Office market analysts seem to be getting their footing after the tectonic shift brought by the pandemic and advances in video conferencing technology. Recent trends seem to be turning into normal operating conditions.
Five years on from the COVID shutdowns, workers in the “office-using employment” (OUE) industries routinely attend video- instead of in-person meetings, and working from home has become the norm for enough workers that demand for office space is permanently down.
As we’ve previously noted, Class B and C office space is facing flat rents and cataclysmic levels of vacancy nationally and locally. Only amenity-rich properties are seeing positive absorption and rising lease rates.
A recent report out of the Ivory-Boyer Real Estate Center in the business school at the University of Utah and research from CBRE both emphasize these trends, while pointing to data that indicate that the bottom of the trough, after five years, may have been reached.
Let’s take a look at what seems to be the new normal–and check in with a couple of office projects previously proposed in Downtown Salt Lake City.
There is some good news, say analysts
Last month a report was released by University of Utah’s Dejan Eskic, research director at the Ivory-Boyer Real Estate Center at the David Eccles School of Business, which used a myriad of data sources to estimate work-from-home (WFH) rates for the office-using employers (OUE) locally.
Nationally, ”the share of those who primarily work from home peaked at 17.9% for all workers in 2021, by 2023 the share declined to 13.8%,” and is still declining, Eskic wrote.
Office-using employment, which includes the three sectors of Information, financial activities/insurance, and real estate/rental leasing, is the sector that saw the highest retreat to work-from-home.
The OUE trends seem to be crucial to understanding work from home rates and their impact on future demand for office space.
“Prior to the pandemic, approximately 89% of OUE worked full-time or hybrid primarily in the office,” Eskic said in his report. “By 2021, this share had fallen to 62.4% but rose to 70.1% by 2023. Conversely, the share of [OUE] workers who primarily WFH rose from 11.0% prior to the pandemic to a peak of 37.6% in 2021.”
Eskic also found that WFH rates correlated directly with the length of workers’ commute.
The good news?
Employment in the OUE sector is up in the Salt Lake – Provo market. At the dawn of the COVID pandemic in March 2020 it stood at 279,000. But by mid-2024, OUE was averaging 307,000.
That’s a 9.1% increase over the four years, a 2.8% year-over-year rate of growth.
But inventory is also up
According to Ivory-Boyer figures, inventory is also up. The Salt Lake-Provo market offered 47.9 million square feet in pre-pandemic in 2019, which grew to 56.4 million square feet by 2024.
That 8.5 million square feet added in those five years equals 8.5% growth, roughly equal to the growth rate in OUE (9.1%).
How long will it take to absorb that inventory? It depends on the class of space listed – and where it’s located.
Prime space in mixed-use urban settings continues to attract investors
Julie Whelan, the keynote speaker at Ivory-Boyer Real Estate Center’s February event, traveled in from Boston to share her insights on the future of office.
CBRE’s global head of “Occupier Thought Leadership” in the office and industrial markets, Whelan restated the “flight to quality” trend, emphasizing, in Eskic’s words, “Prime space is outperforming on every metric – primarily in vibrant mixed-use district locations – with vacancy anticipated to fall to 8.2% by YE 2027.”
Whelan’s presentation broke out specific amenities that are most important to companies looking for prime space, as well as predicting a continuing bull market for rents in amenity-rich spaces.
The ascendancy of the prime office space market is linked to “emerging or mixed-use neighborhoods,” if Whelan’s measures of “thought leadership” in the industry are any indication. Employees want amenities and a dynamic location – giving boost to the future of the office market in and near downtowns.
SLC projects all on hold
We asked Eskic what this might mean for new office development in Downtown Salt Lake.
After noting Goldman Sachs’ recent reshuffling of employees to Salt Lake City and Dallas out of its global HQs in New York and London, Eskic told us, “I’m not convinced that the demand is strong enough to incentivize new development just because vacancy is still relatively high.”
When asked if this might be a right-sizing of the office market, Eskic said he thinks that term “is fine, especially when we look at the trend square feet per employee.” His report found that “In 2018, there were 153 sq. ft. per OUE. By 2024, the figure decreased to 140 sq. ft. as the number of OUE increased while vacancy rose.”
And then there’s the national economic conditions to consider.
“Additionally, the looming economic uncertainty also puts new development at risk,” he added.
To be sure, the economic chaos unleashed by the Trump Administration is threatening a recession that will not spare the development industry. Construction costs are rising with increased tariffs, and borrowing costs are showing few short-term signs of decreasing.
We asked the developers of proposed office projects in Downtown Salt Lake City for updates, and we received replies replete with hesitation.
Sundial Tower, 456 S. Main
22-story, 386,000-square-foot office tower by Hines and JLL.
In our last update, we reported that developer “Hines declined to provide much of an update on the Sundial Tower, though it pointed out that the commercial brokerage JLL was actively pre-leasing space within the project, a move that would help to determine market feasibility for the project.”
“We are currently active in the pre-leasing process and have had interest thus far,” Hines said in the statement. “That’s all we can provide at the moment.”
Last week, JLL’s point person on the project, Jillian Johnson, told us that “No pre-leasing has been done.”
West Quarter Phase 2
The West Quarter’s Phase Two included initial plans with a 16-story, 408,000 SF office building
Developer Ryan Ritchie spearheaded the redevelopment of the block to the southeast of the Delta center and directly south of Smith Entertainment Group’s imminent entertainment district and a reconstructed convention center.
“We’d love to incorporate some office into our next phase, but how much and when are TBD,” Ritchie said.
Indeed, it seems as though the West Quarter’s future will react to the path cut by the redesign of the Salt Palace convention center and SEG’s mixed-use development, which has a sizable public subsidy from city sales taxes to work with.
“We haven’t locked into our next phase and won’t until we have a clearer picture of what’s going to happen with the convention center and SEG’s entertainment district,” Ritchie said.
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