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Page 6 — Multifamily Properties Quarterly — August 2017
O verall, the Colorado market
has been strong through the
first half of 2017.The state
has absorbed over 5,500 units
and average effective rent
has increased about 5.1 percent.The
number of units absorbed this year is
higher than in the first half of 2016 and
2015, by about 2,000 units and 1,200
units, respectively. Overall occupancy,
as of the end of June, was at 93 percent,
a slight increase from the 92 percent
average in the previous six months.
For a closer look at the market condi-
tions, it’s helpful to look at the move-
ment in key indicators such as average
effective rent growth, occupancy and
absorption in each asset class.
Class A properties have performed
well when compared to the previous
two years, but there are signs that the
level of new construction is starting
to drag down effective rent growth.
In the first half of 2017, we’ve seen
almost 1,700 Class A units absorbed, an
increase from the 1,500 in the first half
of 2016 and the 1,470 in the first half of
2015.
However, there is some softness in
effective rent growth.While still posi-
tive, average effective rent grew by only
3.8 percent in the first two quarters, a
noticeable drop from the 6.3 percent
increase in 2016 and the 6.6 percent
increase in 2015.This is signaling that
the top of the market is feeling the
influx of new construction units enter-
ing the market at an accelerated pace.
The silver lining is that despite the
slowdown in rent growth, occupancy
is trending in the right direction. As
of the end of June, average occupancy
was 82.8 percent.This is not an ideal
number, to be sure, but it does mark an
improvement from
the 79.6 percent
rate of the previous
period. Overall for
the top tier, average
effective rents are
up, average occu-
pancy is up and
absorption is up.
Class B proper-
ties have seen a
similar dynamic
play out regarding
these three indica-
tors. Absorption is
up compared to the
first half of 2016 and 2015. A little over
900 units have been absorbed in this
asset class in 2017, whereas 2016 saw
about 700 units absorbed and 2015 had
a negative value of nearly 375 units.
The positive trajectory also is pres-
ent for occupancy.With an average
occupancy this year of 92.6 percent,
the previous six month’s average
of 92.2 percent was ever so slightly
edged out. However, just as with Class
A, there has been some erosion in
effective rent growth. The new sup-
ply at the top if the market means
that some of the properties near the
threshold of Class A and Class B have
been bumped into the latter. This has
resulted in increased competition in
this price tier, although the condi-
tions are hardly bleak. In the first half
of 2017, the average effective rent
growth was a robust 5.7 percent. The
previous two years showed immense
price growth, however, and 2017 did
not keep pace. In 2016, the average
effective rent growth was 6.2 percent,
and in 2015 the figure was 8 percent.
Despite the decline in rent gains, there
certainly isn’t reason for concern in
the near term.
Class C also is on solid ground. After
absorbing 1,200 units on the first half
of 2015 and about 700 in 2016, 2017 saw
a huge increase to slightly over 2,700
units.This represents over half of the
total number of units absorbed in the
state through June. Additionally, average
effective rent growth improved from
the 3.7 percent rate of 2016 by a full 2
percent despite falling short of the 2015
6.5 percent growth. Occupancy also rose
1.5 percent from 92.8 to 94.3 percent,
a substantial improvement from 2015
and 2016, which were both under 1
percent through the first six months of
the year.
Class D has not kept pace with the
great start to the year in the other class-
es, but even here, the numbers aren’t
terrible. Absorption decreased by 50
percent from 2016 – but, at a little over
300 units, it is still better than the 2015
number of about 240 units. Additionally,
average effective rent has increased 2.7
percent, which is higher than 2016 and
2015, when both were under 2 percent.
Occupancy has increased by 0.5 per-
cent to 95.5 percent. Absorption in this
class can be shakier than the rest of the
market due to units lost to closure or
demolition.The lack of occupancy loss
and the improvement in effective rent
growth show that the Class D tier is in
good shape.
The driver for much of the movement
in these indicators is new construction,
CBRE Debt & Structured Finance has closed nearly $1.1 billion in multifamily financing assignments over the last 12 months
in the state of Colorado. Nationally, CBRE Capital Markets is the non-bank industry leader in commercial real estate loan
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For more information contact:
Brady O’Donnell, Vice Chairman
303 628 1777
ADVANTAGE
DELIVERED.
Jeff Halsey, Vice President
303 628 1769
Jill Haug, Vice President
303 628 1782
Jordan Brooks
Account manager,
ALN Apartment
Data Inc.,
Carrollton, Texas
ALN Apartment Data Inc.
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