Commercial Real Estate and Office Space Market in Utah
In 2014, and thanks to significant job gains, evidence of a clearly pro-business climate, and the low cost of utilities, Forbes magazine listed Utah as one of the best states for business (1). As a result, the commercial real estate market in Utah has been growing exponentially, as is evident in the facts and figures revealed in this report.
Office Space Market
The office property market in Utah is at its most active in and around Salt Lake City, the state's capital and Utah's largest city. The economy in Salt Lake City relies predominantly on the public sector and on the business and professional services industry, but more importantly, the city has been considered a technology hub for more than a decade. Large tech and digital firms like eBay, Adobe, and Oracle occupy large office premises in Salt Lake City's suburbs. The city's office market also experienced high demand for specialized space from tenants in the medical industry, as the medical and life sciences sectors have been behind the creation of more than 1,000 jobs and more are expected to come (2).
In their most recent office snapshot, researchers at Cushman and Wakefield highlighted how Utah's below-average unemployment rates are helping keep the real estate market moving forward. In 2015, Utah had the country's third lowest unemployment rates and more than 50,000 new jobs were created statewide. Job creation is closely linked to stronger demand for suitable office space, and this has led to a boom in construction activity in Salt Lake City and Utah County North. Demand for office space in especially high in centrally located areas like Lehi, Draper Station, and the CBD, where the majority of new office developments are to be delivered by the end of 2016. Vacancy rates across the city are down to 12 per cent, with the biggest drops in availability being in Central West and the southwestern suburbs. Direct asking rents now average $22.15 / sq ft and have exceeded the $30 mark in the CBD and Central East (3).
Retail and Industrial Space Markets
The retail real estate market in Utah continues to gain momentum thanks to the dynamism of the tourist industry (a major contributor to the local economy) and to the ever-increasing demand for space from grocery tenants (4). This has caused average vacancy rates to drop to 6.3 per cent, the lowest level of the past five years. Direct asking rates are on the rise and average $18.91 / sq ft, although they are expected to rise even further given the local levels of retail sales and consumer spending growth. The entertainment industry is also driving growth in Salt Lake City's retail property market, prompting new retail developments in View 72 and Redwood (5). Other sectors driving growth are the food and services industries, which are responsible for over 43 per cent of all recent transactions in this sub-market (6).
Utah is also considered an important logistics and transportation hub, and as such, demand for industrial space remains strong across the state. A recent market report revealed that construction levels are at an all-time-high and that the majority of transactions involve industrial space within the 50,000 - 100,000 square feet range. The report also highlights the significant growth in direct asking rates that took place in Salt Lake City, increasing by nearly 8 per cent in just one year and reaching record levels of $5.16 / sq ft / year. However, vacancy levels remain stable at 6.7 per cent, although they are expected to drop further as availability becomes limited (7).
Tax Breaks, Business Incentives and Support
The Utah's Governor Office of Economic Development has created a solid incentive program that aims to support the relocation and expansion of local businesses. The various incentives available consist of tax credits and grants, which are mostly available to companies that commit to job creation and to attracting skilled workers (8). Some of the tax credits available to local Utah businesses include the following:
- Research Tax Credits, available to help with the cost of several research activities, including part of the expenses arising from the purchase of machinery or equipment require to conduct research. These tax credits range between 5 and 7.5 per cent of qualified expenses (9)
- Rehabilitation Tax Credits that can amount to 25 per cent of the initial $200,000 invested in the rehabilitation of vacant commercial space located in Enterprise Zones (10)
- Investment Tax Credits that cover up to 15 per cent of the costs of corporate investment in real estate or equipment. This scheme is available to small businesses (11)
- The Rural Fast Track Program provides grants of up to $50,000 to small businesses that help create high-paying jobs in rural areas (12).