|
fter a record year in 2004, Utah’s
permit-authorized construction set
more records in 2005. Value of the |
permits issued topped $6.5 billion, an increase of 23.9 percent over 2004, according to the Utah Construction Report, published by the Bureau of Economic and Business Research, David Eccles School of Business, University of Utah.
A record 28,285 permits were issued, including residential and non-residential, new construction and additions, repairs & renovations. The new residential housing sector again led the industry, valued at $4.66 billion, 31.2 percent above last year. Residential permits reached a new high of 25,618, with single-family homes (20,912 permits) far above last year’s record 17,724. Condominiums held steady at 12 percent of the residential market and more than half of all multi-family units. Non-residential construction permits (valued at $1.22 billion) rose 11.7 percent over 2004.
The same four counties lead new single-family residence permits: Along the Wasatch Front (centered on Salt Lake City), Salt Lake County had 5,336 new homes; Utah County had 4,319 new homes; Davis County had 2,782 new homes, and, in Utah’s Dixie, Washington County (centered on St. George) saw 2,826 new homes authorized.
Realty Times reports on Salt Lake City were all positive. Sales and prices were up in 2005; the average home county-wide sold for $224,480; and sold faster, averaging only 37 days on the market in the fourth quarter of 2005 compared to 64 days just four years ago.
Though a relatively small county (population still under 1 million), Salt Lake offers downtown, urban, suburban, and semi-rural neighborhoods varying from brand new homes with all the bells and whistles to century-old classic restorations. Salt Lake City continues to bask in the glow of the 2002 Winter Olympics and “the city has grown and developed into a popular tourist and ski destination as well as a great place to live, learn, and do business” according to @Home Realty Network.
The area boasts nationally ranked schools (public and private); large shopping malls; lower than average crime rates; and longer than average life spans. Residents enjoy world-class music, dance, and theater; five major and minor league sports teams; and housing that runs from affordable cottages to mega-buck mansions. Within one day’s drive are 11 national parks and uncountable year-round outdoor recreation opportunities.
Strong population growth also continues to be a major factor in the housing market. The Beehive State has topped 2.5 million residents, according to the Utah Population Estimates Committee—an increase of 3.2 percent over 2004, the largest increase in 14 years, and, though Utah’s natural birth rate has declined to less than half of total growth, it remains high and bodes well for the State’s receiving a fourth Congressional seat in 2010.
Predictions for 2006 by Utah Construction Report are all positive: New residential units should exceed, both in number and value, the levels of 2005—perhaps reaching $5 billion; mortgage rates should average around 6.5 percent; net in-migration and employment levels will probably also set new highs.
The arrival of Real Salt Lake of Major League Soccer included the announcement of a $145 million stadium complex to be built in Sandy. Funding for the stadium has not yet been settled, but team owner Dave Checketts remains convinced the team will join the ranks of first-time home buyers before their lease at the University of Utah’s Rice-Eccles Stadium runs out in 2008.
Apartments
“This is an excellent time to be in the Salt Lake area apartment industry. After the past few years of hobbling along, the state and local economies have finally found their legs…These important economic ingredients all translate into a very favorable climate for multi-family owners, investors and developers,” according to Equimark Properties, Inc., in their Greater Salt Lake Multi Family Report 2005.
With an average countywide household income of $33,844 ($18,070 per capita), the average rent is less than 22 percent of average income; Salt Lake County apartment-life remains affordable:
| Category |
Rent ($) |
Size (sf) |
$/sf |
Vacancy |
| Studio |
$419 |
406 |
$1.09 |
8.1% |
| 1 BR 1 Bath |
$559 |
652 |
$0.86 |
4.8% |
| 2 BR 1 Bath |
$619 |
882 |
$0.70 |
6.1% |
| 2 BR 2 Bath |
$774 |
994 |
$0.78 |
5.6% |
| 3 BR 2 Bath |
$844 |
1199 |
$0.70 |
6.0% |
| Overall |
$614 |
837 |
$0.77 |
6.5% |
Rents on the east side tend to be slightly higher than on the west side and larger complexes average slightly higher than smaller ones. (Household income figures from utahtravelcenter.com.)
The starting inventory of apartments for 2005 was 108,151 units compared to 106,813 units in January 2004, an increase of 1.25 percent. New construction was only 229 units, about one fourth of 2004, but that slowdown decreased the vacancy rate from 8.3 to 6.5 percent. Nearly 1,300 units were under construction at year’s end, with permits for another 1,200 issued by September.
The Multi Family Report adds that investor demand for multi-family properties remains exceptionally strong, $400 million worth of property changed hands in 2005 – over 80 percent purchased by private investors. That number should actually have been higher; a lack of available properties left some investors still looking as 2006 began. The Report concludes, “With local market fundamentals continuing to strengthen, investor demand should remain very strong throughout 2006. It remains to be seen what, if any, effect increasing long term interest rates will have on pricing and overall demand.”
