August 28, 2024

With demand surging in Salt Lake City, multifamily rents trend higher

An active pace of absorption fueled rent increases in the Salt Lake City multifamily market in the second quarter. Net absorption through the first half of 2024 is up nearly 70 percent when compared to the same period in 2023, and it has been this leasing momentum that has allowed operators to push rents higher. Rents rose 1.9 percent in the second quarter, the fastest pace of increase recorded in the market in two years, and offsetting the modest dips that were posted throughout much of 2023. Rent increases were recorded across most submarkets within the region, but the pace of gains varied. Rapid increases were recorded in Taylorsville, Murray, and Downtown, while gains in South Jordan and West Jordan were more modest. The increases in Taylorsville and Murray were driven by tight vacancy conditions, while the gains in Downtown were likely a function of the continued delivery of new, more expensive, luxury units to the local inventory.

The local investment market gained momentum during the second quarter. A greater number of properties changed hands than during the first three months of the year, and this rebound in activity has put sales velocity year to date slightly ahead of the 2023 pace. The greatest surge in transactions occurred in the sale of properties trading for $50 million or more. During the second half of 2023 and the first few months of 2024, there were only a handful of properties trading above the $50 million threshold. During the second quarter, however, investors stepped up their acquisitions in this price range, more than tripling the total dollar volume of sales in the first quarter. Cap rates have demonstrated signs of leveling off in recent months, averaging between 5 percent and 5.5 percent.

Looking ahead

Renter demand for units is expected to remain elevated in the second half throughout the Salt Lake City region, resulting in mostly steady vacancy conditions and continued rent increases. While demand is robust, supply-side pressures will persist. Developers have dozens of projects currently under construction, many of which should come online in the next 18 months. More than half of these new development projects are located in Salt Lake City itself, with Millcreek and Murray the only other cities with more than a few prominent projects already having broken ground. Outside of these areas, inventory growth should be modest in the through the remainder of 2024 and into 2025, causing vacancies to tighten and allowing operators to implement healthy rent increases.

The recent surge in transaction activity above $50 million is a clear signal that favorable investor sentiment has returned to the Salt Lake City multifamily market. The region’s attractive growth outlook should continue to support investment activity in the second half. While there has been a surge in larger transaction sizes, activity in the region’s newer properties has been limited. Instead, the properties that have accounted for the bulk of the activity since the beginning of 2023 have been 1980s- and 1990s-vintage assets. The result of this mix of Class B and some Class C properties has been that many properties have sold with prices ranging between $180,000 per unit and $225,000 per unit. In the few sales that have involved newer, Class A properties, prices have typically started closer to $320,000 per unit, and ranged to more than $400,000 per unit.

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