John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Denver-area apartment vacancy rates rose to a four-year high of 9 percent in the second quarter, marking the sixth consecutive quarter of rising vacancies, according to a report released today.
The vacancy rate is more than 45 percent higher than it was a year earlier, when it stood at 6.2 percent, according to the report by the Apartment Association of Metro Denver and the Department
of Local Affairs’ Division of Housing.
Vacancies are at their highest rate since they reached 9.3 percent during the first quarter of 2005.
The vacancy rate was 8.4 percent during the first quarter of this year, 7.1 percent lower.
Vacancies have been rising each quarter since the first quarter of 2008.
Vacancies peaked at 13.1 percent during the first half of 2003, eventually fell to 5.3 percent during the third quarter of 2007, and have generally increased since.
“Historically, there is a downward movement in the vacancy rate during the second quarter, but given current conditions, the present trend is not a surprise,” said Gordon Von Stroh, Professor of Business at the University of Denver, and the report’s author.
“However, the Denver area is not in a situation in which there is a glut of rental housing,” Von Stroh added.” In recent years, we’ve seen a relatively small number of new rental units added to the market, and that may mean fewer vacancies sooner rather than later.”
Arapahoe County reported the highest vacancy rate of 10.7 percent, and Douglas County reported the lowest rate at 5.8 percent. All counties except Douglas County reported increases in vacancies when compared to the second quarter of last year. Vacancy rates for all counties surveyed were: Adams, 8.5 percent; Arapahoe, 10.7 percent; Boulder/Broomfield, 7.2 percent; Denver, 9.8 percent; Douglas, 5.8 percent; and Jefferson, 7.2 percent.
Monthly rents are down, but not as much as vacancies have increased.
The average rent in the second quarter was $870.37, compared with $866.14 a year earlier and $881.92 in the first quarter.
“This is not unexpected, given the overall economy,” Von Stroh said, adding that he would not be surprised if the vacancy rate did not creep towards 10 percent in the coming months.
“Unemployment continues to increase, people are doubling up (in apartments0 and are going back home. And we still have a few people who are buying single-family homes, taking advantage of low interest rates and the $8,000 tax credit for first-time home buyers.”
The good news for apartments is that the “economic vacancy rate,” which is the physical vacancy rate plus concessions and discounts as a percent of gross potential rents, dropped to 16.9 percent in the second quarter, from 18.3 percent a year earlier. And the economic vacancy rate was only up slightly from 16.3 percent in the first quarter.
“Economic vacancies are holding up pretty well,” Von Stroh said. “That tells me that renters are saying: “Give me the bottom-line price.” He said landlords are not offering as many incentivers, such as free rent, when signing leases.
On the supply side, there were only 693 new units added in the second quarter.
“We’ve had substantially larger growth in the past,” said Lauren Brockman, principal of Orion Real Estate Services.
He said eight months ago, he would have said the lack of construction is because of the difficulty in getting loans from lenders.
But now, he said, entrepreneurs, such as himself, would not want to “pull the trigger” and take the risk of building in this market, even if money were available. He said it makes much more financial sense to buy three- or four-year-old projects at cost, rather than break ground.
Brockman said he is not surprised that rents are falling, despite the lack of supply being added to the market.
“When you have these kind of job losses and the overall consumer confidence is at a 50-year-low, it is not unexpected,” he said. “Absolutely, this is a sign of a weak economy.”
At the same time, Denver is one of the strongest apartment markets in the country, he said.
“Nationally, we are seeing the highest vacancy rates in 22 years,” Brockman said. “Our rents are off only about $11 (a month), so they are holding up well. We’re not a Michigan or a Phoenix. Some of those markets have not yet hit bottom. Still, we’re not going to see a recovery until we start to see some job growth and see some traction.”
And that could be several quarters away, he said.
Many employees at architectural and engineering firms, for example, are only working four days a week. Before the companies start hiring people, their current employers will start having them work 40 or maybe 48 hours a week, he said.
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