The Salt Lake Valley is in the midst of an office space explosion fueled by near-historic commercial market growth rates. In order to keep up with current demand based on current job growth and economic conditions Salt Lake County needs to add one million new square feet of office space annually, according to a new quarterly update by real estate firm Commerce CRG.
The report, which tracks commercial real estate market trends for the three-month period from July 2007 through September 2007, also states that developers expect to reach 1.5 million new square feet by the end of the year.
Rich Nordlund , office real estate specialist with Commerce CRG, said this current high demand is in stark contrast to times past when the Salt Lake area was unable to attract new companies due to lack of available commercial
space. He said now with developers building more class A commercial space, firms are lining up to fill it just as quickly as the facility is completed.
Another wrinkle: Much of the development and growth is concentrated in the southern part of the valley in cities such as Draper, Sandy, West and South Jordan, with over 500,000 square feet of office space to be completed by year's end.
"At River Park (corporate center in South Jordan), every time they put up a building it's basically leased by the time they open the doors," Nordlund said. "A lot of companies are wanting to be down in that area just because they can bring workers not only from Utah County to their place of business, but they can also recruit from south Salt Lake County."
Rental rates for top flight commercial space are also increasing at a solid pace along with the amount of space. The report states the average asking rents will jump more than 7 percent annually a trend expected to continue well into next year. Despite those predictions, Nordlund said the Salt Lake area remains a relative bargain.
"As far as places like Denver and Phoenix, we're still lower than those particular places," he said.
Nordlund notes the central business district Class A market in downtown Salt Lake City had a slight increase in vacancy during the third quarter of 2007, but it was "artificial," resulting from the move of Fidelity Investments to The Gateway. That space is already booked with new tenants, he added.
The report indicates because firms are unable to find adequate existing space, the industrial real estate sector in the Salt Lake valley is currently experiencing what one analyst describes as a tight market. Greg Hunter, industrial real estate specialist with Commerce CRG, said a number of out-of-state manufacturing companies are looking to develop large industrial facilities (at least 50 acres) of their own but those properties are becoming harder to find. One exception to the lack of new space is the large industrial sector where 1.8 million square feet of new space has been added since the third quarter of 2006.The report states that since the third quarter of last year, the industrial space vacancy rate has dropped to under five percent (6.83 percent in 2006 to 4.73 percent in 2007). Similar to the commercial sector, industrial rents are increasing as well, with average lease rates in small- to mid-industrial markets rising between 10 percent to 20 percent annually and is expected to continue into next year.