July 7, 2014

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Article

Competition for Renters and Listings Heating Up in Salt Lake

Press Release

July 7, 2014

A new report from Marcus & Millichap finds that demand for apartment housing is increasing along the Wasatch Front, spurring new developments. As housing demand intensifies, developers are pushing new apartment construction to­ward pre-recession levels.

With multifamily permitting nearly doubling in the past year, builders are showing few signs of slowing down. In addition, single-family home construction and loosening standards for mortgage underwriting are creating attractive home-owning alternatives for tenants. The increased competition for renters will push vacancy above 5 percent in 2014, for the first time since mid-2011, yet vacancy will remain well below the recessionary high.

Effective rent growth is beginning to slow as concessions become more prevalent.

The improving economy along the Wasatch Front has lured the attention of West Coast investors who are seeking higher yields. Sellers who purchased and rehabilitated distressed assets during the recession are bringing properties to market and taking advantage of high buyer demand, which is lifting transaction velocity. However, buyers still outweigh sellers in a market where local owners traditionally hold properties for long periods of time, keeping listings low. As a result of limited listings and strong buyer demand, properties spend little time on the market and receive multiple competitive offers.

The increased competition is moving some local investors north and south of the urban core into Ogden and Provo. Institutions remain active in the market on both the buyer and seller side with Class A assets, trading them in the mid-5 to low-6 percent range. Class B properties were primarily targeted by out-of-state buyers and traded in the mid-6 percent range.

Some of the highlights of the Marcus & Millichap report include:

  • Developers are on track to increase inventory 3 percent this year with the completion of 2,500 rentals. In 2013, 2,300 units were built.
  • There are currently more than 5,000 apartments under construction along the Wasatch Front with completion dates scheduled through the end of next year. An additional 4,300 units are planned, though few have scheduled start dates.
  • Competition from new apartment stock and increasing homeownership will push vacancy up 50 basis points this year to 5.2 percent on net absorption of nearly 2,500 units. In 2013, vacancy rose 60 basis points.
  • Owners will lift effective rents 2.6 percent to $865 per month this year, a 7 percent increase from the pre-recession peak. In 2013 effective rents also increased 2.6 percent.

 

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