During the third quarter of this year, Utah Commercial Real Estate sales were mixed. Although the office and industrial sectors experienced significant declines, the multifamily sector saw growth. The multifamily market also saw an average increase in rents.
Multifamily rents grew by an average of 5.5% during the quarter
Despite rising home values, the nation’s shortage of rental housing continues to create a frenzy of demand. In fact, rents reached an all-time high of $1,167 in September. This was the highest year-over-year growth since the recession. However, this trend is slowing down.
The National Apartment Association (NAA) has released its third quarter rental analysis, which examines the rent-to-income ratios of markets across the country. These ratios are based on residential lease applicants from professionally managed properties. This report covers 108 markets, including Atlanta, Charlotte, Dallas, Denver, Houston, Los Angeles, Miami, New York, Philadelphia, Portland, Raleigh, San Diego, Seattle, Chicago, Boston, and Washington, DC.
The average asking rent increased 5.5% during the quarter. This was the third consecutive quarter in which rents increased. The rate of improvement was largely driven by the continued growth of white-collar professionals.
The largest gains were in Phoenix, where the asking rent grew 22.4% in the third quarter. In other cities, the growth was much more modest.
Office space sector has decreased quarter-over-quarter by about 3%
Despite the fact that Salt Lake City’s overall economy continues to march on, the office space sector suffered a significant quarter-over-quarter dip. Compared to Q1 of this year, there was a 7% reduction in the total number of new leases signed. However, the volume of lease expirations remained near all-time highs.
The average asking rent for industrial space rose by 3%. The city’s vacancy rate was down to 2.8%. On a positive note, Salt Lake City’s industrial market is expected to grow significantly through 2022.
The largest spike in leasing activity was in the Central Business District (CBD). Pretium Packaging leased 97,000 square feet, Berlin Packaging leased 166,000 square feet, and Pelion Ventures leased 26,000 square feet.
The lion’s share of new leases was in the Class A category. The most notable of the newer buildings was the One Capital Tower, which leased 200,000 square feet. The building also sported the largest elevator in Utah.
The biggest hiccup in the market may be the lack of supply in the Salt Lake City submarkets. Although it’s hard to say, the supply side is unlikely to be able to keep up with demand.
Salt Lake City’s desert climate supports hot summers and cold winters
Located in Salt Lake Valley, Salt Lake City is one of the largest cities in Utah. It is surrounded by mountains, including the Great Salt Lake, which gives the city its name. The mountain ranges surrounding Salt Lake Valley include the Wasatch Range, the Oquirrh Mountains, and the Twin Peaks. The Wasatch Range is home to some of Utah’s most popular ski resorts.
In addition to the mountains, the Great Salt Lake plays a key role in the climate of Salt Lake City. The lake creates an ideal environment for radiational cooling. This is a process by which warm, moist lake air rises to meet colder air. During this process, snow is formed.
In winter, Salt Lake City is a very cold place to live. It has average temperatures below freezing for most of the year. In fact, Salt Lake City has had sub-zero temperatures for only four storm cycles in the last ten years.
In summer, the temperatures can be extremely hot. The highs are in the mid to low 90s, while the nights can be cool. The Great Salt Lake moderates the heat of the summer, allowing the weather to remain comfortable for outdoor recreation.
Salt Lake City’s industrial market is expected to grow substantially through the rest of 2022
During the past quarter, several large warehouses were leased in Salt Lake City. The market has also seen an increase in the number of multifamily properties under construction. The overall supply of office space in Salt Lake City increased by 6%.
The demand for industrial space continues to outstrip the supply. The industrial sector is expected to grow substantially through the remainder of 2022.
The average asking rent for industrial space has been increasing by 3% quarterly. This should help to boost absorption throughout the year. This also bodes well for the Salt Lake City industrial market.
The Salt Lake City area is home to one of the lowest unemployment rates in the nation. The December seasonally adjusted unemployment rate is estimated at 1.9%. This is lower than the national rate.
In-migration to the Salt Lake metropolitan area is still at an all-time high. With good-paying jobs, new residents are drawn to the city.
The Salt Lake Board of Realtors predicts that mortgage interest rates will rise only a little. This may be a factor for some buyers. However, the Salt Lake area is still a low-priced real estate market.
