Like a flare in the night sky, metro Denver apartment vacancy rates unexpectedly soared in the fourth quarter, signaling that the region’s long-running multifamily construction boom might be in danger.
“Some big warning signs flashed in the fourth quarter,” said Cary Bruteig, a principal with Apartment Appraiser & Consultants in Denver.
That is from the landlord’s perspective. But for tenants, that same flare may signal help is on the way after years of rising rents and limited supply.
Bruteig’s survey, which focuses on leased-up apartment buildings, showed a jump in vacancy rates from 4.18 percent to 4.87 percent.
That may not seem huge, but it is the largest quarterly jump his survey has captured since the first quarter of 2009, when the financial crisis caused layoffs to surge.
Rents showed their largest quarterly decline in the survey’s 11-year history, he said.
A separate survey from the Apartment Association of Metro Denver and the University of Denver, which includes new buildings, showed an even more dramatic surge in vacancies, from 5 percent in the third quarter to 6.8 percent in the fourth.
“We have plenty of new complexes that are 80 percent leased, but then two or three more are coming up behind them,” said Ron Throupe, a University of Denver real estate professor and survey co-author.
Downtown Denver alone absorbed nearly 1,500 of the 6,500 new apartments in the metro area last year, or 23 percent of the total, Bruteig said.
The Denver Tech Center was next with 1,004 new units absorbed. Northwest Denver experienced wild swings in its vacancy rates as it digested 516 units last year, and even more are on the way.
What may not be as appreciated is that Broomfield and Boulder also have seen a big surge in apartment construction, with 564 units and 590 units absorbed respectively last year, according to Bruteig.
The Apartment Association pegs the vacancy rate in Boulder County, outside the university and downtown area, at 14 percent, reflective of a surge in new supply that is pushing developers and property manager to get creative in marketing and filling new units.
In Boulder’s Gunbarrel neighborhood, Apex 5510, with 231 apartments, and Gunbarrel Center, with 251 apartments, are vying with each other, as well as with new apartments coming online in central Boulder, for a limited pool of tenants able to afford their higher rents.
“We are doing a month-and-a-half for free,” said Coty Thurman, property manager for Apex 5510, a 10-building apartment complex with retail on Spine Road.
Apex 5510 started strong at first, with more than 80 units filled in a surge from May to June. But by August, that pace slowed sharply. As the initial leases came up for renewal, turnover proved higher than expected, leaving occupancy at 62 percent.
“We didn’t anticipate turnover this soon. People are leaving the area or buying homes,” said Thurman, who pointed to Longmont as a popular destination for those moving away.
Rents range from studios at $1,490 a month to two-bedrooms at $2,300. That is high, compared with Longmont or Denver’s suburbs, but still lower than the new apartments available in central Boulder or downtown Denver.
Apex 5510 offers amenities such as a tap room for the Finkel & Garf Brewing Co. next door and a Cafe Urban planned on site. It also provides a pet washing station, a heated outdoor swimming pool, and a B-Cycle station.
Marilyn Cohn moved into Apex 5510 in October from Thornton after a failed attempt to escape escalating rents in central Boulder.
Landlords of Boulder’s older apartment buildings have little incentive to upgrade, given that they can find tenants easily. Cohn, who moved to Boulder from Florida five years ago, found herself in a trap of paying more for less, but regretted leaving.
“I missed Boulder,” Cohn said.
Living in the Gunbarrel area offered a compromise — newer and larger units at a lower price than central Boulder, which remained a short drive away.
“We like to call it Boulder light,” said Michelle Jenkins, community manager for Gunbarrel Center, an even newer project about a half-mile to the southeast at 5340 Gunbarrel Center Court.
Gunbarrel Center has managed to fill 107 of the its first 113 units, reducing the need to offer concessions, said Laura Fenton, vice president of operations with Avenue5 Residential, which is managing the property being developed by The Wolff Co. out of Phoenix.
Gunbarrel Center offers larger apartments at a lower cost per square foot than competitors in Boulder, a city where the average listing price for a home is now so high, $1.2 million, that it puts ownership out of reach, Fenton said.
Another selling point will be a Main Street retail district, a pedestrian-friendly block of restaurants and stores that seeks to re-create, on a smaller scale, the vibe of downtown Boulder in a neighborhood built to service the city’s industrial campuses.
If that doesn’t suffice, those who know the back roads can get to downtown Boulder in under 10 minutes, Jenkins said.
It may take some time to completely fill the new apartments in Gunbarrel and Jenkins said additional projects aren’t planned in that area.
That isn’t the case about 18 miles to the south, in the Arista and Interlocken areas, where hundreds of additional apartments are coming online this year.
Near the 1stBank Center, 8000 Uptown, another Wolff development, expects to offer 360 units when completed in June. The Atria Arista Apartments will add an additional 240 the following month.
Earlier apartments have filled up and Arista is balancing rental units with row homes and condos and other for-sale homes, said land developer Jordan Wiens.
Because rents rose faster than what developers initially estimated when planning projects, they have some wiggle room to lower rents outright or offer concessions and still make their return.
But that could set off bidding wars for tenants and boost turnover, which the tight market had dampened, as tenants chase the best deals.
More time is needed to see if the fourth-quarter jump in vacancy rates reflected an unusual surge in new apartments at year-end or a rebalancing in power between landlords and tenants.
“Demand is still strong, but from the supply side we are building apartments at a faster pace than we can absorb,” said Bruteig, who counts more than 200 multi-family projects still in the pipeline.
Bruteig said some developers have targeted neglected areas with low vacancy rates, although at nowhere near the volume that central Denver has seen.
Rising rents have improved the economics of affordable units, and more developers are tapping a less favorable tier of tax credits they were passing up. Others are shrinking apartment sizes to bring rents in line with incomes of young adults.
Builders still focused on adding high-rent apartments in the hottest neighborhoods finally may need to overcome fears of construction defects litigation and shift to for-sale units.
“We are the point of the cycle where we should be building condos,” Bruteig said. “But builders are very nervous and are holding back.”
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi