Colorado Real Estate Journal -
The low apartment vacancy rate in the Denver area could drop even more, as demand is expected to outstrip the supply, even as thousands of new units prepare to hit the market. “I think we could break the 4 percent vacancy rate, possibly in August,” said Ron L. Throupe, a professor at the University of Denver’s Daniels College of Business Burns School of Real Estate and Construction Management. The lowest vacancy rate on record was 3.6 percent in the third quarter of 1994. The Denver-area apartment vacancy rate in the second quarter fell to 4.2 percent, hitting a 13-year low, according to the Colorado Division of Housing and the Apartment Association of Metro Denver. During the second quarter, the average monthly rent in the Denver area rose to $1,022, a 4.3 percent increase from $979 in the second quarter of 2012 and an all-time high, in noninflation dollars. But even with 15,000 new apartment units in the pipeline, the market likely will become even tighter, apartment experts told the Colorado Real Estate Journal. “The new construction is not going to give any relief to renters,” said Jerry Kendall, managing director of Multifamily Capital Advisors. That is because almost all of the apartment communities that recently opened, or are under construction or on the drawing board are “at the top of the market,” Kendall said. “The increased supply is going to do nothing to help consumers at the bottom of the market,” Kendall said. “The new construction is not going to create this soft landing for consumers. As I said before, it’s TINA – There Is No Alternative.” The truth of TINA was illustrated recently when Terrance Hunt, an apartment broker and principal with ARA, toured an apartment community in Boulder. “One of the tenants had come in and had given his 30-day-in-advance notice that he was moving,” Hunt said. The next day, however, he tried to rescind his decision to move because he found there were no other options. The manager told him he had already leased his unit to someone else. There was nothing else available in the community. “The manager sent a message in writing to all of his tenants after that,” Hunt said, “warning them that if they planned to leave, they should ask themselves first: ‘Are you sure?’” Hunt said the manager told the tenants that he had a waiting list for all of his units and if someone gave notice, he would call someone on the list and lease the apartment almost immediately. Tenants increasingly are realizing there are few options in the market, Hunt said. Many people are staying put, rather than looking for a better deal every six or 12 months, he said. That also is often the preferred strategy for owners, as they realize their biggest cost is dealing with renter turnover, he said. Landlords increasingly will offer incentives to renters who extend their leases before they are up, Hunt said. “One owner, who is pretty aggressive, will contact tenants three or four months before their lease is up and ask them to extend it,” Hunt said. In exchange, the owner will give them a discount of $250 or $300 before the higher rents kick in for the renewal period, he said. “So we are seeing people signing 16-month leases,” he said, instead of a traditional 12-month lease. Hunt said one woman who owns an apartment in Capitol Hill placed an ad on Craig’s List to rent it. “The next morning, she had a line waiting for her” to take the apartment, sight-unseen. “She had 10 people standing there with checks in hand,” Hunt said. “She could have auctioned the apartment off to the highest bidder right there,” Hunt said. In fact, the market is so hot that auctions may be not far off, the experts agreed. “I haven’t heard of any apartment units being auctioned yet, but I would be interested if anyone is doing that,” said Ryan McMaken, economist and spokesman for the Colorado Division of Housing. At other times when rental rates have been rising, the No. 1 reason for people leaving units has been to buy homes. That is not so much the case in the wake of the first national housing crisis since the Great Depression, which started in 1929. “In spite of very low mortgage rates for homebuyers, renting apartments remains a very attractive option for many households,” McMaken said. “The demand for real estate in the metro area remains solid as well due to a stable employment situation and demographics that point toward continued population growth.” While the vacancy rate may dip below 4 percent, given how much bigger the apartment market is now than in 1994, when the previous low vacancy rate was set, McMaken said he doesn’t think the market will set a record low. “The apartment market is so much bigger today than it was back then that it would be truly extraordinary to set an all-time low,” he said.