Greater Salt Lake Multi-Family Report

By Jed Millburn

The Greater Salt Lake area continued to feel some of the economic woes experienced throughout the nation in the first two quarters of 2009. However, despite the struggling national economic picture, Utah retains its position as the nation's leader with population growth of 2.5 percent. Additionally, Utah ranks fifth in the nation in unemployment with a rate of 5.4 percent compared to the national rate of 9.4 percent. In June 2009, Utah was ranked as the second most business friendly state in the nation and an "Economic Powerhouse" by Dr. Ronald Pollina in one of the most widely recognized annual economic studies in the country. These solid economic fundamentals and pro-business environment have helped Salt Lake County to weather the national economic storms and new apartment lease-ups. That said, the Wasatch Front did experience slightly contracted rents over the last 12 months and increased vacancy rates (7.80 percent).

While transaction volume has dropped off of the peaks experienced in 2007 and 2008, investor interest remains steady along the Wasatch Front from both local and national buyers. Cap rates saw significant increases at the end of 2008 and beginning of 2009 in conjunction with the uncertainty in the capital and debt markets. That said, cap rates have remained fairly constant over the past three to four months, stabilizing around 7.25 percent for A product, 7.25-7.5 percent for B product, and 7.5-7.8 percent for C product. Interest rates will likely dictate the direction of cap rates going forward.

Strong new apartment development continues to draw attention this year, although the shadow market impact appears to be subsiding. The combination of the federal tax credit for first-time home buyers and the state "Home Run" grants helped loosen up the for-sale housing market with steadily increasing month-over-month sales in March, April and May of 22 percent, 16 percent and 15 percent, respectively. A total of 1,369 apartment units have begun lease-up in 2009 with the expectation to see an additional 733 of the remaining 1,701 conventional rate units under construction begin lease-up in the coming six months. There are an additional 1,380 conventional rate units proposed to begin construction in 2009 (Historically, 75 percent of proposed units are eventually constructed).

Utah's continued strong population growth and low unemployment rate has, and should continue to help mitigate the increasing number of new apartment units coming online in 2009 and 2010. Rental and occupancy rates should become a little softer over the coming 12 months, especially in the southern end of the Salt Lake Valley.

The data contained in this report was derived from a comprehensive survey of over 70,000 apartment units conducted by the Apartment Realty Advisors Research Group. All rental and vacancy data is derived using weighted averages. For additional information on the Salt Lake multi-family market and the services provided by ARA, we invite you to contact us or visit our Web site at www.ARAusa.com and www.ARAUtah.com.