New apartments continue to pour onto the market, pushing down average rents in metro Denver for the second quarter in a row and boosting the vacancy rate a tad, according to the latest Denver Metro Area Apartment Vacancy and Rent survey.
But tenants showed up to take what builders offered, and then some, according to the quarterly survey, which is sponsored by the Apartment Association of Metro Denver and co-authored by Ron Throupe at the University of Denver’s Daniels College of Business.
Average monthly rent peaked at $1,484 in the second quarter, dropped to $1,465 in the third quarter and stood at $1,456 in the fourth quarter, a decline of $28 or 1.9 percent in the past six months.
Adjust for inflation, and apartment rents are actually down 2.6 percent, said Teo Nicolais, an instructor specializing in real estate at the Harvard Extension School in Denver.
“We are seeing a ton of new supply and seeing rents go down. It is all about supply. That supply is what makes housing more affordable,” he said.
The vacancy rate rose from 5.5 percent in the third quarter to 5.8 percent in the fourth, which represents 20,237 empty units. By comparison, there were only 5,577 homes and condos for sale in metro Denver at the end of December, according to the Denver Metro Association of Realtors.
Developers added 12,324 new apartments to the market last year, an annual volume that is three times greater than the historical average. Of those, 3,876 came just in the fourth quarter.
After bottoming out at 4.6 percent in 2013, the vacancy rate has started to rise again, but remains a full percentage point below its long-term average of 6.8 percent, said Nicolais.
What was remarkable about 2018 wasn’t necessarily the number of apartments built, a number that fell slightly from 2017, but rather the number of apartments that tenants occupied or “absorbed,” Throupe said in an analysis of the numbers.
Tenants took on 13,708 units, surpassing what developers made available to the market. That was the highest number Throupe has ever seen in all his years of doing the survey. Only 1987 and 2017, when 11,821 units were absorbed, even came close.
The gap between construction and absorption can be explained by an overhang from 2017, when developers added more units than what were leased. And while a long-predicted apartment crash may come some day, the market continues to prove more resilient than expected.
“These record absorption numbers could put into question the concern of overbuilding,” Throupe said in a release.