It’s hard to miss the numerous accolades highlighting Utah and Salt Lake City. From Utah being named “The Best State for Business” by Forbes to Salt Lake City being ranked “No. 10 of Best Cities to Live” by U.S. News & World Report, our wonderful community can’t help but be in the spotlight.
This excitement and growth is visually evident as you stroll or drive downtown Salt Lake City. It’s easy to spot new commercial construction and development. What may not be so evident, but incredibly telling and important is the repositioning of older (historic) office buildings through renovations, restorations and rebranding.
Modernization, tech integration, lifestyle, and tenant culture. Predominately, tenants continue to move away from traditional office space to more open environments to foster collaboration, interaction and integration of a healthy work-life balance. It’s safe to say many older (historic) Salt Lake City office buildings house traditional space, which is slowly changing.
Constructed in 1912, Walker Center is arguably the most iconic historic building in downtown Salt Lake City. Sitting atop this 16-story building towers an eye-catching, weather-forecasting, lighted beacon.
About a decade ago, Walker Center underwent a full renovation taking the class C building to class B*. Today, building ownership is yet again underway with renovations to seamlessly blend the unique historic beauty with contemporary design. This, coupled with being in the heart of downtown, varying degrees of accessibility, and options to eat, live, work play all come together supporting the awesomeness of downtown Salt Lake City.
What are the market impacts?
Demand for unique, transformed space is strong, spurring building repositioning and resetting lease rates. Repositioned class B (previously class C) buildings are seeing the floor of lease rates rise, which is a direct impact of owners investing in quality rebrands and renovations. Interestingly, but not correlated is the ceiling of class A rates has been pushed higher and can be attributed to 111 South Main, Salt Lake City’s newest office tower. Two years ago, the top floor prelease rate for 111 South Main was about $36 psf (per square foot). Today, the upper floors of the mid-level are around $39 psf, a significant jump. This has set the tone, commanding all downtown class A rates to fall in-line and increase to meet demand.
Currently in the throes, Walker Center’s repositioning is commanding lease rates around $24 psf. Similarly, 77 West (formerly American Plaza) is undergoing a reposition. Once complete, rates are expected to go from $17 psf to $22 psf and go from 90 percent vacant to 80 percent full.
Owners recognize that quality investments attract tenants and their workforce by providing functional, inviting and collaborative space. Tenants are willing to pay higher rates for workspace employees are proud to work in and reflects their lifestyle. It’s a great coupling that strengthens and grows our economy.
Who did it right?
As noted, a handful of owners have or are currently repositioning buildings. Some have done an amazing job walking a fine line taking the building’s uniqueness and incorporating a contemporary look to create a new space and experience. On the other hand, some were close, but didn’t put in the investment. Unfortunately, leaving space that is somewhat an afterthought.
One repositioning that stands out by hitting the mark and more is the Clift Building on 300 South. The owners went with a plan that took the historic building attributes and paired them with a modern look and incorporated tech to create an amazing space with great atmosphere. The once class C building with $14 psf lease rates moved to class B, asking $24 psf in the span of approximately 36 months. Quite incredible.
Next time you walk or drive the city, take time to recognize the beauty of the older, unique buildings. Realize although not ground-up, new construction, they are most definitely changing and influencing the market.
*Note: Historic buildings cannot become class A buildings due to the structure age, floorplate size and lease-rate structure.
By Chris Kirk, Managing Director, CBC Advisors