Metro Denver’s apartment market got off to a strong start this year, as tenants absorbed all the units that hit the market and then some, pushing up rents and driving down vacancies.
Developers delivered a robust 3,959 new units in the first quarter and tenants absorbed an “impressive” 5,552 net units, according to the Denver Metro Apartment Vacancy and Rent from the University of Denver and the Apartment Association of Metro Denver.
That strong demand pushed the vacancy rate down to 5.4 percent from 5.8 percent in the fourth quarter. It also pushed the average rent up to $1,480.74 a month, which is $24.65 higher than the average in the fourth quarter and $60.44 higher a month than the average rent a year ago.
“I am a little skeptical of my own numbers. Let’s see whether the average rent increases in the second quarter,” said the report’s author Ron Throupe, associate professor of real estate at the D.U. Daniels College of Business.
Normally, the second and third quarters are the busiest when it comes to tenants signing leases and moving into units. That extra activity can push rents higher and the vacancy rate lower compared to the traditionally slower fourth and first quarters.
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But Throupe said in the past couple of years, the first and second quarters have been strongest for absorption, while the third quarter is flat. What he thought was an aberration appears to be turning into a trend.
The submarkets where apartments were most plentiful in the first quarter, as measured by the vacancy rate, are northwest Denver, northwest Aurora, Castle Rock, and south Arapahoe County. Areas with the tightest vacancy rates for apartments are Commerce City, Brighton, Sheridan, Boulder, Golden, Wheat Ridge and northeast Denver.
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The highest average rents in the first quarter were in Boulder, Golden, Broomfield, northwest Denver, downtown Denver and the City Park neighborhood. The cheapest rents were available in Wheat Ridge, Lakewood, eastern Aurora and southeast Denver.
Rent increases have outpaced wage gains, especially since 2013, resulting in calls for rent controls. A bill went before the Colorado Senate this year to lift a state ban on local governments implementing policies to limit rent increases.
Throupe notes that the gain in apartment rents is averaging just above 5 percent a year the past 11 years. While that is above the overall rate of inflation, rent gains have moderated more recently and wage gains have improved. In the first quarter, apartment rents rose 4.2 percent.
Throupe said implementing rent controls would likely reduce supply and have the unintended consequence of boosting market rents over the long term.
