Small rent increases reappeared in the metro Denver apartment market after an unexpectedly large drop at the end of last year, but the gains are tracking below the pace of overall inflation, according to an update Tuesday from the Apartment Association of Metro Denver.
“The story from our perspective is that things are really stabilizing,” said Mark Williams, executive vice president for the AAMD, during a news call to discuss the numbers. He added that metro Denver, after years of robust construction, now has more than 400,000 apartments in the market.
The region’s vacancy rate, the share of apartments that are available to rent, stayed steady at 5.6% in the first quarter, matching the fourth quarter rate, according to AAMD’s 2023 First Quarter Vacancy & Rent Report for Metro Denver. The vacancy rate is higher in the newest building, and lowest in the 1970s-era buildings, which tend to have lower rents.
Apartment rents averaged $1,846 in the first quarter, an $8 increase from the fourth quarter average and up 5% over the year, which is lower than the 5.7% annual increase in consumer prices measured in the region in March. The gain, which was less than half of a percent, followed a historic $32 quarterly drop in monthly rents in the fourth quarter.
Cary Bruiteg with Apartment Insights, the research firm that put the study together, noted that apartment buildings constructed since 2020 had the highest vacancy at 6.8%, while those constructed before 1970 had an average vacancy rate of 4.9%.
Some landlords are starting to offer more concessions, although nothing like what was available during the early months of the pandemic. More concessions could be on the way this year and next as more supply hits the market. And a lot of supply is set to arrive.
“We now have 43,700 apartments under construction. We have never seen anything like that going back to 1993,” Bruiteg said. Those apartments should arrive over the next three years, working out to about 15,000 new apartments a year. Beyond those, another 76,000 are on the drawing board.
This decade, about 50,000 apartments have been added, accounting for about 12% of the total apartment stock in metro Denver. The next two largest decades, the 1970s, account for 21% and the 2010s about 22%. The apartments under construction currently could push this decade’s share to 22%, with another four years left to go.
That supply should cause vacancy rates to rise in the months ahead, but how much will depend if there is a recession and how attractive the metro area remains in terms of drawing in new residents. If the vacancy rate gets to 6%, then rent increases should flatten out. If it gets higher than that, then rents could actually start falling, Bruiteig said.