Tuesday, October 6, 2015

Metro Denver: Average Apartment Rent Growth Sets New Record During Second Quarter

Third quarter multifamily vacancy and rent data will be coming out in a about a month, but let's have a closer look at the second quarter's numbers. If current trends are any indication, the third quarter — which tends to be the strongest quarter of the year for multifamily — will be another period of low vacancies and high rent growth.

The first graph shows the overall apartment vacancy rate in metro Denver through the second quarter of this year. The rate was 4.5 percent for the second quarter. that's down from the first quarter rate of 4.9 percent, and down from 4.7 percent during the second quarter of 2014. So, vacancies are low, given that 4 percent is pretty much as low as the vacancy rate ever goes in the metro area. From a tenant perspective, it's about as easy to find an apartment now as it was during the final days of the dot-com boom:

And when vacancy rates get low, we generally expect rent growth. But this time around, we're seeing some of the largest rent growth we've ever seen since the survey was first initiated in the early 1980s. The average rent in metro Denver during the second quarter was $1,265, which is the highest rent ever recorded in nominal terms. It's also the highest rent ever recorded in real terms, but I'll have to adjust the rents for inflation in a future post. The current acceleration in rents outpaces the 1990s:  

In fact, the past three quarters, when measured in year-over-year comparisons, show by far the largest YOY growth in rents ever recorded.  The second quarter's average rent of $1,265 was up an enormous  13.2 percent from the second quarter of 2014 when the average rent was $1,117. The YOY increase was over 12 percent for both the fourth quarter of 2014 and the first quarter of 2015:

Thanks to continued in-migration and a relatively small amount of new single-family construction, multifamily housing remains the most feasible option for many households. Those seeking affordability will move outward from the urban center to more affordable C-class units in further out neighborhoods. Some households will double up or take on roommates. 

The population growth data, though, won't come in for a year after the fact, so it's hard to know to what extent a lack of affordability is impacting in-migration at this time.

Compared to to other markets, the Denver market is experiencing some of the highest rent growth rates in the nation. But, of course, rent level remain well below those in San Francisco

Note: The report also tracks median rent, although, at this time, there is no significant difference in the trend between median rents and average rents. the median rent during the second quarter of 2015 was $1,225, which was up 14.7 percent from the 2nd Q 2014 median rent of $1,067. The median rent during the first quarter of 2015 was $1,203.