Although the high office vacancy rate in downtown Salt Lake City is slowly improv
ing, some analysts say downtown doesn't need the space in three proposed office towers.Downtown commercial office vacancy rates in the second quarter of this year were 19.5 percent of downtown's 8 million square feet of office space, according to figures compiled by Coldwell Banker Commercial Real Estate Services.
That's a small improvement over last year's figures, attributable to a recent dearth in construction, spokeswoman Kathy Loveland said. But the hiatus could end with construction of any one of three proposed private office centers.
In July, H. Roger Boyer proposed a 20-story office tower at 200 S. Main on the city's ailing Block 57. Broadway Centre Ltd. is planning a 14-story high rise at 300 S. State where the Centre Theatre now stands.
Finally, Price/Prowswood Ltd. is hoping to build an office complex on Block 53 bordered by State, Second East, Third South and Fourth South.
Office space created by the Boyer and Broadway Centre proposals alone would tally more than 600,000 square feet.
The city's Redevelopment Agency projects that 150,000 to 250,000 square feet of new office space will be needed annually for the next five years, more than enough demand for space even if all three proposals are successful.
Still, some analysts say that given current figures, the likelihood one, two or all three proposals would reach the construction phase is poor.
"Common sense tells me with 19 percent vacancy, it's difficult for a project to come on board and make a go of it," said Leonard Owens, president of Leonard Owens and Assoc., an appraisal firm.
"When we have vacancy that is that high, it's very difficult for an office building owner to raise rent . . . to cover the cost of expenses," he said.
Out-migration, in Utah as a whole and in downtown Salt Lake City, is drawing businesses out of the area, leaving empty offices in the central business district, Owens said.
"Somehow, that has got to be stabilized before we can see an improvement in the whole climate," he said.
Others are more optimistic, however, about filling office buildings in the downtown area.
"The projects being announced may tend to increase some of the vacancy rates initially," said Key Bank of Utah Vice President and Economist Jeff Thredgold. "But by the time the projects are completed there will be an increase in demand for space.
"Utah's economy has improved over the last year and we're seeing more of that space being utilized," he said.
Boyer and Broadway Centre are seeking public assistance from the RDA, which has already approved up to $1.7 million in tax increment breaks for Boyer. RDA and Broadway Centre developers are still negotiating an up to $925,000 break.
RDA Deputy Director Richard Turpin said the city will negotiate with developers who can secure financing for their proposals, no matter what projected office space needs are in the future.
"If there is a developer who is willing to undertake a risk to build a structure and a lender willing to finance a structure, then I am certainly willing to sit down and negotiate with that individual," Turpin said.
"But we're not going to spend a dime," Turpin said, until there is a "done deal" and the development is under construction.
Nevertheless, the RDA has sunk money into projects that have, at least, run into temporary problems. Price/Prowswood bought most of Block 53 with a roughly $3 million write down from the RDA and has completed only one complex there. Much of the block is now a paved parking area.
"Sometimes we get into a situation on the RDA where you try to lead the market and sometimes it doesn't work," said RDA Chairwoman and City Councilwoman Florence Bittner, referring to stalled development on Block 53.
But the developers themselves are confident their proposed office towers will fill with tenants. Boyer acknowledged the prospect would be "tough" but that he expects to lease 40 to 50 percent of his development before breaking ground.