For long-suffering tenants, rent relief may be finally on its way. Average apartment rents in metro Denver fell more in the fourth quarter than they did during the worst of the dot-com bust, the Great Recession and even the early months of the pandemic, with more declines likely as new units pour out into the market this year, according to an update Tuesday from the Apartment Association of Metro Denver.
The average apartment rent dropped from $1,870 in the third quarter to $1,838 in the fourth quarter, a decline of $32 or 1.7%, the largest quarterly drop in records going back four decades. It marks only the third time since 1981 that average rents have dropped more than $20 in a quarter.
“Our market is seasonal, so it is not unusual for rents to fall this time of year,” said Cary Bruteig, owner of Apartment Insights and the report’s author. But the decline between the third and fourth quarters has averaged 45 cents, he said, so the $32 decline was extreme.
The vacancy rate, or the share of apartments that are empty and seeking tenants, shot up to 5.6% in the quarter from a 4.8% rate in the prior quarter. That represented the highest vacancy rate in two years, but it is in line with the 40-year average for the fourth quarter, Bruteig said.
A big reason for the rising vacancy rate is that developers delivered 10,992 new apartments last year, of which only 6,993 apartments were occupied or filled with a tenant. That absorption rate is at a seven-year low. More than 76,000 apartments are planned in the region with 40,000 in some stage of construction. Between 8,000 to 12,000 are expected to land this year, Bruteig said.
“If vacancy rates continue to increase, and given the large construction pipeline they probably will, then rents are likely to either remain flat or continue to decrease,” he predicts. As more apartments are being added, fewer people are moving to Colorado, a trend that could greatly reduce demand for apartments going forward if it continues.
Douglas County, which is also the most expensive market, has the highest vacancy rate in the metro area at 6.1%, followed by Denver at 6%, while Boulder/Broomfield counties had the lowest at 5%. The biggest rent declines were in Douglas County at $40 a month, followed by Broomfield/Boulder counties as well as Arapahoe down by $36 a month. The smallest decreases were in Adams and Jefferson counties.
To avoid having their apartment buildings drop below 95% full, some landlords cut rents much more aggressively in the final quarter, by as much as 20%, Bruteig said.
Related Articles
-
This Colorado legislation would remove a state-level ban on rent control
-
As rents surge, pressure grows for Colorado to reconsider rent control ban
-
Condos vs. apartments: The multifamily construction boom in Colorado
-
Denver’s rental licensing program for apartments to come up 24K short at its Jan. 1 deadline. What happens next?
Drew Hamrick, senior vice president for government affairs and general counsel for the AAMD cautioned against reading too much into the quarterly rent declines when it comes to making long-term policy decisions. Annual rent increases are still up 6.5% and efforts, including in the legislature, are needed long-term and should not be dialed back.
“Even with falling rent rates and increasing vacancy, there is still a need for more housing in the metro area. This quarter’s data shouldn’t take away from efforts to increase housing supply,” he cautioned.
Hamrick pointed to Denver’s new Affordable Housing Ordinance that took effect last July. Denver suffered an 88.3% drop in applications for new rental housing developments in the quarters prior and following implementation, resulting in 11,337 fewer apartments planned for the city.
Apartment Insights has taken over the quarterly survey from associate professor Ron Throupe at the University of Denver’s Daniels College of Business. The survey now covers about 229,000 out of the metro area’s more than 392,000 apartments compared to around 89,000 in prior quarters.
“We will see less volatility because we are surveying a larger group of properties,” said Mark Williams, executive vice president with the AAMD.
