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Hamilton Partners and Wasatch Property Management announced a joint venture agreement Friday that will add 450,000 square feet of Class A office space to Salt Lake City's starved market.
Construction of the 21-story office tower at 222 S. Main St. begins this fall, with completion planned for the first quarter of 2008, the companies said. They project the cost to exceed $100 million. The site is occupied by temporary storefronts that Hamilton built prior to the 2002 Olympic Games so that the space would not appear vacant for worldwide TV cameras.
Hamilton Partners, based in the Chicago area, has scheduled construction of the skyscraper before, first in 2000 and then in 2004. Poor economic conditions and a lack of tenants repeatedly put the project on hold. Logan-based Wasatch Property Management, whose portfolio includes the Wells Fargo Center and Ken Garff Building, offered to buy the property six months ago but Hamilton Partners forged a joint venture agreement instead.
Now, both companies say the timing is perfect for a new office building in Salt Lake City.
"We couldn't ask for a better market," said Frank Matheson, president of Wasatch Real Estate Partners, a Wasatch Property Management division that will handle leases in the new building. "A million square feet of downtown office space came out of use in the last two years" because of changes in LDS Church-owned properties.
The vacancy rate for downtown Class A office space, considered the city's most prime, dropped to 4.3 percent at the end of 2005, according to Commerce CRG. That's compared with up to 20 percent two years ago, when Hamilton Partners resurrected plans to build the office tower.
"We're at an all-time low. There are 116,000 square feet of vacant Class-A space downtown," said Mike Richmond, an office leasing specialist at Commerce CRG. "That's an unhealthy number."
Remaining Class-A space is typically the least desired, second- or third-floor offices with poor views, Richmond said. He expects lease rates will rise and the vacancy rate will drop to 1 percent to 2 percent in the next six months.
"There is virtually zero square feet available because all the nice space has been occupied. Now we have to wait 18 months for [the new office tower] and its going to be an uncomfortable time," Richmond said. "It would be nice if [construction] had started nine months ago."
One of Richmond's clients, a law firm in need of 50,000 square feet, is considering leasing space in the 222 S. Main St. building.
No lease agreements have been signed for the tower, but about 200,000 square feet is being looked at by potential tenants, said Bruce Bingham, a partner at Hamilton Partners.
Current storefront tenants Big City Soup, Curry in a Hurry, Junior's Tacos, Chilean Deli and ATG Wireless, will be given 90 days notice to move before construction begins, Bingham said.
Big City Soup is considering leasing space on the new building's first floor, which will be dedicated to retail, Bingham said.
The building is being designed by the San Francisco office of Skidmore, Owings and Merrill. Wasatch Development Associates, another Wasatch Property division, will oversee construction and has hired general contractor Okland Construction.