What area is your expertise?
Utah Multifamily
What trends do you see presently in multifamily development in your area?
Rental rates for apartments are on the rise. Utah realized the highest rent growth in all western states over last year. 9.9 percent increase. The condo market has definitely slowed down considerably. We are starting to see platted projects available for sale as developer confidence with current market conditions are low. Rental rates will continue to climb over the next two years.
Who are the active multifamily developers in your area?
Active multifamily developers in the Utah market are Cow-boy partners, The Church of Jesus Christ of Latter-Day Saints (LDS), and The Metro Condominiums.
Please name one or two significant multifamily developments in your area. What impact will these projects have on the market?
City Creek Center in downtown Salt Lake City is a sustainably designed, walkable urban community of residences, offices and retail stores that will rise over the next four years on approximately 20 acres across three blocks in the heart of downtown Salt Lake City being developed by LDS. Upon project completion in 2012, the city will be one of few in the nation with a vibrant, mixed-use development at its core. In the initial phase of the project, approximately 750 residential units will be built. Most will be in condominium towers along South Temple Street and 100 South, but some rental properties will be available above the retail shops. Of the total residential units, Cowboy Partners, a Utah-based company, will be constructing approximately 100 condominiums and approximately 110 rental units on the south side of Social Hall Avenue, east of State Street. In determining current and future sites for residential construction at City Creek Center, planners are working to take full advantage of view-lines to downtown landmarks and the surrounding Wasatch Mountains.
Where is the majority of development taking place? Why is this area doing well?
Most multifamily development is taking place around Transit Oriented Districts (TOD) and in downtown Salt Lake City. The TOD locations are where the commuter rail and light rail stops are located all along the Wasatch Front. These locations are desirable to developers as the zoning on these properties allow for much higher densities. The slowing condo market will halt some development downtown and for other ‘for-sale’ product, however, the downtown City Creek project being developed by the LDS church, along with other projects already committed to going vertical will weather the storm of current market conditions.
What area do you expect to be the next big development market? Why?
New development will continue in areas in and around mass transit locations. From the far south end of Utah county north to Ogden City in Weber county, these rail lines will move people to there places of business and entertainment providing a significant savings on the current high gas prices. These locations have been mandated to have high-density allocations through the local municipalities due to federal funding regulations. The high cost of fuel will make for a healthy absorption of these properties located near transit services.
What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
All areas are doing extremely well in apartment leasing throughout the state of Utah as rents are rising across the board due to the barriers to purchasing a home in the current lending market.
Please give a measure of apartment vacancy rates.
Overall vacancy in Salt Lake County, Utah currently rests at just less than 4 percent. The surge in rental activity in the last six months has greatly decreased vacancy. Owner’s across the board have had their pick of tenants all the while increasing rental rates.
Please give a measure of condo sales activity in the area.
Condo activity has slowed down completely in the Salt Lake City market. Current projects already out of the ground are seeking to retain buyers who are under contract with deposits while other projects not yet out of the ground are returning deposits to perspective buyers until the market conditions change. The City Creek Center project described herein is continuing to move ahead on its development plans for new condos and apartments in the CBD of Salt Lake City which will continue to enhance the downtown landscape, providing excellent housing options for residents.
What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year?
Current interest rates are slightly higher than in recent years, yet still very attractive for investors. The slight raise in interest rates has put an upward pressure on cap rates. Cap rates will only continue to rise if interest rates rise in the coming year. The multifamily market will still outperform most other investment real estate given the strength in recent leasing activity.
What is the status of job growth/(un)employment rates and what bearing will it have on the multifamily market?
Low unemployment in Utah (3.0 percent at 2007 year end) combined with a 3.6 percent job growth rate continues to lead the nation. Utah’s high internal growth rate keeps the labor market full of well-qualified candidates for employment. This enhances the multifamily market as people will have a need for housing and apartments are currently providing a comfortable alternate to purchasing in a more challenging lending market.
Would you like to make any additional observations about the multifamily market in your area?
Utah continues to have a strong multifamily market. Rental rates are climbing providing investor a good up-side on a purchase or an excellent price for a sale. With all the continued growth across the state, the market continues to be extremely viable.
Submitted by Patrick Bodnar, senior associate – Investment Properties, with CBC NRT Utah ONCOR International in Salt Lake City.