Office vacancies in the county declined sharply in 2005 and stand at a respectable 10.8 percent, according to a new report by the commercial real estate brokerage firm Commerce CRG.

"We've seen a steady decline in office vacancy rates since 2002, and it looks like we are approaching the end of the downward cycle in vacancies," said Bill Martin, a principal at Commerce CRG. "The market for office space is extremely healthy right now."

There are seven office buildings under construction that within the year are expected to add an additional 720,000 square feet of space to the Salt Lake County real estate market. And six more buildings representing another 1.2 million square feet of office space are expected to be under construction by the end of 2006.

Although these new projects might drive up the vacancy rate slightly in 2006, many business tenants buoyed by a booming Utah economy still are considering moving up to newer buildings and better classes of properties, Martin said.

Office space absorption last year in Salt Lake - 1.45 million square feet - matched a record set in 2000 and exceeded the past three years combined, according to Commerce CRG's report.

Demand also is strong for industrial space that can be used for light manufacturing and warehousing.

The vacancy rate for industrial properties is 7.2 percent, and continued demand could push that rate down into the 6 percent range by mid-2006, Commerce CRG projected.

For the first time since 2002, Salt Lake County is seeing construction in the industrial market as developers speculate that they will have little trouble finding tenants for the buildings under way, said Mike Farmer, who specializes in industrial properties at Commerce CRG.

"Building on spec is back. And those companies that have buildings under construction are not about to spend $15 million to $20 million on a property just to let it sit there."

The availability of both office and industrial properties is critical in attracting out-of-state companies to expand into Utah, said Mike Sullivan, spokesman for the Governor's Office of Economic Development. "It is one of the first things companies ask about."

Land sales for industrial buildings also have picked up recently with several big projects attracting attention, including the new Costco distribution center in Salt Lake City and the KraftMaid cabinet plant in West Jordan.

At the same time, many Utah business owners recognized it was time for them to move into larger spaces to make expansion easier.

"A lot of the expansions we saw in 2005 came from the small-business sector," Farmer said. "There were 200-plus lease transactions under 20,000 square feet and probably another 40 to 50 property purchases in the same size range."

steve@sltrib.com