Multifamily Rental Market Slowing

DENVER-The area apartment market has slowed, but is not in dire straits, shows a report by the local office of Marcus & Millichap. ”The days of double-digit annual value and rent growth have ended,” says David Osborne, regional manger. ”However, this doesn’t indicate that the Denver market is doomed.”

He says the area still enjoys relatively strong job growth and high levels of immigration, which will continue to ”generate robust demand for multi-family units.”

In addition, construction starts are slowing, which will allow time for the abundant supply of units brought to the market to be absorbed, he notes.

The report also states that while job growth is projected at 2.2% this year, about half of what it experienced in recent years, that still translates into 30,000 new jobs.

And while high energy costs and increased unemployment hampered economic expansion in the first half of the year, ”Denver still has one of the tightest labor market in the country with an annualized gain of 42,000 (jobs) through June,” the report says. Even with the latest round of layoffs by several high-tech and telecommunications companies, the Denver area still has an unemployment rate of only 3.2%. However, many economists believe that rate will rise as the severance pay of those laid off ends.

A positive for the market is the slowdown in construction. During the past two years, about 13,000 units were added to the market, but that will fall to 8,500 this year, according to the report.

The increased supply, coupled with steady, but not spectacular demand, will push up the overall apartment vacancy rate to about 6.1% from 5.7%, the report predicts. And rent increases will remain healthy at 4%, about half of the ”impressive” 8% last year, Marcus & Millichap says.

Also, while lower interest rates will boost sales, they won’t come near the almost $1 billion record in sales recorded in 2000.