Summer Symposium: The Office Market
Wed, 08/19/2009 - 16:12
Nearly 24,000 square feet are available at the Gregory Swapp Corporate Center in Sandy. There is 29,401,711 net rentable square feet of office space in Salt Lake County, according to CBRE. Photo courtesy CBRE.
By Ken Holman
Overland Group Inc, President
Editor's note: This article is the first in a five part series highlighting the five markets discussed at the 2009 Summer Symposium: Mid-Year Real Estate Economic Update. Watch for the next four articles on the industrial market, the retail market, the multi-family housing market and the single-family residential market.
Vacancy rates have increased. Demand has slowed. Sales are down. And retail construction has halted, according to experts in the real estate industry.
The situation is dire, but economists, brokers and consultants at the 2009 Summer Symposium, hosted by the Utah Association of Appraisers and The Counselors of Real Estate, say there is a light at the end of the tunnel.
“Maybe we have stopped falling in some of those areas that were continuing decline, maybe the Utah job scene is as close to being as bad as at it gets,” said Kelly Matthews, executive vice president and economist for Wells Fargo & Company. “I believe that in Utah as well as the nation, that the housing situation, as it would relate to starts on the construction side and sales, that we may have stopped falling. … In fact if someone believes they have a stable job right now and need a home, this might be a historically good opportunity to buy a house in Utah.”
Providing a mid-year real estate economic update, featured speakers at the “Bottoms up?” symposium discussed market conditions for single family residential, multi-family residential, office, industrial and retail, mainly in Salt Lake and Utah counties.
The Office Market
The Salt Lake County office market, comprised of more than 29.4 million square feet of office space, has softened considerably, according to a report from CB Richard Ellis. Asking lease rates continue to slip. Landlords now and in the near future will be offering concessions such as free rent, tenant improvement allowances and shorter lease terms.
The office market in Salt Lake County is feeling less pain than many other markets, said Scott Wilmarth, senior vice president of CBRE in Salt Lake City.
"As the storm clouds were brewing over the rest of the country, Salt Lake City was actually feeling pretty good. And I think in comparison to some of the other markets we compete with, we still feel really good,” said Wilmarth. “In comparison we are still awfully, awfully good."
Salt Lake City is forecasted to be in the top 10 markets for job creations between 2010 and 2015, according to CBRE. Government spending is helping to stabilize the office market with the U.S. Census signing a 12-month lease for more than 120,000 square feet.
The vacancy rate remains unchanged at 14.2 percent, even though year-to-date negative absorption wiped out nearly 40 percent of the gains made during 2008, according to CBRE.
"We are not overbuilt as much as we are under-demanded," Wilmarth said. “We have very little new construction currently.”
There is 29,401,711 net rentable square feet of office space in the Salt Lake County market; 21 percent of which is in the Salt Lake City central business district. Vacancy in the central business district stands at 12.9 percent, slightly below the overall market vacancy of 14.2 percent. Both the Cottonwood area and Research Park are supporting the highest lease rates at $25.61 and $25.10, respectively. Although the Sandy-South Towne area has relatively high lease rates at $22.30, the area is suffering from a vacancy rate of 20.1 percent. The Central Valley is also experiencing high vacancy rates of less than 20 percent.
The Utah County office market, comprised of nearly 7.7 million square feet, increased in vacancy in the northern submarket of the county, but held steady in the Central and Southern submarket, according to CBRE. The overall vacancy now stands at 14 percent, up from 10 percent.
Newly completed construction in the Northern submarket increased nearly 40 percent since the end of the second quarter of 2008 and drove vacancy in that submarket up to 19.5 percent. Wilmarth said most of that growth occurred in Class A properties, which increased average asking rates by 90 cents per square foot.
APX Alarms and Zion’s Bank have taken advantage of lower construction costs. These buildings, scheduled for completion in the spring of 2010, will produce more than 200,000 square feet of additional Class A office space. Average lease rates stand at $19.46 per square feet, with the highest rates at $21.82 per square feet in the Northern submarket, according to CBRE.
“We anticipate that 2010 … is still going to be a challenging year for office building owners. We see that moderated in 2011, and actual rent growth coming back in 2012,” Wilmarth said. “Until we start to see some of our office users, some of those corporations that are really the lifeblood of what we do, start to hire, look for opportunity for new growth, start to position there resources for the future, the office market can be characterized as … déjà vu all over again.”
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