Office
The Salt Lake office space market continued the upswing that began last year, according to the Year End 2005 Market Review by Commerce |
CRG / Cushman & Wakefield Alliance. Through 2005, every statistic improved over 2004: Year-end direct and sub-lease vacancies went from 17.3 to 11.35 percent; average lease rates increased slightly, from $17.25 to $17.63 per square foot (part of this increase resulted from rising construction costs) and incentives like free rent or moving allowances have almost disappeared.
Very noteworthy is the doubling of absorbed office space from 771,000 to 1.45 million square feet. The record of 2000 remains, but the 2005 performance exceeds
the combined rates of absorption for the previous three years.
This growth included more than 30 companies (ranging from banking to charter schools) coming to the Salt Lake Valley for the first time. New construction did not set
a record, but the six new multi-tenant buildings completed (totaling 400,000 square feet) were 95 percent leased by their opening. The single tenant building market saw only modest activity.
The Economic Development Corporation of Utah reports overall vacancy in the Salt Lake office market at 10 percent in the first quarter of 2005, a dramatic drop from 2004’s 18 percent, with the overall average lease rate (FSG) going up from $15.27 to $17.63.
The Market Review predicts 2006 will see vacancies continuing to decline, speculative construction approaching record levels, particularly in the Class A and B sectors, and ongoing redevelopment in the Central Business District. Seven buildings are under construction, which will add 720,000 square feet to the total available space. More are on the drawing board, some of which could be completed in 2006, bringing total new space to over 1.2 million square feet. Because retrofitting is less expensive than new construction, developers may be buying and upgrading older buildings, particularly at Class B and C addresses.
Industrial
Lease rates across the board for industrial properties have been fairly steady since 2002, but all are down from a decade ago. Vacancies continue a 2-year decline, from 10.5 percent to 8.49 percent in 2004, then to 7.27 percent at the end of 2005, with lease rates averaging $0.32 square feet.
Developers took advantage of low interest rates, adding nearly 3.25 million square feet. Speculative construction did increase, but the majority of developers were owner/users, including Costco’s Salt Lake City distribution center and Kraftmaid’s West Jordan factory.
Growth will continue, meaning additional industrial space will also be needed all along the Wasatch Front. Rising construction costs will continue to drive lease rates up, but land availability is also of concern to developers. Salt Lake County Mayor Peter Carroon, writing for the Urban Land Institute, says, “For years now, we have known that the ‘easy’ pieces of property have been developed…The pressure to build on private property in the urban interface areas adjacent to our canyons and forests will only increase in the future.”
Investment
Real estate investments surprised many with a 235 percent increase over 2004—295 transactions totaling over $1.5 billion—an average price of $5.3 million per purchase. Leading the surge were the office sector, rising 287 percent, and the retail sector, up 257 percent. Even the industrial sector, after a slow first half, posted a 136 percent rise for the year.
Increasing interest rates (the Federal Reserve Board raise the prime rate seven times during 2005) had little effect on commercial investment. Institutional investors and out-of-state REIT’s renewed their interest in the Salt Lake market and that interest was the driving force behind the record increases seen in 2005.
Investments are expected to continue briskly for the next three or four years and, like the apartment market, transaction numbers will probably be held back only by lack of supply.
Retail
Three major malls (Crossroads and ZCMI Center downtown and Valley Fair in West Valley) have seen increased vacancies in preparation for their renovations, but the other malls remain strong and sales are up. Lease rates rose during the first half of the year, but stabilized by year’s end.
Herriman’s Daybreak community in the southwest quadrant will likely remain at the forefront of growth in retail space; however, developments are already underway to counter that growth, specifically Rose Creek and Riverton Meadows in Riverton and The District in South Jordan.
Closures in the mid-range box market, Media Play, Food4Less, Ultimate Electronics, Granite Furniture and others, caused retail vacancies to show a moderate increase, from 7.97 percent to 10.28 percent. Many locations in the 20–40,000 square foot range have opened up and many of these are now being redeveloped for other uses. According to Commerce CRG’s Year End Market Review, these properties “present new opportunities for healthy expansion and fresh entries to the market. Vacant big box facilities have successfully been absorbed, with virtually no space available across the valley.”
The overall retail lease averaged $17.93 a square foot, though Class A leases hit a record $40 a square foot asking rate in one location, so the Year End Report projects these lease rates will push retailers to Class B and C space. New retail construction is expected to have one of the strongest years ever and will include significant expansion and redevelopment. Vacancy rates are expected to rise, but this increase stems from new projects—indicating a healthy, growing market experiencing a normal business cycle. |
