Although the general purpose, multi-tenant office market has enjoyed a relatively favorable demand profile in the recent term, ongoing supply additions have prevailed against the emergence of a downward trend in the vacancy rate, which has remained fixed within the narrow range of 17.5% to 17.8% for virtually all of the past two and a half years. Along these lines, the delivery of 379,000 square feet of new space during the first half of 2012, in three projects, was accompanied by net absorption at 279,000—a shortfall of 100,000 square feet for demand. The year-to-date deliveries through the second quarter were led by the new, 170,000-square-foot headquarters building for Questar at 333 S. State Street in downtown Salt Lake City, which completed in March. Questar’s occupancy of its new headquarters, however, entails the evacuation of more than 200,000 square feet in a nearby building. Also completing year-to-date were a 109,000-square-foot building leased to the IRS in Ogden, which delivered in May, and The Boyer Company’s 100,000-square-foot Six Gateway at 450 West and 50 North, Salt Lake City, which also completed in May. In the second half of the year, the FBI will vacate space in favor of a new build-to-suit, reports Marcus & Millichap.
All told, Reis’ October 1 report on individual construction projects calls for the completion of 523,400 square feet in five developments this year. The last to deliver, scheduled for a December finish, will be the 110,000-square-foot second phase of The Pointe in Draper. Including that project, Reis reports 834,000 square feet under way, 234,000 of which is in two projects with 2013 completion dates. The larger, due online in April, is the 200,000-square-foot office component of CenterCal Properties’ Village at Station Park, part of the Station Park mixed-use transit-oriented development (TOD) in Farmington. The most recent start, in the same TOD, was the September 2012 groundbreaking for the 60,000-square-foot first phase of the Corporate Center at Station Park.
Second-quarter vacancy was 17.8%, up 20 basis points from one and two quarters prior as a result of the new supply deliveries. During the July–August period, 24,000 square feet of positive net absorption followed alongside no newly delivered supply. Rent growth, minimally positive overall in 2011, has accelerated slightly. At $18.28 psf and $14.26 psf, second-quarter asking and effective averages were up and down 0.1% for the period and were up 0.7% and 0.6% year-to-date. Second quarter’s slow pace carried over into July and August: both the asking and effective averages were down 0.1% over that two-month span.
A rough equivalence of demand and new supply totals in 2012 all told will result in additional flatness in the vacancy curve for the year. Gains in the neighborhood of 1.5% are expected for both average rents. With demand strengthening in 2013, vacancy rates below 17.0% should be seen for the first time since 2009. Higher rates of rent growth also are expected.