NEW RENTAL UNITS BOOST VACANCY RATE AND SLOW RENT INCREASES IN METRO AREA
New apartments affecting “natural forces of supply and demand”
Metro Denver apartment rents leveled off and vacancies rose sharply between the third and fourth quarters after a surge in new supply left more landlords scrambling to fill their units, according to a quarterly update from the Apartment Association of Metro Denver.
“The natural forces of supply and demand are at work, and there has been an enormous amount of new apartments added to the supply, so rents are flattening,” Mark Williams, the association’s executive vice president, said in the report.
The drop in median rents wasn’t huge— a $ 7 decline from$ 1,252 amonth in the third quarter to $ 1,245 in the fourth. The average rent held steady at $ 1,292 a month.
But in a sign more downward pressure on rents could be coming in the months ahead, the area’s apartment vacancy rate surged to 6.8 percent from5 percent in the third quarter.
The fourth quarter is typically a weaker period for apartment rentals, but the jump went far beyond any seasonal adjustment. Itwas the biggest quarterly surge in vacancies since heavy job losses caused people to move out of their apartments in 2008 and 2009.
“Itwas much more than expected seasonally,” said report co- author Ron Throupe, a real estate professor at the University of Denver.
Vacancy rates were highest in northwest Denver, at 17.4 percent; Boulder County, excluding Longmont and the city of Boulder, 14 percent; downtown Denver, 11.2 percent; and north Douglas County, 9.6 percent.
Developers have focused on those areas for higher- rent apartments. Given that owners of new apartment buildings may not be familiar with the survey or may be too busy leasing units to respond, the actual vacancy rate in those areas might be understated, Throupe said.
Supporting the argument of oversupply
on the high end of the market, the more- affordable areas developers passed over show much tighter apartment vacancy rates.
Wheat Ridge is at a low 2.6 percent, while Englewood and Sheridan are at 3.3 percent, northeast Denver at 4.1 percent and southwest Denver at 4.2 percent.
Boulder’s University Hill area, which has constant student demand, was at a tight 2.7 percent.
The report said developers added 1,678 new units to the local market, but that net absorption was a negative 4,247 units, meaning once- occupied units were sitting vacant.
Throupe, however, dismissed concerns that the apartment market was headed for a “crash” or that the rising vacancy rate signaled a deeper economic weak- ness.
“Rents won’t crash,” he said. “We will go flat for a while. We aren’t having a major downturn.”
Given strong in- migration, the only thing thatwould change that would be a lack of job growth. But an employment report Tuesday showed the state added a strong 10,700 jobs in December fromNovember.
A separate report from Axiometrics showed that the annual rate of apartment rent increases in December had fallen to 5.5 percent, down from 6.4 percent in November and belowthe peak annual increase of 12.8 percent reached in February.
Axiometrics puts the average effective rent in the Denver- AuroraLakewood area at $ 1,323 per month, down $ 41 from the peak rent reached in August.
Crews perform work in September to turn the old VQ Hotel – next to Sports Authority Field – into Turntable Studios, a 179- unit macro- micro apartment complex. According to the Apartment Association ofMetro Denver, the average rent for apartments in the Denver area held steady at $ 1,292 amonth in the third quarter of 2015. Kathryn Scott Osler, Denver Post file