Multifamily Vacancies Jump to 11-year High

DENVER-Metro area apartment vacancies rose to 6.8% in the third quarter, an 11-year high, shows a report researched and authored by University of Denver Business Professor Gordon Von Stroh. The last time vacancies were higher than in the third quarter was the third quarter of 1990, he says.

At that time, the vacancy rate stood at 7.4%, which was at that time was thelowest level in six years. Eleven years ago, the average monthly apartment rent was $399, compared with $827 today.

In the second quarter, the vacancy rate was 5.7% and in the third quarter of 2000 it was 3.7%. All six counties showed an increase in their vacancy rates. Also, 21 submarkets show an increase, 14 a decrease and two remained unchanged.

The rising vacancies are forcing landlords to offer the most aggressive discounts and concessions that they’ve offered since Denver’s real estate depression of 1986 and 1987, says Tom Lunistra, president of the ApartmentFinders International, one of the sponsors of the quarterly survey.

Lunistra held in his hand flyers from various apartment complexes, some offering free rent until 2002, if they tenant signs a 12-month lease. Others offered one month free on a six-month lease.

Lunistra predicts the concessions will deepen.

At this point, the market is segmented into units built before 1990 and those built before, says Eric Tupler of the Denver office of L.J. Melody & Co. Newer apartments are suffering from higher vacancy rates, while older, more affordable ones are virtually full.

But Lunistra says the older apartments won’t be immune from rising vacancies. He projects that landlords will slash their monthly rates and”steal” tenants from smaller, older apartments. However, he says the downturn — and the huge concessions — could be short-lived. Many apartment owners are emphasizing that these deals won’t be around forever.

Steve Rahe, an apartment broker with CB Richard Ellis, says the apartment market in the Denver area, as well as most markets across the country, wasdealt a ”double whammy” by the terrorist attacks on Sept. 11 that occurredas the economy was already softening.

How high the vacancies rise will depend on how fast the economy recovers and layoffs stop, he says.

In addition to the slow economy, the market also added 3,299 new units inthe third quarter, about half of the 6,636 units brought to the market in the first half of the year.

Rahe notes the market has enjoyed 10 years of unprecedented pent-up demand that couldn’t be met by new product, and now that the market hasturned around, it’s impossible for developers to stop on a dime and stopconstruction.