SALT LAKE CITY — Demand for top flight office space in the Salt Lake Valley is growing, according to two reports detailing the Wasatch Front commercial real estate market during the second quarter of the year.
Both CBRE and Coldwell Banker Commercial released their respective studies on trends in the office, industrial and retail real estate sectors. A common theme was increasing demand as the state’s fiscal potency continues to remain among the best in the country.
The Coldwell Banker mid-year 2014 report states that “steady yet positive changes” are expected to occur over the remainder of the year. Class A office space in the downtown central business district showed improved viability for tenants looking for enhanced amenities, new construction and better transportation.
“Expect to see the downtown office market remain unchanged throughout the year while tenants look for upgrades and renovations to be made in Class B and C buildings,” the report states.
Class A buildings have high quality standard finishes, state of the art systems, exceptional accessibility along with a definite market presence. Class B properties have finishes that are fair to good for the area and systems that are adequate. Class C buildings compete for tenants requiring functional space at rents below the average for the area.
The overall progress observed in the Salt Lake office market offers good reason for optimism through the remainder of 2014, explained Lew Cramer, Coldwell Banker Commercial president and CEO.
The report notes that the average asking lease rate for the Salt Lake office market registered at $21.85 per square foot, a slight hike of 1.4 percent from last year’s overall average. Of the three top segments, Class A space showed the highest rate gains climbing 2.4 percent from 2013 to a current average asking lease rate of $24.58 per square foot. The increase came despite upward movement in the overall vacancy rates in the office market.
The average vacancy rate for the Salt Lake office market increased to 12.53 percent, up from 11.06 percent during the same period last year. Vacancy rates even climbed for brand new Class A space, jumping 3.26 percent up to 13.47 percent. Meanwhile, Class B vacancies fell to 9.8 percent — down 1.21 percent year over year. The vacancy rates for Class C space also increased 2.47 percent to register at 15.28 percent for the period.
“These trends show significant changes to the overall market and vacancy could continue to increase once buildings currently under construction are completed by year-end,” the report states.
"The three major areas for high-quality Class A office space are downtown central business district, the Cottonwood corporate area and Union Park,” said Kevin Long, principal broker and COO at Coldwell Banker Commercial. He noted that growth is expected to continue in the South Valley for the ongoing future, barring any unforeseen economic or financial difficulties.
In the industrial market, the CBRE report showed that “strong demand and consistent performance has turned Salt Lake into one of the region’s prime hot spots for industrial development.” One of the major drivers is the large amount of big-box development underway.
So far this year, investors have already closed on more than 1 million square feet of existing industrial real estate. After what some analysts considered a "sluggish start to the year," the industrial market has gained momentum as both leasing and sales have improved during the quarter, the report states.
Meanwhile, thanks in part to the state’s strong economy and ever-increasing population, retailers have continued to expand throughout the Salt Lake Valley. To keep up with demand for Class A retail space, developers have been active with newly completed construction in 2014 already surpassing last year’s annual levels.
The report says that while some retail segments have lost momentum due to the growing prevalence of e-commerce, "retailers like restaurants, grocers, health facilities and salons are still experiencing growth because they offer goods and services that cannot easily be obtained online."