Like a barometer, apartment rental rates provide a measure of the Pikes Peak economy — and this summer the pressure is rising, though demand could soon drop even faster.
Vacancy rates in apartment communities of 50 units or more are down to a 10-year low of 6.1 percent, compared to about 8.4 percent last year.
Not surprisingly, as supply has dwindled, average rents have gone up, rising by $8, to $699 a month.
Five-percent vacancy rates signal that the market has reached near-equilibrium or is in the early stages of tightening, so landlords nowadays should be a fairly content bunch.
But they’re not. Rather than plan for big rent increases, apartment building owners expect to see demand fall off in coming months in light of troop deployments, as well as an economy still struggling to get onto its feet.
It may be two or more years before the picture stabilizes, according to Sperry Van Ness broker Doug Carter.
The market has about 48,000 units.
“Newer, nicer Class A properties, mostly on the north side of town or in the southwest, are filling up,” he said.
But older Class B and C multifamily complexes in central, east or southeast Colorado Springs continue to compete for a limited number of tenants, he said.
All of this contradicts the second-quarter 2010 Apartment Insights Colorado Springs apartment report, which predicted better times ahead.
“Don’t take that (report) too literally,” Carter said.
The report covered a period through June 30 and was compiled before news regarding upcoming troop movements out of the area.
Even Class A apartment owners aren’t celebrating.
“We’re getting back to where we were 10 years ago,” said Griffis Blessing Property Services Group President B.J. Hybl. “The drop-off from the top of the market was about 30 percent.”
In other words, there’s a long way to go before rents can climb too high.
Griffis Blessing manages about 2,000 apartment units, of which 70 percent are as Class A or B+ units.
Crystal Dunmire of Dunmire Property Management, on the other hand, handles property management for a portfolio of 2,500 units, most of which were built prior to 1979.
Dunmire’s average vacancy rate, especially for apartments along Murray Boulevard and east, are running closer to 9 percent — and some complexes further south are still seeing 10 percent or more of their units sit empty.
Her owner-clients cater to the Fort Carson and less-affluent tenants, offering mostly basic one- and- two-bedroom units.
Some trends are working in Dunmire’s favor.
“We’re seeing more people take on roommates or civilian tenants asking for help when they get laid off and have to wait six weeks for unemployment,” she said. “There are also more evictions, but on the positive side, our vacancies have decreased by about 50 percent in the past year or two.”
Even in newer communities, where vacancy is at 6 percent, many landlords are seeing a net loss of closer to 18 percent thanks to rising maintenance costs, rent concessions, new regulatory requirements and the cost of collections, she said.
The news is certainly is better news for the first two quarters of 2010 than it was a year ago.
Industry experts agree the challenge ahead for most landlords is Fort Carson deployments.
Almost 10,000 of the 25,000 active-duty soldiers stationed at Fort Carson will be deployed by October, said Colorado Springs Chamber of Commerce Military Affairs Council President Brian Binn.
That’s one of the biggest deployments in the area’s history.
Its impact will probably send apartment vacancy rates back into the double-digits, especially in the vulnerable southeast, east and central submarkets for at least two years, according to the Pikes Peak Area Council of Governments’ July 1 estimate of Fort Carson’s economic impact on the community.
But Carter, who represents a number of out-of-state multifamily investors, said he’s not too worried.
Multifamily investment — and financing — continues to be one of the few bright spots in commercial real estate nationwide.
“What’s interesting about the latest (Apartment Insights) report is that the last time we had a deployment, the vacancies really didn’t go up that much. It’s different today than it was six or seven years ago. Deployments haven’t affected the market as much in the past year-and-a-half,” Carter said.
That said, all agreed that the best news for apartment owners is that no new apartment communities are on the horizon.
“I don’t think you’ll see anyone break ground on anything new for at least two to three years, probably longer,” Carter said.