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Office employment growth in Salt Lake City has averaged 2.2% annually in the past five years and has buttressed tenant demand. However, supply pressure, work-from-home trends, and tenant turnover and downsizing have kept the vacancy rate elevated. Salt Lake City's office market had -890,000 of absorption in the past 12 months and vacancies are still hovering around 11.1% and above the 10-year average of 7.9%. Although the construction pipeline has begun to ease with 100,000 square feet delivering in the past 12 months, about 2.2 million square feet has completed in the past three years. About 400,000 SF of office space is underway and, once completed, would expand the existing inventory by 0.5%. Rents have been impacted by tempered demand and higher vacancies but continue to rise modestly. Office rent growth is positive at 3.5% annually. Investment activity remains muted, and the state's non-disclosure status can cloud the investment picture. Like broader capital markets, the sharp rise in borrowing costs has impacted both prices and cap rates.
As 24Q3 draws to a close, Salt Lake City's retail market conditions remain historically tight. Consistent household growth, above-average income gains, and a steady labor market underpin consumer and tenant demand. With minimal supply pressure and few store closures, the availability rate is at an all-time low while rent gains soar to a record high. In 24Q3, Salt Lake City was the top rent growth market in the U.S. with annual gains near 9%. The average asking rent has soared nearly 40% in the past five years, ranking the market among the top 10 nationally. Aggressive rent increases have not meaningfully deterred retail tenants from inking deals, as many businesses have thrived thanks to the metro's dynamic and growing economy. A potential slowdown in economic growth nationally may dampen local demand for space, but a historically low availability rate creates a buffer around fundamentals. Salt Lake City's long term demand drivers should remain intact and are likely to keep market conditions stable, barring a surge in construction or deep recession.
The Salt Lake City vacancy rate has gradually risen from an all-time low of 2.5% in 2022 to 6.5% today. Roughly 6.5 million square feet delivered in the past 12 months, compared to the five-year average of 7.3 million. The pace of new construction has outpaced demand, as measured by the 4.3 million square feet of net absorption in the past 12 months, underperforming the five-year average of 5.7 million. The glut of supply coupled with weaker demand has made upward pressure a consistent theme in recent quarters. This theme will likely continue with 2.1 million square feet under construction. Construction activity remains elevated and is heavily concentrated in the logistics segment. Rent growth is decelerating in industrial assets as vacancies climb. The average rent in the metropolitan area has increased by 3.9% year-over-year compared to 9.8% at the same time last year. Investors have been more active in the industrial market relative to other commercial real estate sectors in Salt Lake City. However, higher borrowing costs have slowed investment volume compared to previous years.