Salt Lakers like to move. A lot.
In fact, renters in Salt Lake City are known to relocate more frequently than nearly any other market. That’s long been a built in headwind for building owners and property managers who seek to maintain high occupancy rates, but things are about to get even more competitive.
An incoming rush of Downtown market-rate rental apartments that will be completed in the coming months is expected to give renters more options in a relatively small market, putting downward pressure on asking rent within buildings that are about to be completed.
Renters who were already frequent movers will soon have many more options to pick from, setting up a new challenge for investors who have poured money into increasing supply of residential options in Salt Lake City’s urban core, according to analysis from a pair of rental data firms that was shared with Building Salt Lake.
“It’s fair to assume that stabilized Class A assets face slightly larger-than-normal challenges in terms of retention considering the size of the local construction pipeline,” said Carl Whitaker, senior director of research and analysis at rental firm RealPage.
The incoming glut of high-end apartments has been building for several years. There are nearly 14,000 apartments under construction in Salt Lake County, the majority of them within the capital city.
Each delivery is expected to put downward pressure on occupancy rates that could lead to more property managers to offer renters concessions like a month or more of free rent to entice them to choose that building over another one up the street.
“We haven’t seen it materialize thus far, but it’s reasonable to assume that Class A concessions increase as lease-up units work to fill their units in an environment with slowing new lease traffic,” Whitaker added.
Economists are keeping a close eye on asking rents nationwide as they slow down from increases that were well above historical norms.
Rent spiked after a brief lull during the onset of the pandemic and demand remained high as the cost to both rent and own a home shot up in 2021. Average rent in Downtown Salt Lake City climbed from $1,295 in early 2020 to $1,488 two years later.
There’s usually a broad rental slowdown in the cold months before leasing activity picks back up in the spring, so economists are waiting to see if renter activity in the U.S. returns to pre-pandemic norms.
In Salt Lake City, which is seeing its vacancy rate climb, we’ll soon find out whether all the building causes asking rents to stall out.
“In fact, rents fell 1.5 percent in Salt Lake between September and December (though remain up 7 percent on a year-over-year basis),” Whitaker said.
Greg Willett, vice president or research services at Institutional Property Advisors, said he’s forecasting the vacancy rate to climb to 6 percent, up from 4.9 percent.
“Overall rent change should remain positive, with our number registering at 3.1 percent,” Willett said. “But most of that growth will have to come from middle-market to bottom-tier product, since it will be tough for owners/operators to realize any pricing power in the stock of upscale properties.”
Concessions would effectively amount to a decline in rent, particularly if they linger through multiple leasing cycles since a concession on rent or other fees lowers the overall amount of money a tenant will pay for however long they stay in a given residence.
As builders continue a rush of development in and around the Downtown core of Salt Lake City, they’re giving renters more options to pick from, which is expected to increase competition to fill units.
“SLC’s big share of total employment in the tech sector — normally a good thing — sets it up for potential layoffs in the short term,” Willett said. “Second, ongoing apartment construction is huge — 15,000 units by our count, translating to 12.5 percent inventory just ahead.”
“Thus, existing top-tier properties are likely to be very vulnerable to losing residents to new completions, where rents probably will be discounted as the properties move through lease-up,” he added.
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