Apartment vacancy rates in Colorado fell to 5.5 percent, the lowest rate in almost a decade.
The last time that rates were lower was in the first quarter of 2001, when they stood at 4.3 percent, shows a report released today by the Colorado Division of Housing. And the last third quarter when the vacancy rate was lower was in 1999, when it stood at 3.7 percent. Vacancies fell in all Front Range metro areas except Loveland, although they did rise in Grand Junction and in several mountain areas including Summit County, Eagle County and Glenwood Springs.
The third-quarter vacancy rate of 5.5 percent reflects almost a 26 percent drop from the rate of 7.4 percent in the third-quarter of 2009.
“I think rates are going to continue to fall,” said Gordon Von Stroh, a University of Denver business professor and the author of the report, which in addition to the housing division, is sponsored by Apartment Realty Advisors and Pierce-Eislen. “Maybe not in the fourth quarter of the first quarter of 2011, but I think they will be lower in 2011. That will be especially true if we see any improvement in the job situation. Even though we’ve seen some improvement in our job situation, the unemployment rate remains relatively high.”
Even a moderate increase in demand could lead to an “extreme shortage” of rental units in the not-to-distant future, said Terrance Hunt, a broker with Apartment Realty Advisors. The reason is that it is so difficult to get financing, there will be little construction to meet expected, demand, he said. Also, young people are marrying and having children later, and so are remaining renters longer than in the past, he said. He added that buying a home is “not as sexy as it was,” a few years ago, in the wake of the national housing crash.
At the same time, a record number of people in the area graduated from high schools last year, and more people turned 21, many of whom will be renters. In addition, college-educated young people are moving to Denver without jobs, as they figure if they have to be unemployed, they would rather it be in Denver than most other places in the country. Many of these people will take lower-paying jobs, until they can establish themselves in careers.
Ryan McMaken, economist for the housing division, said many landlords fear raising rents as much as one might expect, because they know there has not been much wage inflation. If the raise rates too much, too fast, he said renters will:
- Use such things as Craig’s List to find cheaper places.
- Will move back to their parents’ basements, as they did in 2009.
- Or find roommates to reduce their monthly rental costs.
“We definitely have demand, but there is no surge in building,” Hunt said.
Rents aren’t high enough to justify construction
Rents would need to rise an additional 20 percent to justify construction, he said. “Back in 2001, you could call a bank and say believe rates were going to rise by “X” amount based on historical data, and they would give you a loan. Now, if you try to pro forma a deal at $2 a square foot, the bank will say, “But you’re only getting $1.25 a square foot. Come back when you have some comps for $2-a-square foot.”
While overall monthly average and median rents hit all-time non-inflation adjusted highs of $872 and $824, respectively, they are only marginally higher than a year earlier. The average rent increased by only 3.5 percent, and the median by 4.4 percent. Indeed, the rent increases for the most part, are not even matching the increased cost of maintaining and operating a building, Von Stroh said. “My advice to renters would be to sign a long-term contract,” because rents appear poised to rise
In Colorado Springs, the vacancy rate fell to the lowest third-quarter rate in nine years, to 6.6 percent. The lowest metro-wide vacancy rate was found in Fort Collins where the rate dropped to 2.8 percent from 5.5 percent, year-over-year. In Fort Collins, vacancies are at the lowest levels reported since 2001 when the first-quarter vacancy rate was 2.6 percent. Vacancies rose from 7.5 percent to 7.9 percent in Grand Junction, year-over-year.
Vacancy rates dropped in many smaller communities such as Alamosa and Montrose, but rates also rose in Eagle County, rising from 3.5 percent to 8.9 percent, year-over-year, for the third quarter, and the rate also rose slightly in Summit county during the same period from 5.0 to 5.2 percent.
The metro Denver apartment vacancy rate, measured in a separate survey released last month, also fell year-over-year, dropping from 7.4 percent to 5.3 percent.
“Generally speaking, rental markets are continuing the trend toward tighter markets that we’ve seen in recent quarters,” Von Stroh said. “This isn’t the case in every single market, but given how vacancies are declining significantly in Fort Collins, Greeley, Colorado Springs and other areas as well, it’s clear that empty units are now relatively scarce and that increases in rent levels are likely to follow.”
Among Colorado’s metropolitan areas, only Grand Junction reported a decline in the median rent with a year-over-year drop from $680.37 to $674.08 for the third quarter. Median rents also fell in several Western Slope and mountain regions, although median rents increased in Eagle County and Summit County in spite of increases in vacancy rates.
The metro Denver median rent, measured in a separate survey, was $856.64 for the third quarter. The entire report is available online at the Division of Housing Web site.
3rd Quarter by Year Vacancy Rate Average Rent Inflation-adjusted rent into 2010 dollars
1996 4.3% $583.43 $813.27
1997 4.4% $625.90 $852.40
1998 4.0% $660.12 $885.74
1999 3.7% $606.13 $913.87
2000 3.5% $730.65 $928.00
2001 6.2% $785.19 $969.68
2002 9.1% $765.53 $931.90
2003 11.1% $792.59 $941.99
2004 9.8% $792.59 $917.67
2005 8.6% $805.27 $902.30
2006 7.2% $824.54 $894.57
2007 5.7% $821.41 $866.45
2008 6.6% $851.47 $864.95
2009 7.4% $841.86 $858.26
2010 5.5% $871.78