Denver’s Rent Bubble Bursts; Drop Is First In More Than A Decade
Average Rent In Q2 Declines To Just $1,506 Per Month; Nearly Every Age, Size Of Apartments Saw Drop In Rent Prices
by Glen Richardson
For the first time in more than a decade average rents in Denver fell in the second quarter of 2020. The last time average rents dropped year over year was in the first quarter of 2010, according to the Apartment Association of Metro Denver.
The coronavirus economy combined with new apartments coming on the market burst Denver’s decade-long rent bubble. New construction added 1,170 units in the second quarter, including 936 in the metro area alone. Released July 21, the rent data was conducted for the Apartment Association by DU’s Daniel School of Business and Colorado Economic Management Associates.
Compared to Second Quarter 2019, average rents dropped to $1,506 per month, a $30 monthly decrease or a $360 annual decline. Taking an optimistic point of view, Mark Williams, Executive Vice President of the Apartment Association, says that is good news for future renters. “Not only are rents not climbing, they went down for all but one floorplan type. There were decreases in all categories, except for two-bedroom, one-bathroom units. This is likely because a renter who had an extra bedroom has added a friend to his or her lease.”
Metro Wide Drop
The decrease in rent was consistent across most geographic areas or 24 of 36 submarkets. Nearly every age and size of apartments saw declines in rental prices.
Newer properties saw the steepest drop in rental rates. Apartment complexes built in 2010 or later have average rents of $1,840, a $105 drop from the previous quarter.
Properties built in the 1970s remain the least
expensive to rent, averaging 20% less than the average rental cost for all apartments.
Virus Specific Data
The Second Quarter survey was modified to collect COVID-19 specific data, asking about delinquent patterns for the months of April, May, and June 2020. The results demonstrate that delinquency was very low, with a majority of rental providers responding that 95% of renters paid their rent.
“The Q2 report continues to show relative stability in the apartment market,” Williams notes. Adding, “which was difficult to predict at the start of the COVID-19 pandemic.”
Over the past several months, housing providers have worked closely and diligently with residents who were impacted by pandemic hardships to create flexible payment plans and create solutions that were a win-win for everyone involved.
Vacancies Flat
The Denver metro apartment market added 1,170 new units, a net positive absorption of 3,801 units for the second quarter. In the Second Quarter, discounts and concessions were steady, coming in at $84, compared to $88 in the first quarter.
“That means that 3,801 more apartments were rented than in March 2020, when the COVID-19 situation started to evolve, indicating that demand for rental housing is still very strong,” Williams points out.
The survey found the average overall vacancy was 5.1%, which is down from 5.9% in the previous quarter, but virtually flat compared to a year ago. This is in line with historical patterns, which show slightly higher vacancies in the first quarter compared to the second and third quarters.
More Units Opening
New blockbuster apartments are expected to open in the weeks and months ahead and will likely continue to impact rental rates. In LoDo, Market Station, a new full block development will add 225 apartment homes. Another big complex, this one a 17-story tower with 373 homes will open before yearend at 10th and Acoma in the Golden Triangle neighborhood.
Two new developments are also nearing completion along the Speer Blvd. corridor and expected to open this year adding 413 apartment homes. The Modera West Wash Park with its two sharp points will add 242 apartments averaging 864-sq.-ft. in size. Then at Speer and Logan, The Bromwell will add another 171 homes with leasing beginning to get underway.
In Cherry Creek North a five-story micro-apartment complex is nearing completion at 135 Adams St. Depending on price, the 37-unit complex ranging from 300-800-sq.-ft. in size could become a popular coronavirus economy size-style. Despite the new apartments opening and additional projects being proposed, construction of new apartments did slow in the second quarter. Year over year construction during the period totaled just 8,978 units, the lowest number since the second quarter of 2016.
Rental Assistance Rises
Denver is using Federal COVID-19 relief funds to more than triple rent and utility assistance, trying to keep people housed now that Denver’s eviction moratorium has ended. The City Council has approved adding $5 million to the housing assistance fund that started the year with a budget of $2 million.
The coronavirus economy has sparked a sharp increase in the demand for rental assistance. Britta Fisher, who heads Denver’s housing department, says the assistance program helped 996 households last year and had already assisted 704 through May of this year. “This clearly shows that households, including families, are feeling the stress of this economic and health crisis,” she says.
In the past grants have paid up to 80% of rental assistance. City Council, however, has approved eliminating the requirement that recipients pay a portion of the housing cost and now 100% of rent will be covered. Denver’s housing department says this should allow the program to more quickly get funds to residents who need rental and utility assistance.
Rent Relief Donations
With requests for rental assistance up sharply and showing no sign of subsiding, it is becoming increasingly clear that city-federal assistance programs won’t be adequate. In May an apartment landlord group raised $74,000 from its members to establish a rent relief fund. The funds will be doled out to people to have lost income or suffered illness due to the coronavirus pandemic.
The Colorado Apartment Association which contributed $25,000 to the landlord fund is also asking other Valley residents and businesses to contribute. Funds would go to a Resident Relief Foundation to help “Coloradans help Coloradans.”
The foundation initiative is hoping to raise $10 million for rental assistance. The foundation notes that demand is so high during the current health-economic crisis it is only taking applications from tenants facing imminent eviction. The Denver Apartment Association is an affiliate of the Colorado Apartment Association.
