| Denver Business Journal - January 30, 2008 http://denver.bizjournals.com/denver/stories/2008/01/28/daily48.html |
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Denver apartments cost more to rent
Denver Business Journal - by Paula Moore Denver Business Journal
Metro Denver's apartment market ended 2007 "still showing strength," according to a report released Wednesday.
Apartment vacancies were down and rents were up in the last year's fourth quarter, compared to 2006's final period, said the Metro Denver Multifamily Vacancy and Rent Survey. The report is produced under the auspices of the Colorado Division of Housing and the Apartment Association of Metro Denver.
Vacancies tightened to 6.1 percent in the fourth quarter, from 7 percent for 2006's final period, the report said. But the fourth-quarter vacancy rate was up from 5.3 percent in last year's third period.
Average fourth-quarter rents increased slightly to $860.36, from $849.89 for the same quarter a year earlier. Rents were down from the peak of $865.76 reported during the third quarter of 2006, but "remain largely stable," according to the report.
"Rents are up, concessions have burned off," said Jerry Kendall, vice president at Countrywide Commercial Real Estate Finance in Greenwood Village. "Tenants are paying more effective rent, and landlords are collecting higher rents. Concessions are the lowest they've been in five years."
The final quarter vacancy rate for 2007 is the lowest for that period since 2001. Boulder and Broomfield counties had the lowest vacancy rate for the period at 5.4 percent, while Adams County had the highest at 7.4 percent.
"Overall economic vacancy is 16.6 percent, the lowest it's been since the second quarter of 2002," said Gordon Von Stroh, professor at the University of Denver's Daniels College of Business and author of the apartment report.
Economic vacancy is the vacancy rate plus concessions and discounts as a percentage of gross potential rent. Apartment owners generally care more about economic vacancy than market vacancy, since properties shown as 100 percent occupied in a market survey still can have economic vacancies such as model and manager units not considered by the market survey.
Fourth-quarter rents ranged from a high of $1,043.09 on average in Douglas County to a low of $813.83 in Arapahoe County.
Sales of apartment properties in 2007 of dropped 18 percent to $1.8 billion from 2006, because of difficulties with capital markets late last year, according to apartment broker Steve Rahe at CB Richard Ellis Inc. in Denver. But investors continue to like local apartment properties.
"Investors all over country still consider Denver one of top markets in country for in terms of rent growth. ... In most markets across country, multifamily has already gone through rent growth, but our cycle is a few years behind," said Rahe. "We're one of few markets where that's still in front of us."
Other apartment study high points include:
- 914 new apartment units were added to the Denver-area market in the fourth quarter of '07, for a total of 282,213 units at year-end.
- 2,262 new apartment units were added to the Denver-area market in 2007 -- up from 738 in 2006, but down from the peak in recent years of 9,123 units in 2002.
"There are not that many more units in the pipeline. ... For new product, construction costs are significantly higher," said Von Stroh.
"If a project is not already under construction, it's harder now to get financing for it. ... Supply is constrained construction costs, availability of financing and investor risk," Kendall said.
- Metro Denver saw negative absorption of 1,392 units in the fourth quarter, and positive absorption of 4,644 units for all of last year. Absorption is the net change in the number of apartments rented currently compared to a previous period.
Looking ahead, report participants wonder how a national recession might affect the local apartment market. They wonder if job growth will continue in Colorado, and if workers will continue to fill up apartment units.
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