AURORA | After watching average rents across the metro area sky-rocket past the $1,300 mark in recent years, renters could see those rates leveling some in 2017.
But don’t expect much.
Through the first nine months of 2016, rents actually dipped slightly last fall — the first time that happened around the region since rents started a meteoric rise in 2013.
And experts say, while there likely won’t be a massive dip in rents in the upcoming year, there probably won’t be any major spikes, either.
“I think it’s going to go up and down, up and down, in very, very small increments,” said Nancy Burke, vice president of government affairs for the Apartment Association of Metro Denver.
The association’s most-recent report in October showed a rare — albeit pretty small — dip in rents and lease payments.
According to the report, average rents for a two-bedroom in metro Denver fell from $1,371 to $1,368 during the third quarter.
When they released the report, experts attributed those dips in part to new luxury buildings keeping overall rents high.
“The new class A units are holding up the average rental rate,” Daniels School of Business Associate Professor Ron Throupe, one of the report’s authors, said in a statement. “Which follows from the median rent increasing while the average rent decreases.”
A boom in construction has also meant more inventory on the market, which has led to a vacancy rate of 5 percent, up from 3.9 percent two years ago. That figure means there were around 16,000 vacant apartments regionally.
“We’ve seen more apartment units built in the last three years than in the 11 years prior to that combined,” Mark Williams, executive vice president of the apartment association, said in the statement.
“The long-term impact of the new supply on rents is unmistakable,” Williams added. “Rent growth is slowing.”
Looking ahead to 2017, Burke said she sees the same trend continuing.
Based on permits issued and planned projects, she said there will likely be between 8,000 and 10,000 new units added around the metro area in 2017. That growth is in line with the last couple years, she said, and the building boom doesn’t show much sign of slowing.
“It’s hard to know when that faucet turns down,” she said.
New buildings don’t just drive rents down by adding to the inventory, she said. Often, developers offer a few free months of rent as they scramble to fill the building, also lowering the average rent figures.
Still, rents overall won’t dip by much because Colorado — one of a handful of western states with population upswings including Utah, Nevada and Oregon — continues to lure people from other states.
Last year, when the industry looked back and saw that about 100,000 people moved here in 2015, they assumed that influx would slow, Burke said. It hasn’t. And the 2016 data will likely be in line with 2015, she added.
That means demand will likely match supply in a way that will keep rents from dipping or spiking in meaningful ways.
Whenever Colorado’s population growth comes up many wonder what role marijuana legalization has played in it. Burke said with other states opting to legalize pot there is some belief that Colorado will lose some of those transplants to other states where the drug is legal.
While the marijuana industry in Colorado has certainly created jobs, Burke said, she doesn’t see it as a particularly important component of the state’s growth, one way or the other.
“It might be a component but I don’t think it’s a big player,” she said.
But even if the dip last fall was a temporary one and rents only level off instead of dropping significantly, experts say that’s still a big moment.
When rents saw just that $3 drop last fall, Teo Nicolais, a Harvard University instructor who specializes in real estate, called it “a milestone in Denver’s real estate cycle,” because rents had been rising so steadily for so long.
“In simple economic terms: demand far exceeded supply in recent years, but with all the new homes being delivered, supply is starting to catch-up,” he said in the statement.