Midyear report for SLC multi-family: strong fundamentals amidst cooling off

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As investors nationwide throw on the brakes building new projects and making big transactions, the greater Salt Lake area has certainly lurched into slowdown mode.

Yet key measures in the local apartment market predict a soft landing rather than a crash.

That’s the conclusion of CBRE’s 2023 Midyear Multifamily Market Report, which hit email inboxes last week.

A steady flow of tenants to new multifamily projects is expected to continue, given the Wasatch Front’s increasing demand for rental homes as families are priced out of the feverish for-sale market like never before.

Trends also show that even a recent record delivery of new units is unlikely to push up vacancies or stem rent increases for long.

Let’s look at some of the report’s 2023 numbers to date and projections for the next couple of years.

Demand remains consistent

While investors have recently turned away from multifamily development, the report’s authors note a fundamental fact about the Salt Lake City area market: demand for for-rent apartments is likely to remain consistent.

Many families looking for a home are “renters by necessity,” as the gap between paying rent and a mortgage has never been higher.

Buying a home in the Salt Lake metro now costs 170% more in a mortgage payment than in rent. Nationally the average is 52% more. The Salt Lake City market is ranked fourth-worst in the country for this discrepancy.

These three slides tell a story, and the last is about SLC’s rental affordability:

Project deliveries/completions

The big question for investors, is, of course, whether the record number of units entering the market will put the sustained brakes on rent growth. Here are the charts for Salt Lake, Davis, and Utah Counties.

Slides courtesy of CBRE SLC Multifamily Report Midyear 2023.

In Salt Lake County, 5660 units are expected to come on line in 2023, which is 47% increase over 2022. In 2024, 7404 new apartment homes are projected to be completed – a peak that looks to drop to 2892 in 2025.

Davis county is seeing a record 1506 completions in 2023, while 973 are projected for 2024, and 503 for 2025.

Utah County’s trends follow Salt Lake’s: 2356 new units in 2023, 3034 are projected 2024, and 435 in 2025.

Absorption and concessions

Even given consistent demand, absorption periods are longer that usual given all the new product coming to market. Yet the data collected by CBRE trigger no obvious alarm bells.

Concessions, e.g. a month or two free rent, are averaging 3.1% of asking rents. Yet only 16% of the units surveyed are giving concessions at all.

Vacancies

Vacancy rates are a tick higher in the Salt Lake regional market than nationally.

In addition, higher class assets, amenity-rich luxury products, are showing higher vacancy rates that Class B and C apartments nationwide.

Courtesy CBRE SLC Multifamily Report Midyear 2023.

Rent growth

Rent increases along the Wasatch front have slowed, and in some areas, reversed. But recent sluggish YOY numbers are little reason for doubts about the medium- and long-term health of the Salt Lake City metro market, the report contends.

Courtesy CBRE SLC Multifamily Report Midyear 2023.

Authors of the CBRE report collected data from internal CBRE divisions as well as CoStar, Greystar, MSCI Real Assets, RealPage, Wasatch Front MLS, Western States Multifamily, and Yardi Matrix.

Email Luke Garrott

Interested in seeing where developers are proposing and building new apartments in Salt Lake, or just want to support a local source of news on what’s happening in your neighborhood? Subscribe to Building Salt Lake.

Posted by Luke Garrott

Luke Garrott, PhD, has published in The Salt Lake Tribune and the Deseret News, and written features for the Salt Lake City Weekly City Guide and The West View. A former two-term councilman in Salt Lake City's District 4, he lives in Downtown Salt Lake City and grew up in the Chicago area.