Premium office space is getting harder to find in the Salt Lake area as a booming economy puts pressure on expanding businesses.
For the three months ended June 30, the office vacancy rate in Salt Lake County excluding sublease space fell to 10.92 percent, down from 13.72 percent in the second quarter of 2005, according to a report released Wednesday by Commerce CRG. However, the 2006 second quarter's vacancy rate was up slightly from the first quarter's rate of 10.81 percent.
Mike Richmond, associate broker for Commerce CRG, said available premium office space, called "class A" space, in downtown Salt Lake City is now under 2 percent, the lowest he has seen in the past 15 years.
Richmond said downtown's biggest high-end buildings which include the Wells Fargo Center, One Utah Center and Gateway Tower West, on South Temple and Main Street are virtually full. The Wells Fargo Center building posted the highest vacancy rate of the three at 4.9 percent. One Utah Center has no vacancy.
"The vacancy that does exist tends to be lower floors with obstructed views," Richmond said. "There is very little prime space available."
Limited office space, Richmond added, does present some new challenges from an economic development standpoint.
"You get these corporations that want space available right away, and if it's not available then we get a check mark against us," Richmond said. "I know a few instances where we've lost corporations to other cities that have maybe had more space available."
Jeff Edwards, president and chief executive officer of the Economic Development Corp. of Utah, an agency contracted by the state to bring new jobs and capital to Utah, said office space is an important part of companies' decision-making process, but it is not the primary one.
"In our experience the thing that is the most important determiner is the work force," Edwards said. "If the company finds the work force that they need and they need to make a move soon, they may be willing to take some space in a location that might have been their second choice, and then while they are here choose to build something of their own."
Richmond said some companies are acquiring older buildings and retrofitting them. Examples include the Walker Center at 175 S. Main, which is undergoing a renovation to capture tenants looking for higher quality space downtown. Also, a $24.5 million renovation to the Zions Bank building, on the southeast corner of Main and South Temple, was completed earlier this month.
The frenzy to find suitable space can be seen by companies like Fidelity Investments, which is anticipated to move in mid-2007 to an eight-story office tower, encompassing 230,000 square feet of space, at The Gateway shopping center.
Currently, Fidelity occupies a couple of floors in One Utah Center.
"Right now there are two or three firms that are in competition to commit to that space well in advance of a year of it being available," Richmond said. "That is definitely a trend that we have not seen in a long time, where companies are now actually having to plan well in advance of their need just to tie up space."
Richmond also said a number of companies are choosing to build their own facilities rather than move into existing office space. In fact, 750,000 square feet of "build-to-suit" office space is now under construction by companies like CompHealth, Myriad Genetics, Southern Nevada University and Spillman Technologies.
The Commerce report noted that retail vacancy rates rose to 11.32 percent in the first half of 2006, up from 8.14 percent in the same six-month period of 2005.
Still, Chad Moore, retail specialist with Commerce CRG, said Salt Lake County's retail market remains healthy, with the current or pending presence of mega-retailers like Cabela's and IKEA.