West Coast Buyers Increase Competition for Area Assets
The Wasatch Front apartment market will perform well through the remainder of the year as vacancy, though nudging upward, remains at historically low levels, allowing operators to increase rents. All submarkets in the region experienced rising vacancy during the last four quarters, with rates ticking up at least 100 basis points in all areas. Developers nearly doubled completions in the last 12 months, and despite strong job growth over the last year, supply additions outweighed positive net absorptions. Additions to stock will slow in the fourth quarter, allowing operators time to fill vacant units before a new wave of projects come online in early 2014. With another 2,300 apartments scheduled for delivery next year, and continued improvement in the region’s single-family housing market, additional softening may occur in suburban submarkets. Vacancy rose 140 basis points in the last year in South Salt Lake City/Murray/Midvale, where a large portion of apartments were delivered. Approximately 950 units are scheduled for delivery in the area next year and could put further upward pressure on vacancy.
However, an improving economy and broad-based employment expansion should spur demand for apartments in the region throughout the coming months. Transaction velocity soared during the last four quarters as out-of-state investors flocked to the region, increasing competition for assets in the metro. Rising interest rates have encouraged investors in the metro to bring more properties to market in order to take advantage of buyer demand and low cap rates. These listings are being met with a high degree of interest as investors from the West Coast scour the region for value-add deals. Limited availability of value-add listings is encouraging some flexibility among first-time entrants to the market as their attention shifts to Class C deals trading at cap rates in the high-6 to low-7 percent range. Meanwhile, cap rates for Class B assets are in the low-6 to high-6 percent range, with Class A assets selling near 6 percent and below.