The commercial real-estate market in the Salt Lake Valley has experienced some of the effects of the state's economic slowdown, but not nearly to the same degree as the residential market, according to a report released by real-estate firm Commerce CRG.
In the first quarter 2008, vacancy rates in the Salt Lake Valley office sector ticked up slightly from 10.80 percent at year-end 2007 to 11.40 percent. The report cited Intel's downsizing in the suburbs as the primary reason.
The overall vacancy increase resulted in an average hike of 3.3 percent in lease rates during the first quarter of 2008, the report said.
Mike Richmond, an office real-estate specialist for Commerce CRG, said the local economic climate may be challenging right now, but not to the degree experienced by other Western metro areas.
"We're still at a healthy level," he said.
Absorption of office space decreased by 50 percent in the first quarter of 2008, compared with the same time last year, Richmond said. That decline was attributed to a decrease in new job growth that began in the second half of 2007.
Most absorption of office space took place in downtown Salt Lake City that area's periphery, he said.
Two new buildings with a total of 90,500 square feet came online in the first quarter of 2008, the reported noted, to go along with 11 other buildings currently under construction and scheduled for occupancy by year's end.
"We've got a million square feet under construction, and that's healthy," Richmond said.
On the industrial side, distribution activity — which includes shipping and storing products — is on the rise. The report showed strong industrial activity for the first quarter of 2008.
Sales and leasing activity for industrial space declined 7 percent in the first quarter of 2008, compared with the same period in 2007, while leasing activity increased an estimated 30 percent from the fourth quarter 2007 to the first quarter of this year.
Vacancy rates decreased slightly from 6.42 percent in the first quarter of 2007 to 6.11 percent during the first quarter of 2008.
Anyone looking for small industrial space — less than 20,000 square feet — must contend with vacancy rates below 4 percent, said Randy Atkins, industrial sales agent for Commerce CRG.
"There is historically high levels of construction in the large industrial category — over 100,000 square feet," he said. "The demand for the bigger buildings is stronger, and the developers that are active in the market are aiming at the large distribution centers."
The lack of affordable land makes it challenging for companies to build their own facilities, the report said.
Atkins said companies instead now face leasing or "build-to-suit" agreements with developers, which limits the choices companies have to buy. He said there is very little new space in the construction pipeline for manufacturers wanting to expand.
The overall amount of available industrial space decreased dramatically from first quarter 2007, due to high sales activity.
"We're absorbing more space then we're building, so space that becomes vacant will quickly become occupied by new tenants who will take advantage of lower rents for that existing often smaller space," he said.
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