Metro Denver apartment rents drop for second quarter

Apartment vacancy rates shot up from 5.1 percent to 6.2 percent

The Denver Post - Aldo Svaldi - 18 January 2017

Average apartment rents in metro Denver fell for the second quarter in a row in the fourth quarter of 2016 as the market struggled to absorb a record number of new units, according to the Denver Metro Area Apartment Vacancy and Rent Report released Wednesday.

Average apartment rents fell from $1,371 in the third quarter to $1,347 in the fourth quarter, marking the largest quarterly drop in the 36 years the report has been conducted. Median rents stayed flat at $1,329 per unit.

As average rents fell, the apartment vacancy rate shot up from 5.1 percent in the fall to 6.2 percent.

While apartment vacancies tend to rise in the fourth quarter, the rate is now its highest since 2010, said Mark Williams, executive vice president of the Apartment Association of Metro Denver, in the report.

Average rents decreased and vacancy rates increased in all six of the metro counties covered in the survey, which is the most comprehensive available with 120,000 units measured.

Nicolais counted 9,962 new units coming into the market in 2016, the highest total ever constructed in metro Denver in a year.

But metro Denver also had its highest absorption rate since 1987, with 11,000 units occupied, said Ron Throupe, associate professor at Daniels College of Business, who oversees the survey, in a separate commentary.

Rather than making a long-anticipated move to purchase single-family homes, many Denver millennials continued to rent last year, and they keep moving to the area in large numbers, Throupe added.

The tightest apartment markets are in the more affordable projects built prior to 2000 in the western suburbs of Lakewood, Arvada, Golden and Wheat Ridge, the report said.

Developers, however, have focused heavily on building luxury units in the urban core since the recession. The need to lease units in the new buildings and satisfy investors and lenders provides landlords with a strong incentive to offer discounts to tenants, putting downward pressure on rents.

Throupe said banks are tightening their capital requirements and demanding larger down payments, which along with higher labor costs could derail some projects now underway and reduce future apartment supply.

Job growth, in-migration and more millennials starting families are key factors that could affect demand for apartments, Throupe said.