It is no surprise to hear that multi-housing development has taken off across the Wasatch Front, but as a data driven broker, that simply doesn’t do it for me as I look to the data in order to add value to our investors and clients. With that said, let’s dive into what the pipeline data is telling us.
Where Have We Been?
- The shovels have been and continue to be busy; 8,833 new units have been delivered since 2011 (averaging nearly 1,800 new units/year). Downtown has been a headliner, accounting for 20% of delivered units, but it is important not to forget some of the other hot spots. Sugarhouse and Sandy have combined for another 30% of the market, while overall growth in lower cost but desirable communities such as Murray, Midvale, and even the West Jordan/West Valley submarkets have delivered well over 2,000 new units in the last 5 years. With job growth well above the national average and significant demographic shifts in the workforce, developers have struggled to keep up with new demand in the multi-housing sector.
Where Are We Now?
- As mentioned, significant job growth, thanks to Utah’s strong economic fundamentals of diversification, educated tax base, and relatively cheap cost of doing business, combined with the changing housing demands of both millennials and baby boomers, have created enormous demand; consequently, overall occupancy is above 95% across the Wasatch Front. All of this is resulting in 6,063 units under construction right now in Salt Lake County! Downtown and Sandy are in the middle of an incredible construction boom, and while Downtown has been a leader of delivered units over the past 5 years, Class A is arguably becoming saturated as lease-ups are slowing. The poster child of the Utah Technology sector, Silicon Slopes, is a key driver of the 1,756 units currently under construction in Sandy, more than any other submarket in the Wasatch Front – including Downtown.
- On a macro level, slowing global economies and collapsing oil have caused considerable panic in the financial markets since January. Even as things seem to be stabilizing, the Federal Reserve is meeting as I write this to determine where monetary policy in the US is moving next. While it is unlikely rates will go up today, with job growth, wage growth (albeit slowly), and inflation moving towards the 2% benchmark, the stars are aligning to see the end of “cheap money”. Back to the local level, rent growth has been ballistic and a major driver of pricing, but many investors are not nearly as bullish as they were just 12 months ago – more on that in our team’s 2016 Multihousing Kickoff Report, which goes into much more detail of market metrics. In short, new project starts are slowing considerably, with just 1,400 new units likely to hit the pipeline in the next 6 months; but after the boom in multi-housing projects over the past few years, this may just be a return to normal.