbs was 15.3 percent. Vacancies are higher in the suburbs mostly because of new construction, Wilmarth said.

Most of the construction was completed in the southern and southeastern parts of Salt Lake County. CB Richard Ellis includes new construction inventory in the report when buildings receive certificates of occupancy.

So far this year, 834,000 square feet of office space has been built. Last year, 1.1 million square feet of new office space was built. Slightly over 1 million square feet of office space is currently under construction.

"It takes somewhere between at least 10 months and 18 months to build a project," Wilmarth said. "These buildings are well under way. They are not turning back."

Developers typically receive construction loans that require work to be completed in a certain time-frame, which prohibits builders from suspending projects for which they will find tenants. "They are going to come to market with these projects, regardless whether the market slows," Wilmarth said.

The increased lease rate may reflect the price of construction, which has steeply risen in recent years. Even so, companies may be able to negotiate move-in allowances or even a month or so of free rent in the current real-estate environment, and the report's numbers do not reflect that, Wilmarth said.

Local offices for national companies are closing, and that also impacts office-space vacancies, he said. A sublease market has been created, with about 500,000 square feet vacant, which is two or three times as much square feet as is usually vacant.

"When a company has a long-term obligation with a lease and wants to get out of it, they have only one option: to try to lease it to somebody else," Wilmarth said.

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E-mail: lhancock@desnews.com