Rent growth slowing in Salem as more apartments open

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Average apartment rents in Salem grew only slightly last year after a decade of steep increases, in part thanks to hundreds more units being built locally.

That’s according to data presented Tuesday at an annual economic forum hosted by SVN Commercial Advisors.

The gathering drew hundreds of business and government leaders to the Salem Convention Center for a fast-paced overview of the Salem area’s economic climate, including segments on office, retail, industrial, housing and agriculture.

An average apartment now rents for $1,400 in the Salem-Keizer metropolitan area, which includes Marion and Polk counties, according to Katherine Powell Banz of commercial appraisal firm Powell Banz Valuation. That’s up just $15 from last year’s average, a growth of 1.2%.

Developers finished 1,092 new apartments in the area, including 503 in Salem and Keizer, she reported. The area has seen over 1,000 new apartments annually for four of the past five years, she said.

“All of this new construction that’s happening, that is needed and great, but so much of it came online all at the same time, and so that has kept rents down,” Powell Banz said.

She said a combination of higher interest rates and rising utility and other costs while rent growth is slowing mean that sales of apartments and multifamily housing were down significantly last year. More developers are opting to self-finance projects instead of borrowing money, she said. Delays getting power and utility service are also holding up construction.

Apartment vacancy rates in the region were 6.3% last year, down slightly from 6.7%.

A rate above 5% is generally thought to be a sign that there’s enough housing available for renters.

But Powell Banz said one reason for Salem’s vacancy rate is that younger people are delaying moving out on their own because rents are too high for them to afford.

“When you’re first starting out, I don’t know that it’s feasible to get a new apartment on current salaries,” she said.

Home prices remain high too, reported Eric Templeton, senior vice president at Amerititle, with costs growing far faster than wages. The median sales price for a home in the Willamette Valley was $443,000 last year.

Despite a favorable market for sellers, fewer people are opting to sell homes than would be expected in a market with high prices because interest rates have climbed steeply since Covid. That means homeowners are more likely to stay put to preserve their low mortgage rates.

Home prices would need to drop about 9% to come back in line with wages.

Subdivision applications have declined, he said, though Salem received one large application last year from Holt Homes to build 552 houses at the corner of Southeast Battle Creek and Reed roads, near Costco.

Industrial property

Industrial development has been a highlight for Salem in recent years, with many large-scale projects at the Mill Creek Corporate Campus in southeast Salem nearing completion or opening their doors.

Erik Andersson, president of the Strategic Economic Development Corporation, or SEDCOR, said finding the next site to support large-scale development will be a challenge for Salem as Mill Creek fills up.

“It is a concern that we don’t have that next level of land,” he said.

Among the larger industrial projects in the works is a move for Don Pancho’s Authentic Mexican Foods from their current facility off Northeast Portland Road across town into the former NORPAC manufacturing plant.

He said the Salem area is also seeing interest from technology companies for large data centers as the storage and computing demands for artificial intelligence have increased the need for such facilities.

Data centers typically have high power demands and don’t create large numbers of jobs, but Andersson said they can still provide revenue for communities. 

“One of the data centers that we talked to recently, they’re talking about these, you know, 400 acre campuses. Let’s say it’s a billion dollar investment. That’s about a $20 million property tax revenue annually,” Andersson said. “We need to be thinking a little bit more flexibly as to where we get revenue, and between property tax revenue and franchise fee these can be a really big win for our community.”

Contact reporter Rachel Alexander: [email protected] or 503-575-1241.

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