Utah Apartment News: Best Yet to Come

Florentine Village (214 affordable units) is one of nine new properties under construction. Approximately 2,000 new units were delivered in 2009 in Salt Lake County.

By James Wadsworth & Greg Barratt

Hendricks & Partners

Rental Market

Reported street rents in Salt Lake County continue to fall as owners and managers attempt to retain tenants and face new product coming on-line in one of the most difficult rental markets in memory. Reported rents are down to early 2007 levels and have fallen by approximately 10 percent since the peak in 2008. However, decreases in rent seem to be tapering off. Vacancy is approximately 9 percent when counting completed new units in the market. One or two properties are offering two months free rent, but the vast majority of properties are offering few if any concessions besides rent specials. Reported rents are expected to rebound quickly when demand picks up, although it will take time to get back up to the 2008 levels.

Housing

The rental market is almost a mirror image of the Utah housing market. Prices are expected to fall another 3 - 5 percent this year for a total of 15 percent from the high in 2008, according to Jim Wood, director of the University of Utah’s Bureau of Economic Business Research.

Short-term Forecast

The good news is that the outlook beyond 2010 is much brighter. One University of Utah study is predicting that by 2030 the state will be the fastest growing in the nation by adding another 1.5 million residents and another 700,000 jobs. The same study is positive in the near term by saying “Between 2010 and 2011, we're going to have to build 100,000 new housing units in Utah to meet the needs of pent-up demand and growth by the end of 2011.”

Jobs

Utah unemployment has improved slightly and is currently 6.3 percent compared to the national unemployment rate of 10 percent. The state has lost approximately 38,800 jobs over the past 12 months with a negative job growth rate of -3.1 percent. The good news is that the job decline is starting to taper off. Some recent job announcements include eBay, with 450 jobs, Merit Medical, 400 jobs, IRS, 175 jobs, Alliant Techsystems, 800 jobs, and Nelson Labs, 100 more jobs. By 2015, Utah will be one of the top 10 states in the nation for new-job creation according to a study by Boston-based IHS Global Insight.

Transaction Velocity

The investment market has been almost still except for a few small and mid-size deals. In December we closed a mid-size property near downtown. Call for details on this sale. Most buyers are willing to purchase at an 8 percent cap rate or double digit cash-on-cash returns based on existing numbers. A few more aggressive buyers are cautiously announcing slightly lower cap rates with the hope of buying a deal and locking in low interest rates before the rental market turns up. It is our opinion that 2010 is the time for serious buyers to stretch and make a deal.

Sources: DesNews.com, SLTrib.com, Utah.gov