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Office employment has averaged 2.5% annual growth in the past five years, however, supply pressure, work-from-home trends, and tenant rightsizing have played a role in elevated vacancies. Salt Lake City's office market did have -94,000 of positive absorption in the past 12 months, but vacancies are still hovering around 9.9% and above the 10-year average of 7.4%. Office leasing volume has remained fairly consistent since the COVID lows, however, deliveries will likely continue to put upward pressure on the vacancy rate in the near term unless leasing surprises to the upside. About 420,000 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 slightly. Office rent growth is positive at 1.6% annually. Investment activity remains muted and the state's non-disclosure status can cloud the investment picture. Prices and cap rates are likely to be negatively impacted by higher interest rates in the near term.
Although growth has decelerated, Salt Lake City's expanding economy has buoyed retail fundamentals. New construction has been limited in the past five years while demand remains consistent, compressing vacancies to 2.8% and near historical lows. Total employment has grown by 28.4% in the past 10 years while the median household income has increased by 45.8%. The strong consumer base is also supported by the fast-growing Lehi and Provo areas, located just south of the Salt Lake City metro area. Retail rents in the Salt Lake City market were rising at a 8.2% annual rate during the third quarter of 2023, and have posted an average annual gain of 7.0% over the past three years. In addition to 670,000 SF that has delivered over the past three years (a cumulative inventory expansion of 0.9%), there is 200,000 SF currently underway.
The Salt Lake City industrial market has started to cool off after a blistering pace during the pandemic. Absorption in 23Q1 was Salt Lake City's weakest figure since the second quarter of 2020, when mandated shutdowns created a standstill in the market. Slowdowns at West Coast ports are also likely leading to less demand from industrial tenants. Construction activity remains elevated, with the bulk of new space underway for logistics-oriented warehouse and distribution properties. This supply pressure coupled with weaker demand has pushed up the vacancy rate to 4.8%. Typically, more than 50% of under construction space is preleased prior to delivery, but that number has dwindled to around 25% recently. Vacancies are likely to continue their rise with the glut of construction in the pipeline and softer preleasing trends. Rent growth in industrial assets increased by 14.3% year-over-year compared to 14.9% at the same time last year. Approximately $336 million in observable trades have occurred in the past 12 months.