Salt Lake City–Overall, the Salt Lake City apartment market is holding steady, but half of all apartments that are slated for delivery this year are expected to come online in the last quarter of the year, according to Marcus & Millichap’s most recent report on the market.
“Historically, we’ve seen between 300 and 600 units [delivered every year] over the past five years. This year we had 3,000 units come on market,” reports Daniel Shin, senior associate, National Multi Housing Group in the Salt Lake City office of Marcus & Millichap Real Estate Investment Services. “With that amount of development, you’ll see vacancies creep back into the market.”
The majority of this product is located in the southwest area of Salt Lake County, with some located north.
“The newer projects that are being built are closer to true Class A properties,” Shin tells MHN. “Class A for Utah [traditionally] would be [closer to] Class B for major cities, like New York or in Calif., but these newer products are closer to a true Class A apartment complex, which has much higher rents than we have historically seen in those areas. It’ll be interesting to see how these units are absorbed into the market.”
Top-tier vacancy is expected to increase to twice the historical average as a result of the deliveries, according to the Marcus & Millichap report, with concessions increasing to 40 days of free rent. Overall vacancy—7 percent—however, is still expected to be 20 bps lower than this time last year. (Northwest Salt Lake had the lowest vacancy rate, at 4 percent, while West Jordan had the highest, at 10.1 percent.)
Asking rents, meanwhile, fell 1.1 percent metro-wide, while effective rents increased 0.1 percent, according to the report.
The transaction market has not seen much activity, but Shin expects it to pick up within the next three to four months. Eight months ago, he reports, deals were selling at 8 caps, but now, due to lower interest rates, the market is seeing cap rates for Class A properties in the mid-6s; B assets are trading between 7 and 7.5, and Class C properties are achieving 7.5 to 8 percent cap rates.
“There hasn’t been too many REO or short sale properties, so that’s kept the market strong,” reports Michael Beckstead, associate in Marcus & Millichap’s Salt Lake City office. “Someone can come in, buy a good performing property and not have to worry about trying to turn it around. In another market, you might be able to buy a property for pennies on the dollar, but that doesn’t guarantee you can turn it around and make it successful. If you buy a property that’s already doing well in this market, it’s only going to improve as the economy and the local market improve.”
For the near future, the market has seen a lot of business growth. A recent Newsweek article even called Utah an “economic Zion,” pointing to Adobe’s acquisition of Orem, Utah-based Omniture for $1.8 billion and its announcement that it plans to create a 1,000-person campus, as well as the expansion of eBay, Twitter and Oracle into the Greater Salt Lake City area.
And, for the real estate market, Shin notes, “highs aren’t that high, and lows aren’t that low,” seemingly making the city a sound place for multifamily investment dollars.