Decline in Unemployment Needed to Boost Commercial Office Market

Real Estate News Utah

 

Local real estate professionals gathered Tuesday morning to hear a review and forecast of the commercial market in Utah.

 

Various real estate professionals addressed the audience during the 2010 Utah Commercial Real Estate Symposium ‘Corralling Fundamentals: The Real Estate Drive for Solutions’ held in the Hilton Ballroom. Speakers shared their take on the positives and negatives of the office, retail, industrial, investment and capital markets.

 

 

Much like the rest of the economy, the office market was crippled in 2009, said Wesley Tab Cornelison, first vice president of CB Richard Ellis.

 

“We all know it was a lousy year,” Cornelison said. “It’s ugly out there, but we need to roll up our sleeves and wade through the muck and accurately ascertain the situation we are in.”

 

The Salt Lake County office market had a negative net absorption totaling 682,000 square feet in 2009, according to Cornelison. As unemployment continued to increase, the office vacancy rate climbed to 17.2 percent, up from 13.7 percent in 2008.

 

Nearly 25,000 jobs would need to be created in order for Salt Lake County to reach full vacancy in the office sector, Cornelison said. And to get back to a 9 percent vacancy, 12,500 office jobs would need to be created. During 2010, vacancy is expected to increase in the first and second quarter.

 

“Job growth is the only thing that can help the commercial office space market,” Cornelison said.

 

Cornelison expressed concern about the shadow space in Utah’s office market. This relatively new term refers to vacant space that is not for sublease but could be sublet and unoccupied desks within a building.

 

Due to low demand and scarce financing, construction in the office market slowed to a crawl during 2009, Cornelison said. Less than 600,000 square feet of newly constructed office space was introduced to the market during the year. The majority of which was in the 222 S. Main Street building.

 

With more than 400,000 square feet of rentable space, rental rates increased by more than $1 per square foot, due to the lease rates set at 222 Main. Landlords have been making concessions such as free rent and moving incentives in order to occupy vacant space, Cornelison said.

 

“The 2009 conclusion is we are all under water,” Cornelison said. “But there is no reason to panic. The surface is right above us and with a little creativity and some hard work, we will get to the surface with plenty of oxygen to spare.”