WESTERN SNAPSHOT, FEBRUARY 2005

Salt Lake City Multifamily Market

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Christofferson

Low cost of living, scenic views, mild weather, a low crime rate and a wide variety of recreational and cultural activities make Salt Lake City an attractive location for employers and residents. The city’s population is expected to grow by 7 percent in the next 5 years. Job growth is projected to average 2.5 percent per year between 2003 and 2006, and the median home price is 6 percent below the U.S. median.

Large companies, such as Qwest and Verizon, are recruiting from the area’s young, well-educated talent pool, providing the new hires with a more confident economic outlook. Utah is the fourth-fastest growth state in the nation, with an annual growth rate of nearly 2.2 percent since 1990. Utah also possesses the youngest population nationwide, with a median age of 27. The trend is expected to continue through the next decade. Most new positions will be in the well-paying professional and business services industries, helping to boost demand for luxury apartment complexes.

With the boost in job growth, Salt Lake expects a decline in apartment vacancy, especially in the desirable South Salt Lake and Murray submarkets, where vacancy is forecast to decrease to 7.1 percent and 6.2 percent, respectively. Investors in these areas should expect moderate rent growth averaging more than 1.5 percent in 2005. Class A property owners are expected to raise rents by as much as 1.2 percent. Class B/C owners are projected to raise rents by 1 percent, with stronger gains in the West Valley and Davis County submarkets.

Due to the decline in vacancy in the Class A market, the average asking rents will increase by 1.5 percent, to $662 per month, in 2005. The Midvale/Sandy and West Jordan submarkets are expected to outperform, as the average rents in these areas are forecast to rise by as much as 2.8 percent, to more than $740 per month.

Construction is expected to decrease significantly for 2005 as only 750 units are projected to come online, compared to 1,100 units in 2004. Thus, for-sale inventory will remain limited, especially in the eastern submarkets where the recently stabilized vacancy rate has resulted in most properties selling for a premium, generally more than $50,000 per unit. This, in turn, has helped to drive the overall median price in Salt Lake to more than $45,000 per unit, with Class A properties selling for as much as $80,000 per unit.

The metro area lacks barriers to development, and growth is beginning to push southwest toward the Taylorville, West Valley City and West Jordan submarkets. Developers are still able to purchase land at an affordable price, allowing for high levels of residential and commercial construction. These submarkets are experiencing increasing occupancies and rental rates, thereby attracting high levels of investor interest.

Adam Christofferson is regional manager of Marcus & Millichap’s Salt Lake City office.

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