Utah commercial real estate market poised for rebound

Utah commercial real estate market poised for rebound

By Jasen Lee, Deseret News
Published: Tuesday, Jan. 12, 2010 3:35 p.m. MST

It may sound like a broken record to say 2009 was a tough year in virtually every sector of the Utah real estate market, but the final year of the decade also offered some hope for the start of the next 10-year period.

According to market reports from two of the state's largest business real estate firms, 2009 was both challenging and potentially promising for the year to come.

"Retail, office, industrial — all suffered in 2009," John Taylor, investment specialist with Commerce Real Estate Solutions (formerly Commerce CRG), told the Deseret News. "(Today) some financing is back into the market, (and) our rate of job decline has dramatically slowed."

He said Utah's commercial real estate market fared better than many other markets in the region during the economic slump, which will put the local market in a good position to rebound when the economy begins to recover.

According to the Commerce year-end report, the Salt Lake office market saw direct vacancy rates climb to 15.72 percent in 2009, up from 12.95 percent at the end of 2008. The rise in vacancy was largely attributed to the December completion of the 222 Main Street downtown office tower, which is 20 percent leased but mostly unoccupied and added 420,000 square feet to the Central Business District vacancy rate.

Overall lease rates downtown held steady for the year, the report stated. While 222 Main set a new mark for asking lease rates at $32 to $34 per square foot, rates moved up only slightly from $20.20 at the end of 2008 to a market average asking lease rate of $20.58 at the end of 2009.

The report said effective lease rates, which include concessions such as rent abatement, relocation allowances and above-standard tenant improvement allowances, continued to move lower. If the 222 Main Street project was excluded from the study, overall lease rates would have remained the same year-over-year.

The Commerce report also stated that the office market will continue to favor tenants, with landlords making every effort to attract new tenants and retain current ones by offering more concessions and even rent relief in exchange for longer leases.

Meanwhile, CB Richard Ellis reported that retail vacancy rates in the Salt Lake market rose from 7.4 percent in 2008 to 9.1 percent in 2009. Despite the uptick, Idaho-based WinCo Foods opened two new grocery stores in Salt Lake County and the In-N-Out Burger chain opened three new locations along the Wasatch Front last year.

Industrial vacancy in the Salt Lake market increased slightly in 2009, the Commerce report stated. The industrial market experienced a significant 25 percent decline in lease activity over the past 12 months.

"While the commercial real estate markets have clearly softened, we have reasons to be encouraged by the overall financial strength of Utah," Mark Bouchard, senior managing director of the Salt Lake City office of CB Richard Ellis, said in a statement. "The Utah commercial real estate market is positioned for a positive move forward in 2010."

e-mail: jlee@desnews.com
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