Apartment market achieves a zen state
Supply and demand maintain a balance, keeping rents in check
Apartment rents and vacancy rates in metro Denver stayed mostly flat as the market absorbed an unexpectedly large number of new units in the first quarter.
Developers delivered 5,144 apartments in the first three months. And despite reports from the U.S. Census Bureau of slowing migration to Colorado, tenants absorbed 5,034 of those units, according to the 2024 First Quarter Vacancy & Rent Report for Metro Denver from the Apartment Association of Metro Denver.
The Denver market has delivered 27,000 apartments in the past two years, outstripping the historical average of 10,000 deliveries over two years. Over the last four years, one of the most robust stretches on record, developers have delivered 2,900 units a quarter.
Even by recent standards, the first quarter was robust.
“It was a really good quarter,” said Cary Bruteig, founder of Apartment Insights and author of the report.
The absorption of so many units in what typically isn’t a busy season for leasing had Bruteig complimenting landlords on their marketing efforts and questioning the accuracy of reports that fewer people are relocating to the region.
Some of that new supply reflects conversions of old hotel rooms in Denver into studio apartments to house people experiencing homelessness. Those units come with a ready base of tenants. But the bulk of the new supply reflects market-rate projects put into motion well before interest rates spiked.
The apartment vacancy rate in metro Denver stayed at 5.8%, where it was in the fourth quarter, while average rents rose from $1,870 to $1,875 a month between the fourth and first quarters and median or midpoint rents rose from $1,785 to $1,798 in the same period.
Over the past 18 months, rents have risen only 0.3%, well below the overall pace of inflation, the report said. Measured in “real” or inflation-adjusted terms, apartment rents are falling in metro Denver.
Looking back over the 44 years the report has been compiled, the average growth in rents over an 18-month period was 5.7%, said Mark Williams, executive vice president for the AAMD. But the balanced state may not last long. Bruteig said a vacancy rate above 6% is usually associated with rent declines and those are appearing on the horizon. His forecast calls for the overall vacancy rate to reach 7.5% in the next couple of years as even more new supply comes onto the market.
If a recession hits, the vacancy rate could spike much higher, he warned.
The highest vacancy rate came in the Thornton and Northglenn submarket at 7%, and Denver was right there with a 6.9% rate.
While the number of units under construction is falling gradually, developers are pulling back sharply on planned units, reflecting higher capital costs and an increasing number of local and state regulations, Bruteig said. There were 76,800 apartments in the planning stages, not counting those under construction, a year ago in metro Denver but closer to 65,700 now, he said. Newer buildings, those built after 2020, had the highest average vacancy rate at 6.7%, while buildings built prior to 1970 have the lowest vacancy rate at 4.5%, Bruteig said.
Studios had the highest vacancy rate at 7.3%, while one-bedroom apartments were at 5.7% and two-bedroom and one-bath units were at 5.4%. Threebedroom units were at 5.9% vacancy.