Salt Lake City – Known for its big families and even bigger houses, Salt Lake City has never boasted a vibrant downtown filled with urban dwellers. But as more people migrate to the city from other urban areas, demand for downtown living has grown.
Salt Lake City market stats
“Today, there is a real surging of the downtown market, and there are some very exciting communities being developed,” says Dan Lofgren, a partner with Cowboy Partners. The Holladay, Utah-based development firm recently completed construction on two downtown projects and plans to kick off construction on two more central business district (CBD) projects totaling 232 units.
“Right now, we are very big fans of downtown, and we expect to do a fair amount of development there in the future,” Lofgren says.
Last year, roughly 160 multifamily units were added to the downtown market, according to a year-end report from EquiMark Properties, Inc., a multifamily brokerage and research firm. There are currently 628 units under construction and another 864 planned.
It’s not only apartments that are being developed in downtown, said Andrew Pratt, an associate broker with Prudential Utah Real Estate. “Salt Lake City was a latecomer to the urban living party,” he said, “but condo living is finally catching on here.”
Metro Condominiums, a seven-story mid-rise that just broke ground, for example, already has a waiting list, said Pratt. The project will offer 117 units when completed in 2007 and will add 25% to the downtown’s existing condo inventory. Currently, there are just 467 condos in the entire CBD.
Salt Lake City’s strong economic and population growth, coupled with its enviable quality of life, have favorably affected the apartment and condo market. This year, employment growth is expected to remain strong at 3.7%, while the population will add 2.9%, according to the 2006 Economic Report to the Governor.
More than 2,100 units were absorbed in 2005, forcing the city’s apartment vacancy rate down to 6.5% from 8.3% a year earlier, according to EquiMark Properties. Rental rates increased 1.4% to an average of 77 cents per square foot, and rates are expected to grow 2% to 3% in 2006.
“We’ve noticed a real strengthening in the market,” noted Keith Nielson, principal of Pentalon Management, which owns and manages a portfolio of 2,400 apartments throughout Salt Lake and Davis counties. “Most of the concessions have burned off.”
Private buyers push prices, compress cap rates
The market’s strengthening fundamentals, along with the lack of developable land in the suburban markets, is attracting investors in droves. “Investment activity is as hot as it’s ever been, and I’ve been here 25 years,” said Kent Nelson, an associate partner with Hendricks & Partners.
In 2005, more than $389 million worth of apartment properties changed hands, a whopping 142% increase over the $160.8 million in 2004, according to Commerce CRG, a member of the Cushman & Wakefield Alliance.
“This year is starting out with the same velocity as 2005,” said Mark Millburn, president of EquiMark Properties, who was recently involved in the disposition of the 262-unit, Class B Mountain Shadows apartments for $17.9 million. The 20-year-old property received nine offers before trading to Irvine, Calif.-based Bascom Group.
Greg Ratliff, a senior multifamily investment specialist with NAI Utah Commercial, said most buyers are coming from California. “[They] think Salt Lake City is the best value for their money,” he said.