It’s no secret that Salt Lake City is growing at an unprecedented rate. A quick drive through the city can feel driving through a giant construction zone but despite all the new residential units underway, in most parts of the region supply is still catching up to the demand.
According to April 2017 multifamily market reports by CBRE, a commercial real estate services and investment firm, Salt Lake’s growth in multifamily housing will continue to expand as low unemployment and a healthy economy attract new workers to the state. The limited supply is driving up rents, while low vacancy rates suggest that more units will be needed to absorb continued population growth and stabilize rents.
After decades of being outpaced in growth by its suburban neighbors, Salt Lake City is leading in the multifamily growth. CBRE estimates that there are 7,760 multifamily units under construction in Salt Lake County. Yet, 65 percent of multifamily units under construction are in Salt Lake City proper. Building Salt Lake estimates that there are 5,048 multifamily units actively under construction in the city with another 2,100 units in the planning stages.
The growing demand to live in the city represents a shift away from the trend of the past few years. Between 2011 and 2017, CBRE estimates that 11,940 multifamily units were added to the market in Salt Lake County. Of those units, over 3,600 came from Salt Lake City, just 30 percent of the new units countywide. In the past year, Salt Lake has more than doubled its share of the county’s new multifamily market.
Despite the influx of new multifamily supply, CBRE notes that vacancy rates are at historic lows while rents are at historic highs. As of February 2017, the countywide vacancy rate is 3.2 percent. Downtown Salt Lake and Riverton tie for the lowest vacancy rate of 2.2 percent while Salt Lake City has a vacancy rate of 3.4 percent. A healthy vacancy rate is between 5 and 6 percent with anything lower representing demand outpacing the supply. In Salt Lake County, only Draper, West Valley and South Jordan have vacancy rates at or around 5 percent at 4.7, 5.0 and 5.5 percent vacancy rates respectively. In 2014, the countywide vacancy rate was 5.12 percent and 4.9 percent in Salt Lake City.
Salt Lake City also leads in highest rents per square foot with a rate of $1.40 per square foot compared to a countywide rate of $1.15 per square foot. In 2014, Salt Lake City’s rate was $1.13 per square foot, while the countywide rate was $1.05 per square foot.
Salt Lake City not only leads in its share of countywide multifamily growth but the city accounts for almost 40 percent of the multifamily units under construction across the four largest counties that make up the Wasatch Front. The CBRE report’s authors suggested that about 12,300 could be added to the Salt Lake County multifamily market in the next three years (in time for the 2020 Census). Salt Lake’s 7,268 units in development would account for about 60 percent of those new units (although both the county and city’s numbers could increase if new proposed projects emerge later this year).
In the CBRE report, the authors attributed the low vacancy rates despite an increasing supply as the result of high population growth and above average net in-migration. Utah had the highest population growth in 2016 and had a net in-migration of 24,000 people, the majority of which relocated to the Wasatch Front.
In fact, the authors of the CBRE report expect Salt Lake City rents to be very tight in 2017 and noted that it won’t be until late 2018 and 2019 that, in certain regional submarkets, supply will start catching up to the demand for multifamily housing and rents begin to stabilize. With one of the lower vacancy rates, that could mean that Salt Lake’s multifamily market doesn’t begin to stabilize until after 2020.
It is not just multifamily housing that isn’t meeting regional housing demands. In a February 2017 housing report by James A. Wood for University of Utah’s Kem C. Gardner Policy Institute, Wood argued that for the first time in 40 years the demand for all housing types has outpaced the supply.
Wood’s report also showed Salt Lake City leading in the demand for single family homes as well, accounting for 25 percent of Salt Lake County homes sold in 2016, despite the city only accounting for 17 percent of the countywide population.