Metro Denver developers sold more than 5,000 new apartments in the third quarter, and despite that high volume, rents barely rose, according to a quarterly update from the Apartment Association of Metro Denver.
In recent quarters, developers have added as many apartments in three months as the average over an entire year before 2011.
“I have been concerned for some time that we would flood the market with many apartments and that vacancy rates would skyrocket,” said Cary Bruteig, author of the quarterly report during a press conference on Wednesday.
The increasing vacancy rate would in turn force landlords to reduce rents. So far that has not happened.
Average rents in the region rose $8 last quarter to $1,911 and are up 1.2% over the past year, below the 1.4% inflation rate recorded in September.
The overall vacancy rate fell by 0.3% to 5.3% and fell in 18 of the 33 submarkets. Denver, which has seen a high concentration of new multifamily projects, had the highest vacancy rate in the county at 5.8%. The Central Business District had the highest submarket rate at 6.6%.
Fueled by strong migration to the state, the 1970s were an era of boom for apartment construction. But after an oil crisis and then a real estate crisis, things calmed down in the following decades. The region averaged about 5,000 new apartments a year until 2011, when the average rose to about 10,000 a year, Bruteig said.
In the past twelve months, developers have added 21,158 new apartments. That’s double the pace of the past decade and equates to about 5% of all existing apartments built in the past 100 years, Bruteig said.
Although fewer people are moving to the Denver metro from other states this decade than last year, Bruteig said, “We are not seeing a softening in the number of people moving into new apartments in the metro area.”
Tenants signed leases for 20,935 of these units in the third quarter, or about 96% of new supply.
And while the construction pipeline has shrunk some as the projects are built, it remains massive, with 34,000 units currently under construction and another 57,000 in the planning stages, Bruteig said.
Moving forward, however, the AAMD is concerned that restrictions around multifamily housing, especially Denver’s requirement that market-rate projects include more affordable units, could limit future supply.
“We are seeing fewer units planned for the future as builders and operators are unable to comply with the new restrictions being imposed. Fewer units will ultimately destabilize rents,” warned Drew Hamrick, senior vice president of government affairs for AAMD.
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