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DENVER-The local multifamily rental market is suffering through a downturn in employment growth, causing a decreased demand for apartments, according to a report by Marcus & Millichap. “Job losses in the telecom and technology sectors have slowed the Denver economy, resulting in a significant drop off in renter demand,” says DavidC. Osborne, regional manager of the firm’s Denver office.

“However, there is still a large contingent of buyers who are searching for properties in the Denver market due to low financing cost and disappointing returns in the stock market,” he adds. “An apartment property that has consistently offered a 7% to 8% return has much more allure to private investors that have been torched by falling tech stocks over the past year.”

The report says demand for new apartments is expected to remain weak throughout the remainder of the year due to sluggish employment growth.

Softening market conditions will curtail further apartment development over the next year.

An estimated 7,000 units are expected to be completed this year, a 25% reduction from last year’s levels.

The number of building permits issued over the past several months has diminished considerably; however, a large number of units are already in the development pipeline. Developers are expected to drastically decrease new construction for 2003 as many of the new projects remain in lease-up.

Vacancy remained stable during the first quarter of 2002, which is a positive sign after 2,000 new units were brought to the market. However, nearly double the amount of new product could be brought online during the second quarter and absorption is expected to lag the new supply. Without a significant increase in job creation to spur renter demand, many of these properties will experience much longer stabilization periods.

As vacancies rise throughout the Denver area, apartment complexes are offering significant rent reduction in order to attract new tenants as well as retain current residents.

Concessions have become more prevalent, with several properties offering three months free rent to prospective tenants. Management companies have become increasingly creative in an attempt to attract tenants in the short term without jeopardizing long-term cash flows.

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