Average rent levels in the region have reached $1,850/month, after rising by 0.7% in the last year. CoStar’s daily rent series, which draws on roughly 75,000 individual rental rates CoStar collects in Denver
daily, shows that rents began rising again in 23Q1, increasing by 2.1% in the first three months of the year.
This is most likely due to seasonality rather than a reversal of fundamentals, and performance continues to lag the outsized gains recorded in recent years when rents grew by 2.7% in 21Q1 and 2.8% in 22Q1. The improvement in rents experienced in the first quarter comes on the heels of a swift pullback in the second half of 2022.
All apartment classes in Denver continue to face headwinds for various reasons. With 11,000 units delivered in the last 12 months, the luxury segment is competing with properties in lease up, eroding property manager’s ability to raise rates. Over the last 12 months, annual rent growth in 4 & 5 Star assets retreated from 13.1% to 0.4%.
Demand is suppressed in the 1 & 2 Star and 3 Star segments as lower- to middle-income households seek out alternatives in the face of rising inflation. Additionally, after the steep rent increases in previous years, property managers are reporting difficulty in finding qualified renters. Annual rent growth has amounted to just 0.9% in the 3 Star segment and 2.1% in the 1 & 2 Star segment.
Expensive urban submarkets are no longer rent growth leaders in Denver. Downtown Denver, where new construction is concentrated, ranks near the bottom of submarkets in terms of annual rent growth, increasing by just 0.5% in the last year. In the current uncertain climate, renters are seeking out affordability. Suburban submarkets that offer lower average rents like South Adams County and East have held up best, with annual rents up 3.9% and 2.7%, respectively.
Concession activity is on the upswing to drive demand. Concessions are mainly concentrated in expensive, supply-heavy areas of Denver, particularly in Downtown where 25% of properties were offering some form of incentive in March compared with 17% of properties in the suburbs. For example, The Fitzgerald delivered in September in the LoDo neighborhood. The property is currently offering six weeks of free rent for all units with a minimum of a 13-month lease. Denver’s robust construction pipeline and continued risk of a recession are expected to weigh on rent growth through 2023. In the Base Case forecast, growth is projected to average 0.4%, below the national average of 2.1%.
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