Rents at metro Denver apartments jumped 4.5 percent in the first quarter from a year earlier, the biggest year-over-year increase in a decade, according to a report Tuesday from the Apartment Association of Metro Denver .
Average rent for seven counties portion of metro Denver area stood at $952 in the first quarter, up from $911 in the first quarter of 2011, the report stated.
With vacancy rates continuing to drop, the rise in rents didn’t surprise the report authors, which include the Colorado Division of Housing.
“Rents continue to increase as demand grows faster than the production of new units,” Ron Throupe, professor of real estate at the University of Denver’s Burns School of Real Estate and Construction Management, said in a statement. “Rents often tend to moderate a bit during the first quarter, but this year the rent rose to an all-time high instead.”
The largest rent increase occurred in Denver and Boulder counties, where they grew 6.3 and 6.7 percent respectively in a year. Douglas County posted the highest average rent at $1,109.
Vacancy rates fell below 5 percent for the first time in any quarter since 2001. The overall vacancy rate stood at 4.9 percent, down year-over-year from 5.5 percent and quarter-over-quarter from 5.4 percent. Jefferson County posted the lowest vacancy rate at 3.8 percent.
“Vacancies are falling both metro-wide and in most neighborhoods we survey,” Ryan McMaken, division spokesman said in a statement. “We still find some high vacancy rates out in eastern and southeastern parts of the metro area, but everywhere else we’re looking at rates in the 3-to-4 percent range, which is low.”
Rocky Sundling, president elect of Apartment Association of Metro Denver and vice president/district manager for Camden Property real estate investment trust, said the quarter started slow for increased rents, but picked up quickly in March.
“What we saw with the weather in February pushed some pent-up demand into March,” Sundling said. “We were a little concerned for a while, but it came back with a vengeance.”
Apartment Realty Advisors (ARA) Jeff Hawks, principal, said the vacancy rate can’t get much lower.
“It’s impossible to be 100 percent occupied,” Hawks said, noting it takes time to turn over apartments after move-outs and before the new tenants move in.
“In this market, it’s been a five- to seven-day turnaround in most units,” Sundling said.
Hawks also noted there was a large number of apartment building sales last year — about $800 million worth — and in the first quarter. Most of the new owners are going to make improvements and push rents even higher.
“We are hearing from our properties that they’re starting to see a bit of a shift in residency, from one class to a (lower) class” to help avoid the higher rents, said ARA’s Terrance Hunt, principal. “They don’t want to pay that extra $50-$75 per month.”
ARA officials predict there will be 3,000 apartment from new construction added this year, and an estimated 5,000 in 2013.
“Even that just doesn’t give us enough,” Hawks said. “And most of that new construction is high-end stuff. Everyone wants rents 150 percent above average market rent.”
Here are the Q1 vacancy rates and average rents for the seven counties covered by the survey:
Dennis Huspeni covers real estate and retail for the Denver Business Journal and writes for the "Real Deals" blog.