Record apartment rents could be catalyst to buy

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Highlights:

  • Apartment report released on Tuesday.
  • Apartment shows record rents.
  • Housing prices also at record levels.

By John Rebchook

The overall average monthly apartment rent in the Denver area in the first quarter crossed $1,200 for the first time.

The median monthly rent for all units also hit a record in the first quarter, according to the Denver Metro Area Apartment Vacancy and Rent Survey released on Tuesday.

The average rent in the Denver area at the end of the first quarter was $1,203.89, 12.1 percent higher than the $1,073.63 in the first quarter of 2014 and a 3 percent increase from the $1,168.65 in the fourth quarter.

For an apartment unit built after 2010, the average monthly rent was $1,649.39.

The overall average rent would be the equivalent to the principal and interest payment on a $260,000 home mortgage, amortized over 30 years with a 3.75 percent interest rate.

The most expensive rent would be the equivalent of a $355,000 mortgage.

“Without a question, anyone who plans to stay in the Denver area should be planning to buy a home instead of continuing to rent,” said S. Robert August, a local housing consultant.

Both apartment rents and home costs are at record levels in the metro area, noted August, principal of Centennial-based North Star Synergies.

However, the rental payment does not provide the tax breaks of a mortgage, he noted.

Perhaps more importantly, despite the record prices of homes, which were up 10 percent, year-over-year, according to the latest Case-Shiller report released on Tuesday, home prices are expected to continue to rise, August said.

“A renter, no matter how much he or she is paying, should be doing everything they can to try to buy a home,” August said.

“And they should be trying to buy as soon as possible, because home prices are continuing to go up,” he added.

“Historically, owning a home is a way to start building wealth,” August said. “Renting is not.”

Also, rock-bottom interest rates will not be around forever, according to August and other housing experts.

Meanwhile, the median monthly rent, and the rent per square foot, showed similar results.

The median first-quarter rent was $1,158.26, 13.4 percent higher than the $1,021.2 in the first quarter of 2014.

The first-quarter median rent was 3.07 percent more than the $1,123.81 in the fourth quarter.

Meanwhile, the average rent per square foot was $1.43, a 12.6 percent jump from $1.27 per square foot in the first quarter 2014 and a 2.9 percent increase from $1.39 in the fourth quarter.

The report for the first quarter of 2015 found that median rent in the seven-county Denver metro area was $1,158, up from $1,124 the previous quarter.

“It’s important to look at both median and average rent, because the overall average rent of $1,204 is being skewed to some degree by the newly constructed class A buildings,” said Mark Williams, executive vice president of the Apartment Association of Metro Denver.

The first quarter vacancy rate was 4.9 percent, compared with 5.1 percent in the first quarter of 2014.

However, it increased from 4.7 percent in the fourth quarter, as 1,560 new units were added, bringing the metro-wide total to 307,268.

“That translates to over 15,000 available apartments for those seeking to rent,” Williams said.

“Denver’s rental market may be a concern to some, but in comparison to other major cities, Denver rents are moderate,” the report notes, citing national Pierce-Eislen data. Pierce-Eislen is also a local sponsor of this report.

The data compares Denver to other major cities and finds that “Denver is in the middle of the rent range for the group,” according to the report.

Denver ranks ninth out of the major cities included in this rent comparison, with San Francisco topping the list. (See table)

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The report notes that, while Denver rents are in the middle of the pack for comparable cities, the rent growth rate here is more notable, driven by an increase in well-paying jobs and more people moving to the state.

“For some, rent increases signal a problem, while others view it as a sign of a desirable place to live and work,” according to the report.

The frenzy to build more apartments to meet rising demand will produce healthy competition between both new and existing apartment properties, according to the report.

Property management companies have come to consistently expect high occupancy, and as the market changes, we must be diligent and creative in order to deliver even better results to our clients and our residents,” said Vivian Markham of Silva-Markham Partners.

The report says “significant new additions” to the metro-area apartment inventory are expected over the next several quarters.

That will help meet the continued strong demand.

Already, rental discounts and concessions – averaging 9.7 percent, up from 8.7 percent for the prior quarter – are moderating effective rental rates.“Although Denver has had strong rent growth and low vacancies over the last several years, rents seemed to have topped in new construction pockets in the metro area,” said Jerry Kendall of Multifamily Capital Advisors.

“There are also a number of older submarkets which have seen vacancies drop below 4 percent,” Kendall said.

“In these sub-markets there is very little new construction of apartments,” he said.

“For example in cities such as Lakewood, Arvada, and Wheat Ridge vacancy rates are below 3 percent,” Kendall continued.

“We can expect this trend to continue,” Kendall said.

The quarterly report is authored by Ron L. Throupe, a professor at the University of Denver Daniels College of Business and Jennifer L. Von Stroh of Colorado Economic and Management Associates.

The survey is sponsored by:

  • The Apartment Association of Metro Denver;
  • ARA Newmark;
  • Colorado Housing and Finance Authority;
  • Colorado Division of Housing;
  • Multifamily Capital Advisors;
  • Pierce-Eislen;
  • Silva-Markham Partners LLC;
  • And Xfinity Communities.

The Denver Housing Authority is a contributing sponsor.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

 

 

 

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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