Utah's business-friendly climate has earned the state a mention as Best State for Business for 8 years. This is one of the fastest-growing states in America, and its ongoing population gains translate into a wider consumer market and more opportunities for local entrepreneurs.
The area known as Silicon Slopes is the state's largest tech hub, a community of more than 6,500 businesses that have helped put Utah at the forefront of the nation's startup activity. This location has been attracting large corporations with tax incentives and a low cost of business approach, and its expansion has also benefited the local commercial real estate market.
In Utah's prosperous and diverse economy, growth is driven by the following key economic sectors:
- Aerospace, since this is the 4th most attractive state for aerospace manufacturing.
- Manufacturing, Utah's fifth largest industry in terms of economic impact and use of industrial space.
- Software development, particularly regarding specialized tech products and services for healthcare, real estate, and finance.
- Financial services, since this is one of the top 10 best states for banking assets.
- Life sciences, which generates approximately 2.5% of the state’s total GDP.
- Energy, clean energy and smart grid.
In total, Utah is home to more than 310,000 businesses, among which are a number of unicorns and five Fortune 500 corporations.
Office Market in Utah
Office Space in Salt Lake City
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 urban center. 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.
This is a mid sized market with a total inventory of approximately 75 million square feet, 16 million of which are in the CBD, a further 16 million in metro counties, and 42 million in 14 suburban sub-markets. Class A space amounts to approximately 41 million square feet, most of which are in suburban locations.
Five-year trends point at absorption levels below annual deliveries, which has led to an increase in overall vacancy rates from 10% in 2018 to nearly 18% in 2022. However, vacancies have been growing at a slower pace since late 2022, after the dramatic increases of the previous three years.
Other trends worth noting include:
- Record amounts of sublease space coming into the market, mainly due to mass downsizing among tech, finance, and call center occupiers and to the impact of remote work models.
- Low pre-lease rates of 14%.
- Stable concessions, although this may change once new space requirements become more accurate and occupiers reassess their commercial real estate strategy.
- New leases getting shorter and square footage requirements smaller, but tenants are demanding a better and wider range of amenities.
- The majority of recent activity has been driven by inquiries from professional business services, engineering, and law companies.
There has been a steady increase in asking rates since 2018, reaching averages of $26 / psf for all asset classes. The highest asking rates are in the CBD, Summit County and south West Valley City. Class A offices are edging close to averages of $40 / psf in downtown Salt Lake City.
Retail and Industrial Market in Utah
Retail Space in Salt Lake City
The state's capital has experienced important employment gains in leisure and hospitality, which have had positive implications for the retail real estate market. In mid 2022, vacancy rates reached record lows after dropping below 3%, a significant decline from 2019 levels, which were above 7%.
Also reflecting the healthy state of this market are overall asking rents, which have been increasing quarter after quarter, to current averages of $23 / psf (NNN) and higher, exceeding $30 / psf in West Utah County.
Industrial Space in Salt Lake City
Utah is considered an important logistics and transportation hub, and as such, demand for industrial space remains strong across the state. Since 2019, this market has experienced significant gains due to the growth of e-commerce, which has prompted a number of industrial tenants to set up operations in Utah or to expand their existing facilities.
Total inventory is approximately 150 million square feet, of which more than 100 million are warehouse and distribution space. This is also the most in-demand industrial asset, as reflected in the performance of key indicators, such as declining vacancy rates, which are below 4% for warehouse and distribution premises.
The most active market is North West Salt Lake City, which is also where most future construction is clustered.
At 3%, average vacancy rates have halved in the last five years, dropping to around 1% in central and northern districts.
Asking rents were mostly stable until 2022, when noticeable increases put them at averages of $0.72 / psf.
In the medium to long term, Utah's industrial market is expected to continue improving its appeal and the variety of its real estate offer.
Tax Breaks, Business Incentives and Support
The Utah's Governor Office of Economic Opportunity has created a solid incentive program that aims to support the relocation and expansion of local businesses. Some programs worth noting include:
- New Destination Development Funding, available to eligible businesses in the tourism sector.
- Rural Employment Development Incentive, a grant to support the creation of high-paying jobs in rural areas.
- Utah Technology Innovation Funding, which offers microgrants to small businesses who need R&D funds to develop innovative tech products.
- Enterprise Zone tax credits, available to businesses situated in designated areas who meet wage requirements.
- Industrial Assistance Fund, targeting urban and rural businesses who meet wage requirements, and also applicable to corporate headquarters projects.
There are also tax credits for life sciences and technology firms, and for businesses establishing operations in an opportunity zone or economically distressed areas.
A list of programs is available from the Governor's Office of Economic Opportunity website.