Lower vacancy, higher rents good for apartment owners

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The lower apartment vacancy rates and higher rents reported in last week’s survey from the Colorado Division of Housing are good for apartment property owners, industry insiders say.

The report found an average city-wide vacancy rate of 6.4 percent. While that was a higher than the first quarter of 2011 when vacancies reached a 10-year low of 5.8 percent; it was a drop from the 6.7 percent in the fourth quarter of 2011.

The report also found that rents climbed 2.4 percent to an average of $754 per month.

“Our members are definitely pushing rents,” said Laura Russmann, executive director of the Apartment Association of Southern Colorado.

That’s new for apartment owners, said Colorado Division of Housing spokesman Ryan McMaken.

“Rents are still 8 percent below where we were in 2003 per square foot,” he said. “Renters have had it pretty good down there for a while apartment owners were breaking even or even losing money.”

Ken Greene, a broker with Apartment Realty Advisors, said his firm has sold several properties out of foreclosure that investors have gotten at a low enough price they could invest significant money into upgrades and raise rents, which could also account for some of the rise in average rent.

But one area where investors are not updating properties is the Security, Widefield and Fountain area. But the vacancy rate plummeted to 5.3 percent there.

McMaken said he believes renters moved to that market because it’s known to have lower rents. The properties were primarily built in the 1960s and ‘70s and are smaller. They were constructed when military allowances were smaller.

“There are some questions about whether those properties are economically viable,” he said.

But for now, he said they’re filling up with renters looking for lower rates who are being pushed out of newer and nicer units.

McMaken said the drop in vacancy rates and the rise in the average rent indicates a strong apartment market, but that the growth is much weaker than it was in Denver.

“That could be the job market,” he said. “Job growth down there has been relatively anemic. It’s hasn’t been bad, but it hasn’t been great.”

The Division of Housing survey, which is done in cooperation with Denver University and Apartment Realty Advisors, also found significantly different results from the Apartment Insights report that came out in mid- April. Doug Carter, a broker with Sperry Van Ness, authors that reported and found a spike in vacancies to 7 percent during the first quarter of this year. He also reported gross rents at an average of $740 a month.

Kevin McKenna, a broker with Apartment Realty Advisors, said the difference in the numbers could have resulted from the timing of the surveys. He said Carter typically collects data throughout the quarter, while the Division of Housing gets all of its data on one specific day.

Apartment Insights also limits its survey to buildings with 50 units or more, while the Division of Housing looks at everything down to four-plexes.

“If it is statistically significant,” McKenna said. “It could mean there is higher occupancy in smaller buildings.”