Rents and vacancies drop slightly across Metro Denver, indicating stabilizing market
Average rents decreased slightly to $1,506 during the third quarter of 2019, according to the Denver Metro Area Apartment Vacancy and Rent survey published today. The total reflects a 2.8% increase in average rents from the same quarter last year. This marks the fourth consecutive year in which average third-quarter rents have ticked downward.
The average vacancy rate in the Denver metro area fell to 4.7% in the third quarter of 2019. This constitutes a 0.8% drop in vacancy relative to the same time last year and a 0.3% drop from the second quarter of 2019. This quarter marks the lowest vacancy rate across Metro Denver since the second quarter of 2015.
“Renters across Metro Denver should once again be encouraged to see average rents leveling off, but the continued drop in vacancy rate should highlight the sustained demand across the region,” said Mark Williams, Executive Vice President of the Apartment Association of Metro Denver. “The stability of rents going forward will be dependent on there being an abundant supply of housing stock to keep pace with the region’s growth.”
Inflation, which refers the increase in the price of goods and services in the market overall, was 2.7% over the last 12 months, according to the Bureau of Labor Statistics’ Consumer Price Index for the Western Region.
“The 2.8% increase in rents over the last year is only 0.1% above the economy’s overall rate of inflation over the same period,” said Williams. Williams noted that, after accounting for inflation, annual rent growth has been at or below 2% since 2016.
Net absorption rose to 2,917 units in the third quarter of 2019, up from 1,723 units in the second quarter of the year. Absorption is increase in occupied apartments from one period to the next. To date in 2019, 10,192 units have been absorbed, keeping metro Denver on pace to near its record-breaking total of 13,708 in 2018.
“These high absorption numbers are no surprise as demand for Denver apartments continues to escalate as we see strong population growth and an increasing number of companies expand into Metro Denver,” said Terrance Hunt, vice chair of Newmark Knight Frank Multifamily's Denver office. “With the recent news of several large new of companies choosing Denver this will continue. This demand has kept vacancy low despite the steady number of deliveries over the past few years. However, with the number of permits going down 24% in the past year, it does create a concern that the lack of future deliveries combined with already low vacancy will put upward pressure on rents.”
In the third quarter of 2019, 2,081 new apartments were added, up from 425 units in the second quarter.
“Both in percentage terms and in the actual number of units completed, the annual apartment construction rate is the slowest we’ve seen since 2016,” said Teo Nicolais, an Instructor at Harvard Extension School who specializes in real estate. “Over the last year we’ve added 12,975 new renter households but only 10,341 new apartments. When the number of households grows faster than the number of houses for them to live in, prices tend to increase. Housing prices reflect the level of scarcity in the market.”
Over the past twelve months, 10,341 new units have been added, giving the Denver metro area a total of 355,378 units. The year-over-year increase in units is the lowest since the fourth quarter of 2016, when 9,962 units were completed in the prior 12 months. Since that time, year-over-year apartment construction has averaged 12, 117 per year.
In percentage terms, the current year-over-year construction rate of 3% is the lowest since the third quarter of 2016. Since 2016, year-over-year apartment construction has increased the number of apartments in the Denver metro area by 3.7% per year and peaked at 4.2% annual growth in the second quarter of 2018.
A submarket-by-submarket breakdown continues to show a wide range of rents in the metro area.
Boulder-University became the metro area’s most expensive submarket with average rents of $1,981 per month, followed by Denver-Downtown at $1,871 per month and the Denver North-Central/City Park at $1,816 per month.
The lowest average rents in the metro area were once again found in Wheat Ridge at $1,213 per month, followed by Aurora Central North-West at $1,283 per month and Aurora Central North-East at $1,302 per month.
The age of the building continues to play a significant role in determining average rental prices, with apartments built in 2010 or later, at an average price of $1,861, significantly outpacing rental prices of units built in previous decades. Denver’s lowest average rents again came from inventory constructed in the 1970s, with an average price of $1,206.
“Historically, one would expect an increase in average rent when vacancy rates are so low, especially below 5%. So, for prices to remain stable is good news for renters,” added Williams. “The sheer demand for apartment housing in metro Denver again suggests a continued need for more units to be added to the marketplace – at every price point.”
The Denver Metro Area Apartment Vacancy and Rent Report is coordinated and published by the Apartment Association of Metro Denver. The survey is conducted by the University of Denver’s Daniels College of Business and Colorado Economic and Management Associates, and sponsored by The Colorado Department of Housing.
About the Apartment Association of Metro Denver
The Apartment Association of Metro Denver is among the largest multi-family housing trade associations in the country, representing and supporting over 336,000 apartment homes in Denver.
The quarterly Vacancy and Rental Rate Survey is authored by Ron L. Throupe, Ph.D. of the University of Denver Daniels College of Business, and Jennifer L. Von Stroh of Colorado Economic and Management Associates. It has served as a reliable source for comprehensive data and analysis for over 36 years and is made possible through the ongoing participation of the apartment industry and broad support from private and public sector sponsors.