Denver metro apt. vacancy rates show effect of pandemic

Vacancy increased by 21 basis points during the second quarter to 6.42% in contrast to the historic vacancy decreases typically seen in the months leading up to summer – a clear demonstration that the pandemic has had an effect on the metro Denver rental market, according to Apartment Insights’ Statistics Trends Summary.

The report on the second-quarter multifamily market noted that the current vacancy rate is 119 bps higher than 12 months ago and 124 bps higher than two years ago. It is the highest quarterly vacancy rate in 10 years and reflects stabilized properties with 50 or more units in the seven-county region.

The four-quarter average vacancy increased for the seventh quarter in a row, moving up 30 bps to 5.94%. It is 38 bps higher than one year ago.

Also increasing this quarter was the overall vacancy rate, which includes both stabilized properties and properties in lease-up. While it moved up 48 bps to 10.27%, it is still below the recent high of 10.59% reached during the second quarter of 2019.

Apartment Insights noted that quarterly absorption decreased to a positive 852 units – the lowest level in three years and less than one-fourth the year-ago figure, which was the third highest on record. The quarterly decrease reduced the trailing 12-month total absorption to 7,151 units, the slowest pace since 2017.

Rents also decreased during the quarter – by $17 – taking back last quarter’s gain to arrive at $1,512, or $1.74 per square foot. This figure is equal to the rate one year ago, therefore annual rental rate growth slowed to 0%, down from 4.2% last quarter.

The sale of multifamily properties continued during the second quarter, although at half of the pace of last year, according to the report. There were six sales of 50-plus-unit and larger communities compared to 11 a year ago.

Initial reports in late March and April indicated that newer properties were holding up better than older ones during the early days of the lockdown, with the reasoning that white collar workers were facing fewer layoffs than workers in the lower paying service industries, according to the report. “Our survey data, which was gathered in late May, tells a different story. In summary, softness was more pronounced in newer properties, and in those located near the center of the metropolitan area. Older properties and those in more suburban locations fared much better during the quarter.

“While the overall increase in vacancy this quarter was fairly modest at 21 basis points, it was much larger in the central part of the metropolitan area and offset by improvement in suburban districts. The pandemic seems to have shifted renter preferences, at the margin anyway, away from living in the urban core. The effect on rents and concessions in the core submarkets was significant. Despite national statistics about collections being very similar to previous months and to the previous year, the local rental market clearly has been adversely impacted by the pandemic. We will be watching very closely in the months ahead to see if this trend continues, or if the rental market stabilizes,” the report concluded.