An all-time low vacancy rates in the Salt Lake metro area have driven the construction of more apartments, according to Kip Paul, executive director of investment sales at Cushman & Wakefield.
Research from the real estate company showed that the vacancy rate in the metro area currently stays at 2.6%, down for the eighth straight month, Paul said. The figure also represented the lowest rate that Cushman & Wakefield has recorded in the last 16 years.
Paul said that mid-sized apartments in the metro region had led the market in Salt Lake County. These apartment communities comprise between 100 and 250 units, with the highest rental prices per square foot amounting to $1.25. The vacancies for these properties also recorded the lowest in the market at 2.2%.
For this reason, cash-strapped developers have turned to lenders of FHA multifamily loans as a popular choice for financial assistance. Many companies are rushing to build more projects to meet increasing demand.
However, Paul cautioned that the surge in construction activity introduced concerns on a likely oversupply, yet low vacancy rates and strong economic growth forecast should offset any potential risks.
While developers stand to gain from a growing demand, renters would face more high prices into the mid-year 2018. The cost of living in a newly built apartment is expected to increase, as rents have risen 6.5% since 2016, according to Paul.
This would further narrow affordable housing options for many households. A “rent-burdened” household typically spends an excessive portion of their income on rent payments. In the Salt Lake metro, an estimated 7,500 low-cost units are necessary to meet current demand.
The wave of apartment construction in the Salt Lake metro reflects property developers’ push to meet a growing demand for units. Despite fears of a potential glut in supply, the record-low vacancy rates should likely downplay any supposed risks on building more apartments.