The U.S. office market remains on solid ground, but growth is subsiding in most markets as we reach the late stage of an extended cycle. Major markets such as Boston,...
A Strong Local Economy
Utah’s economy has consistently ranked as one of the healthiest and fastest growing in the U.S. The Utah Department of Workforce Services estimates that unemployment in the state hovered around 2.8% for the first two quarters of 2019, almost a full percentage point below the national average. Positive economic performance in Salt Lake City has become a constant, putting Utah on the national radar. Forbes ranked Utah number one in their Best States for Business in six out of the last nine years and number two in 2018. CNBC ranked Utah among America’s Top States for Business multiple times over the last five years. Inc. ranked Utah the Second-Best Place in America to Start a Business in 2018. Job growth has been consistently steady for the better part of a decade. The U.S. Bureau of Labor ranked Utah among states with the most job creation between February 2018 and February 2019. At a growth rate of 4%, Utah ranked second in the nation overall — adding 50,900 jobs to the state during a 12-month period. Businesses operating within Utah’s burgeoning aerospace, technology, life sciences and healthcare industries are experiencing rapid growth. Top global companies like Boeing, Adobe and Merit Medical have significantly invested in Utah’s favorable business climate and talent-rich labor pool through major corporate expansions. Additionally, leading financial and business services-oriented companies such as Goldman Sachs and American Express also have found Utah the ideal environment for corporate expansions.Current Office Market Context
As of Q2 2019, Utah had a metro office vacancy rate of 9.2%, while the national average was 11.5%. Downtown Class A vacancy rates totaled 8.6% in comparison to the U.S. national average of 10%. As out-of-state businesses look to Utah as a viable option for relocation or expansion, Salt Lake City is seeing an increased tech presence, especially in the downtown market where there’s a walkable and vibrant entertainment community centered around business. However, it is not just the Salt Lake City central business district (CBD) that is outperforming. Utah’s suburban vacancy rate is nearly half the current national average — totaling 6.7%, as compared to the national average of 12.1%. Available Class A office space is in limited supply within the Salt Lake City market, so many tenants have resorted to pre-leasing new projects — whose asking rates attract a premium at $33.65 full service, per square foot.
Major Expansion
Since 2014, Utah has seen approximately 17.2 million square feet of newly constructed office space enter the market across its core business district — the Wasatch Front. This region of the metro is posting record numbers — there is currently 4.1 million square feet of office space under construction within this area alone. This equates to 7.8% of existing office inventory, far ahead of the national average of 2.3%. Not only has new construction surged within the Wasatch Front, but vacancy rates are relatively low and stable — hovering around 8% overall. These rates have remained low because the vast majority of new Class A office space is pre-leased before completion. With new office product entering the market at record rates, pre-leasing activity will remain a critical metric to watch moving into the second half of 2019 to determine how economic momentum will continue through 2020.