Colorado Real Estate Journal - October 21, 2015
The Denver area apartment market boasted mostly strong statistics in the third quarter, but there are signs that the apartment vacancy rate, now hovering just over 4 percent, is poised to rise. “Most statistics were quite positive,” Cary Bruteig of Apartment Appraisers & Consultants and Apartment Insights said in his third-quarter apartment report, released earlier this month. “While vacancy remained essentially flat this quarter, there are indications that the low for this cycle has been reached and that vacancy is likely headed higher,” Bruteig said in his report. The overall vacancy rate at the end of the third quarter was 4.18 percent. That is 27 basis points higher than the 3.92 percent at the end of the third quarter of 2014. However, it was not a surprise that the vacancy rate rose, year-over-year, as the third quarter of last year was the only quarter in the past 15 years in which the rate had dipped below 4 percent. The third-quarter vacancy rate was up a fraction from the 4.16 percent vacancy rate in the second quarter. That marked the first time in seven years that the vacancy rate had not fallen in the third quarter from the second quarter, Bruteig noted. Washington Park showed the biggest decrease, with its vacancy rate falling to 5.66 percent from 6.86 percent in the second quarter. The vacancy rate had moved up due to a “surge in new supply,” Bruteig noted. Wheat Ridge also saw a big drop in its vacancy rate, falling to 2.64 percent from 3.74 percent. Only Southwest Denver has a lower vacancy rate, at 2.44 percent. Other metrics tracked in Bruteig’s third-quarter Statistics/ Trends report include: Absorption The market absorbed 2,360 units in the third quarter, the third highest pace in the past five years. Downtown’s central business district absorbed 603 units, the highest in its history. Far more units were absorbed in downtown than any other submarket, Bruteig pointed out. Rents “Rents continued to increase at a torrid pace,” according to Bruteig. The average monthly rent hit a new high of $1,313 in the third quarter. The average rent per square foot was $1.52, also a record. The 12.3 percent annual growth rate was among the highest in the U.S., but was below the record of 13.1 percent posted in the first quarter. Older and less expensive units are becoming more popular, driving down the vacancy rates in those properties, he said. “With effective rents up almost 70 percent during the last six years, renters are searching out the most affordable options across the metro area,” according to Bruteig. Sales Investors bought 2,233 units in the third quarter, more than a 50 percent drop from the 4,593 units that sold in the third quarter of 2014. However, on a recent bus tour of apartments that Bruteig led, he noted that is not because investor appetite has waned, but rather because more big properties sold a year earlier. There simply are not as many large apartment communities available to be purchased, he explained. Indeed, Terrance Hunt, a broker with ARA Newmark, said he expects total sales will top $4 billion for the first time this year, because apartments are selling at record prices, which will offset fewer units selling. The biggest sale last quarter was for 1000 S. Broadway, which was purchased by Goldman Sachs-Archon Group for $64.6 million in July. The sale price equated to $248.46 per unit and $269.40 per sf. Greystar manages 1000 S. Broadway.