Salt Lake City continues to lead multifamily and industrial growth
The Wasatch Front’s unprecedented growth in the multifamily and industrial markets should continue in 2018 according to CBRE‘s annual Salt Lake City Real Estate Market Outlook report. The publication highlights the performance of the local commercial real estate market during 2017 and provides insights into expectations for the year to come.
The report’s authors note that in 2018 a record number of multifamily units will be added to the market. As residential and industrial growth continues its climb, commercial office growth will continue at a more gradual pace. According to the report’s authors, the commercial market is healthy but much of future office growth will depend on the ability to secure pre-construction leasing commitments.
“We are now in the second-longest expansionary period in U.S. history, yet Utah’s commercial real estate market shows little sign of slowing,” said Lloyd Allen, the CBRE Salt Lake Office’s managing director, in a statement. “Business-friendly policy, a strong economy and quality of life continue to draw outside interest into the Salt Lake market. In 2017, a record $2.2 billion in investment sales was achieved along the Wasatch Front, and development and demand levels across all market segments remain elevated. 2017 was a great year, and with continued momentum, 2018 has potential to be a very good year as well.”
As most sectors are benefiting from the state’s strong economy, the retail sector is adapting to a changing economy and consumer demand. Despite several significant retail closings, the report’s authors note that population growth, especially in the southwest corner of Salt Lake County, is driving most current retail expansion.
The industrial market, especially in the Northwest Quadrant area is experiencing historic growth. According to the CBRE report, the number of new leases signed for buildings over 100,000 square feet nearly tripled the historical average. The report’s authors argued that the region’s industrial market shows no foreseeable signs of softening in the next year.
Salt Lake City is the greatest regional contributor to not just the industrial growth but the multifamily market as well. The report’s authors estimate that 8,099 multifamily units will open in 2018 in the state’s largest four counties, Weber, Davis, Salt Lake and Utah. Building Salt Lake estimates that Salt Lake City will account for 35 percent of those new units, with around 2,827 slated for completion in 2018. In comparison, Salt Lake City only accounts for just over 8 percent of the four counties’ combined population.
The Wasatch Front’s 4 percent rental vacancy will continue to drive new multifamily construction in 2018. CBRE authors estimate that there are 11,222 units under construction, Building Salt Lake estimates that Salt Lake City accounts for 33 percent of those units, with 3,646 units underway. Salt Lake’s share of under-construction units could increase this year as an additional 3,595 units are slated to start construction by 2019.
Some of the key findings highlighted in the report include:
2018 Tailwinds
- Utah’s population was the third-fastest growing in the nation in 2017 at 1.9 percent. Job growth was 3.1 percent over the same period—160 basis points higher than the national average.
- Fiscal reform, including personal and corporate tax cuts, will leave more money in the pockets of investors, employers and consumers alike. In the short-term, this is expected to have a unique late-cycle stimulative effect on both the national and local level.
- The heightened level of commercial activity in late 2017 carries a momentum that crosses over into 2018, boosting the forecast for both real estate and the broader economy.
- Despite softening, Salt Lake will retain a position of strength relative to markets nationwide. This will continue to attract investors and businesses to deploy capital in Utah, further stimulating economic activity.
2018 Headwinds
- With Utah unemployment ending 2017 at 3.1 percent, concerns about the availability of labor continue. Utah is increasingly dependent on in-migration to extend the labor pool; however, in-migration is, promisingly, expected to increase in 2018.
- A shortage of skilled labor and the rising price of raw materials have driven up construction costs substantially across Utah and the nation. This further contributes to the existing housing shortage and threatens Utah’s relative affordability.
- Utah’s economy is particularly exposed to policy related to trade and immigration; stricter immigration rules could exacerbate existing labor supply issues for critical industries like construction and manufacturing.
- The Federal Reserve is expected to raise the Federal Funds Rate three times in 2018, pressuring interest rates and potentially disincentivizing borrowing.
