Despite concerns about overbuilding, the rental vacancy rate in the Salt Lake Metro’s multifamily housing market is at historic lows and rents will continue to climb until the housing supply catches up with the demand.
According to a new housing report by Cushman & Wakefield, for the third consecutive year, the Salt Lake Metro’s multifamily housing market is considered fully occupied.said Kip Paul Executive Director, Investment Sales at Cushman & Wakefield’s Salt Lake office. The report authors also note that the metro area’s 2.6 percent rental vacancy rate is the lowest ever reported in the region.
A healthy rental market has a vacancy rate around 5 to 6 percent. This is the sixth consecutive year that the residential vacancy rate has been below 4 percent. Despite the low vacancy rate, the number of multifamily units under construction is the highest it has been in 30 years. The report’s authors argue that new multifamily projects in Salt Lake County are not being built fast enough to keep up with demand and call for slightly higher levels of development to ease tight market conditions.
The report’s authors argue that new multifamily projects in Salt Lake County are not being built fast enough to keep up with demand and call for slightly higher levels of development to ease tight market conditions.
In Salt Lake, the sheer number of construction projects underway has led to more demand for construction crews than are available. The shortage of construction crews is not only delaying projects but is also driving up construction costs.
“This low vacancy is fueling a record-breaking level of construction of new apartment buildings,” said Kip Paul, executive director of Investment Sales at Cushman & Wakefield’s Salt Lake office, in a statement. “This begs the question of whether the market is over-building. The data shows that even with previously unmatched levels of development, the demand is such that there is no sign of oversupply in the foreseeable future and property investment, particularly in midsize communities is particularly attractive to buyers.”
With low rental vacancies, rents are rising quickly. According to the Cushman and Wakefield report, rents in the Salt Lake Metro increased 6.5 percent in the past year. Rents for one-bedroom apartments have seen the largest increase. Between 2016 and 2017 rents for one-bedroom units grew by 8.8 percent, compared to 5.7 percent for studio units and 6.4 percent for two-bedroom units.
The current vacancy rate also shows a growing demand for two and three-bedroom apartments. Currently, the vacancy rate for two-bedroom units is 2.7 while the vacancy rate for three-bedroom units is at 2.1 percent. The vacancy rate for studio and one-bedroom apartments is higher at 4.9 and 4.4 percent respectively.
According to the report, the demand for multifamily housing is greatest in Sugar House and in and around downtown Salt Lake with both neighborhoods at or near 100 percent occupancy.
The report’s authors expect the county to add 2,550 units each year over the next four years and that the rental vacancy rate could grow to 6 percent by the end of 2018 when many of the larger multifamily projects underway are expected to begin leasing simultaneously. By 2019 the authors expect the vacancy rate to drop back to around 5 percent.
Salt Lake City accounts for only 17 percent of the county’s population but the city accounts for over half of the multifamily units underway. Based on data reported by Cushman & Wakefield, Salt Lake City accounts for 53 percent (3,520 total) of the 6,564 multifamily units under construction in Salt Lake County and 27.6 percent (1,779 total) of the 6,436 proposed units countywide. Salt Lake has more multifamily units currently in development (under construction and actively proposed) than were built in the city in the past 17 years. Of the 19,008 units built since in Salt Lake County since 2000, 25.1 percent (4,765 total) were in Salt Lake City.