1-800 Contacts renewed its 125,000-square-foot lease at its Draper headquarters. The deal ranked among the largest office transactions in a tightening Salt Lake City-Provo market where a CBRE analyst says rents are poised to climb.

The renewal at 261 Data Drive in the Vista Station complex was one of the top three deals of the third quarter, according to Building Salt Lake, which reported on CBRE's Q3 office data and a presentation by Phil Brierley, a CBRE vice president who leads the firm's capital markets team for office and industrial sales in Utah.

Brierley presented the data Tuesday, Oct. 20, at the Urban Land Institute's annual Trends conference at the Hyatt Regency in Salt Lake City.

Prime buildings filling up

The market-wide vacancy rate sits at 21.8 percent. Brierley told the conference crowd that number is misleading.

"The truth is that the Salt Lake office market isn't really about the averages," he said.

More than half of the area's office buildings are at least 90 percent leased, according to Brierley. Most of the empty space sits in roughly 30 percent of buildings. Vacancy in prime buildings near downtown Salt Lake City is just 6.5 percent.

Tenants signed 1.52 million square feet of deals in the third quarter, 29 percent above the five-year quarterly average, CBRE reported.

Class A buildings captured 74 percent of that volume. The other two largest deals were a confidential 218,000-square-foot renewal on the CBD periphery and Pattern's 141,000-square-foot renewal and expansion in Lehi.

No new offices under construction

For the third straight quarter, CBRE counted zero office projects under construction in the market. At the 2020 peak, 16 projects totaling nearly 2.9 million square feet were underway.

The gap between construction costs and rents explains the freeze. CBRE's math shows new office space needs rents of about $60 per square foot, triple net, to pencil out. Top rents are around $35 per square foot, triple net.

Supply is shrinking, too. Utah has lost 4.4 percent of its office stock over the past two years to conversions and owner-users buying buildings, Brierley said. That amounts to about 2.4 million square feet, more than the state built from 2022 through 2026 combined.

In the third quarter alone, the State of Utah bought the 312,234-square-foot former Franklin Covey headquarters, and Intermountain Health bought the 235,000-square-foot Fairbourne Station Tower for a medical campus, according to CBRE's report.

Rents climbing at the top

Average asking rent for Class A space in the central business district hit a record $40.08 per square foot, full-service gross, up 10.9 percent from a year ago. Asking rents at a few top buildings topped $50 per square foot for the first time.

Brierley predicted 2026 will likely be the best year for Class A leasing the market has ever had. He told developers the rents needed to justify new towers are "coming faster than we think."

With no new buildings on the way and existing stock shrinking, CBRE expects tenants will increasingly be limited to renewing in place or taking existing vacant space. 1-800 Contacts, owned by private equity firm KKR through parent company SeekWell, is already doing exactly that at Vista Station.