Despite signs of positive market absorption and a dip in vacancy rates, the office development landscape in the Salt Lake City region remains noticeably quiet.
Recently, ambitious luxury office projects planned by three developers in Downtown Salt Lake City have either been abandoned or are currently paused pending a shift in market dynamics.
As noted by a local market leader from the global real estate firm JLL, the absence of construction cranes along the I-15 corridor is telling of the current climate.
JLL’s Q2 office market study, released earlier this month, presents a mixed picture of stabilization in Salt Lake City’s office market. Let’s delve into the relevant numbers and explore the status of local office tower proposals that seem unlikely to move forward.
The latest figures point toward a positive trend in leasing activity.
According to Sam Newberg, Research Director at JLL, overall leasing in the Salt Lake market exceeded 600,000 square feet in Q2, leading to an impressive total absorption of 263,531 square feet through 2025.
A significant portion of this activity consisted of subleases; the most notable were Advanced MD’s 66,500 square feet at SoJo Station South and eBay’s lease of 49,950 square feet at Vista Station 9, both located in Silicon Slopes.
Geographically, Silicon Slopes dominated leasing activity, accounting for 47% of all transactions, while the Greater Central Business District (CBD) contributed 29%.
These developments helped reduce the overall vacancy rate to 18.6%, as reported by JLL.
However, it is important to note that the amount of sublease space is continuing to rise, reaching 3.7 million square feet in Q2.
David Nixon, Senior Managing Director at JLL’s Salt Lake City office, commented on the implications of the high sublease space availability.
“Hopefully we’re bottoming out on sublease space because there is so much out there,” he stated, although he maintained an optimistic outlook by adding, “We’re still bullish on the Salt Lake market.”
Amid a national upswing in sales driven by high-end trophy and Class A spaces, local transactions have also been noteworthy.
For instance, the South Towne Corporate Center I and II were sold for $29.3 million to Fort Street Partners, while the University of Utah acquired 15 Arapeen Drive in Research Park for $16 million.
Alloy Real Estate also noted a sale of Union Woods in Union Park for $15.9 million.
In terms of proposed office projects in the region, it appears several are unlikely to move forward.
Our last update on Downtown office tower proposals occurred in March, when it seemed that the previous development tempo leading up to the COVID pandemic might have potentially shifted the norm of having one new office tower constructed every decade in the area.
One of the most significant projects was McWhinney’s former Red Lion Hotel properties at 101 W. 600 South.
Originally, McWhinney had planned to develop an office building targeting the life sciences sector on a large surface parking lot on the site, but current market conditions have led them to reconsider.
Their plans may be part of the past, as the properties have remained on the market for nearly 18 months.
Another project, the Sundial Tower located at the Courthouse TRAX station at 477 S. Main, faced similar fate.
Despite its unique roofline and strategic location, the Sundial Tower project has been scrapped, according to David Nixon.
JLL was slated to partner with Hines in developing the Sundial, but Hines’s intentions regarding their residential tower at the former Utah Theater site at 150 S Main are now under review.
Hines has previously indicated that the current economic conditions hinder their ability to advance on planned developments at this time.
Interestingly, Hines continues to pursue new ventures in other markets; they recently proposed a major office tower in San Francisco, which, if completed, would become the tallest building on the West Coast despite the local office vacancy rate exceeding 30%.
This raises questions about why Salt Lake City, where demand for top-quality office space remains strong, is seeing such stagnation in development.
Nixon explained the prevailing barriers hindering progress, notably the difficulties in securing financing for new office projects.
He remarked, “Office is hard to pencil,” with Ryan Ritchie of the Ritchie Group echoing those sentiments by emphasizing the impact of high capital costs on development plans.
Currently, achieving a net lease rate of $70 per square foot would be necessary for new developments to be financially viable – a rate that the Salt Lake market has yet to reach.
The highest current rate in Downtown, from the recently completed 95 State office building, sits at only $47 per square foot.
Addressing the overarching economic uncertainty in the country, Nixon reflected the general sentiment shared among investors: There remains a strong demand for premium office spaces.
Nevertheless, factors like elevated interest rates continue to pose significant challenges for new construction initiatives in the Salt Lake area.
As the market grapples with these complexities, the future of office development in Salt Lake City remains unsure, even as some positive indicators emerge.
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