Metro Denver rents slip amid flood of units

Apartment rents slid a little and vacancy rates rose as metro Denver absorbed a historically large number of new apartments during the third quarter, according to a market update Wednesday from the Apartment Association of Metro Denver.

The metro area has added 9,713 new apartments in the first nine months of this year, a 35 percent increase from the same period in 2016, which was a big year. Of this year’s new supply, 4,315 units came online

in July, August and September.

“It’s equivalent to completing a new 48-unit apartment community every day for three months straight. That’s great news for a city struggling to keep up with demand for housing,” Teo Nicolais, a real estate instructor at the Harvard Extension School, said in a release accompanying the report.

The metro area will easily smash through the 10,000 new units mark this year, the first time that has happened in more than three decades, said Nicolais.

“We are going to hit the supply crescendo,” said the report’s author Ron Throupe, associate professor of real estate and construction management at University of Denver’s Daniels College of Business.

A large number of apartments remain in the pipeline for next year, but lenders — fearful of a glut, especially on the luxury end of the market — have cut back on financing new projects, which will limit the number of units added in 2019 and beyond, he said.

The median apartment rent in metro Denver fell from $1,377 during the second quarter to $1,370 during the third. The average vacancy rate, a measure of slack in the market, rose from a low 5 percent to 5.4 percent over the same period.

Denver had the highest average vacancy rate among metro counties at 6.8 percent, with vacancies downtown, ground zero for apartment construction, at 12 percent.

By contrast, the vacancy rate in Castle Rock was only 3.7 percent.

Despite a large number of vacant units, average Denver apartment rents rose $18 in the third quarter from the second and landlords actually reduced the concessions that they offered to tenants to lure them in, Throupe said.

“Landlords aren’t having to put as much incentives out to get the renters. There were some aggressive concessions going on, but they have peeled that back,” he said.

Developers have focused on building in Denver’s urban core, but Arapahoe County did see a surge of 1,638 new units during the quarter, of which 1,438 were occupied.

That could indicate renters may be more willing to consider the suburbs, especially if it saves them money.