Getting your player ready...
Despite hitting a 10-year first-quarter low of 5.5 percent, Denver-area renters should brace for even lower vacancy rates – and higher rents – later this year.
“There will be some sticker shock,” said Gordon Von Stroh, the University of Denver business professor who authored the apartment vacancy rate report for the Apartment Association of Metro Denver and the Colorado Division of Housing.
Von Stroh said that the “key thing” about today’s report, which earlier was reported by InsideRealEstateNews, is that the vacancy rate typically rises in the first quarter from the fourth quarter, for seasonal reasons.
“It remained the same, at 5.5 percent,” Von Stroh said. “That indicates a further strengthening of the apartment market. If we see any improvement in the local economy – or even if the economy remains where it is – we are certainly going to see a drop in vacancy rates and increased rents.”
Vacancies to fall
How low?
“I think the vacancy rate is going to drop below 5 percent,” Von Stroh said.
Rocky Sundling, a senior vice president of Camden Property Trust, one of the largest apartment real estate investment trusts in the country, said Camden has been able to raise rates on in its 2,200 units in seven properties in the Denver area for the first time in three years.
“Year-over-year, Camden has been able to raise rates by 6 percent,” Sundling said. “That is pretty consistent across all submarkets. Still, as far as affordability, it is still less expensive to rent an apartment than to buy and own a home, at least for now.”
Camden, and other apartments owners, can raise rents because “traffic and demand have been very strong,” Sundling said.
Job-growth concerns
A number of the renters are young people moving to the Denver area from outside of the state. “The only thing that tempers the good news a little bit is that that we are seeing increased household formations, without necessary seeing increased jobs,” Sundling said.
Ryan McMaken, spokesman for the Colorado Division of Housing, noted that the Denver-area’s unemployment rate, historically lower than the national rate, is now higher, largely because young people are moving here without jobs.
“Denver is seen as a better job market than many other places in the country,” McMaken said. “But if people moving here don’t find jobs, you wonder if that trend will continue.”
Construction coming
Still, Camden is so bullish on the market, it is looking to add about 600 units to the market, with two new equally sized apartment communities. One would be in the Interlocken area along the U.S. 36 corridor, and the other would be near Interstate 25 and Lincoln, along the southeast corridor.
“I think the market is at a point where it is attractive enough for developers to consider building and bring their sites that are already entitled out of mothballs, and start securing financing,” Sundling said. “The market is not quite yet where we would like it to be to justify significant new construction, but it is moving in that direction.”
Rents have primarily been moving up in the “A-class” properties, which are the newest and best located, Von Stroh said.
“Those are also the people who can best absorb rent increases,” Von Stroh. “And people in newer projects also are getting more amenities. For example, new apartment communities have very nice exercise areas, so you don’t have to pay the expense of belonging to an athletic club.”
McMaken said that he doesn’t think the rent increases have yet “trickled down” to the B- and C-grade properties.
Von Stroh agreed.
“People in “C ” properties, especially, simply can’t afford to pay higher rents,” Von Stroh said.
No exodus to buy homes
Von Stroh noted that despite mortgage rates near historic lows, it also is much more difficult to qualify for a mortgage. That means fewer people will be leaving apartments to buy homes as seen in the past.
“I think it is going to become increasingly harder to get a mortgage,” Von Stroh said. “The American policy system is finally starting to recognize that not everyone should be a home owner. We should have recognized that 20 years ago. We would not be in this current financial mess, if we had.”
John Rebchook can be reached at JRCHOOK@gmail.com.
