Local apartment rents continued to rise during the third quarter despite flat vacancy rates.
Average rents hit a record high of $787 without adjusting for inflation and vacancy remained flat at 6.1 percent, according a report released today by the Colorado Division of Housing.
The vacancy figures are different from what division of housing spokesman Ryan McMaken said he’s seen in other Colorado markets like Denver and Fort Collins, where vacancy has continued to decline over the last year.
“But the moderation in vacancies has not stalled rent growth,” McMaken said. “Rent growth has continued unabated.”
Rent increased an average of 1.1 percent year-over-year and went up in every submarket but the far northeast and the Fountain/Security/Widefield markets, where it dipped 6.4 and 3.1 percent respectively.
The Fountain market is so small and there is so little product there that small changes can make big differences, said Ken Greene, a broker with Apartment Realty Advisers. It’s harder to say what would have caused the dramatic difference in rents in the far northeast. But those are some of the newest properties in the city and they had some of the highest rents to begin with.
The greatest rent growth was 3.8 percent in the northwest region of the city.
Greene said he doesn’t foresee rent growth stalling anytime soon and he suspects vacancy might begin to drop again in the near future.
“Vacancy rates will continue to go down,” he said, “because we’re absorbing more units than we’re building.”
There have been several new apartment complexes announced throughout the region. Not all of them will be built, Greene said. And those that are built, won’t all come online at once.
Apartment developers have added 417 new units to the Colorado Springs apartment inventory this year, McMaken said. And renters have filled 672 more units so far in 2012 than they filled in 2011.
As long as more units are filled than are built and that trend continues, Greene said vacancy will fall.
The market is ripe for properties to change hands and for developers to come in with new properties. That could lead to overbuilding and developing more units than there are people to fill them, which would reverse recent rent growth.
But Greene said that’s unlikely as lenders are picky and only solid developers with solid project ideas will be able to get financing.
In addition to the three projects Nor’Wood Development Group already has underway at First & Main Town Center, in Fountain and Rockrimmon, the developer has plans to build units at Woodmen Road and Powers Boulevard.
Greene said there is another project well into-planning stages near University Village Colorado near North Nevada Avenue and I-25. Willmax Apartments out of Denver would develop that project. The company doesn’t own any other properties here.
There have also been rumblings that some developers are looking strongly at building apartments downtown.
“The rents we’re seeing downtown are strong,” said Kevin McKenna, a broker at Apartment Realty Advisors. “On the higher end, they’re around $1.50 a square foot, which is the highest in town.”
And that’s with no new product in that part of the city and no large multi-unit buildings with amenities.
“There’s certainly a demand for it,” McKenna said. “It’s hard to say how deep it is.”
Greene said rents will likely continue to increase even if vacancy doesn’t decline as we’re still seeing new households form as roommates separate and young adults move out of their parents’ houses. But sustained growth will require more.
“Right now we’re riding on pent-up demand,” Greene said. “The future all depends on job creation.”