Apartment vacancies at lowest level since 2001

John Rebchook, Rocky Mountain News

Published July 27, 2006 at midnight

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The Denver-area apartment market vacancy rate in the second quarter fell to 6.8 percent, the lowest rate since the terrorist attacks of Sept. 11, 2001.

"Psychologically, going below 7 percent is significant, even though there is nothing really magical about it, per se," said Gordon Von Stroh, a professor at the Daniels College of Business at the University of Denver, who authored the report.

The last time the vacancy rate was this low was in the third quarter of 2001, when it stood at 6.8 percent.

"This is the first time since Sept. 11 that rates have been this low, which is really the benchmark," said -Michael L. Easter, a vice president for the CB Richard Ellis Melody Capital Markets, a real estate investment banking firm. Unless the economy craters, the vacancy rate could fall to 6 percent, or slightly below, by the end of 2006, Von Stroh said.

The average monthly rental rate rose to $843.85, the highest it has ever been in the second quarter. The median, or middle, monthly rental rate rose to $804.28, compared with $786 a year earlier.

However, those numbers overstate what the typical renter effectively pays because it doesn't include losses from discounts and concessions. Those typically equate to two months of free rent.

"The question is, when are we going to start bringing down concessions? Effective rents have not gone up much, even though vacancies have fallen precipitously from 11 percent (in the fourth quarter of 2003) to where they are today," said Todd C. Grover, a senior vice president for the commercial real estate group at Compass Bank.

Apartment investors are looking at a 10 percent to 20 percent increase in rents, although that will reflect upgrades to buildings they are buying, Easter said.

And what apartment owners may do is raise monthly rents but continue to offer a month or two of free rent because that is something consumers have come to expect over recent years, he said.

In the first half of the year, investors snapped up just under $1 billion in apartments, said Steve Rahe, a broker with CB Richard Ellis.

Median monthly rent

All apartment units, second quarter

County Rent

Adams $806

Arapahoe $784

Boulder/Broomfield $906

Denver $746

Douglas $1,029

Jefferson $806

Metro $804Source: Gordon Von Stroh

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