Thursday, January 20, 2011

Some analysis of recent vacancy and rent trends in Colorado Springs

As noted here, apartment vacancies in Colorado fell during the fourth quarter of 2010 as median rents increased. The year-over-year decline during the fourth quarter bring the vacancy rate to a 9-year low in the region. The vacancy rate in the Colorado Springs during the fourth quarter was 7.2 percent.

As we can see in the first graph, the Colorado Springs metro vacancy rate is now well below the rates experienced between 2002 and 2010 when the vacancy rate rarely fell below 9 percent, and was frequently above 10 percent. The high vacancy rates during this period were often driven by the absence of a large number of military personnel who had been serving in Iraq and Afghanistan during this period. As the number of troops in Iraq has been reduced, military personnel in Colorado Springs have increased, and vacancies have fallen.

Graph 1

In graph 2, looking to year-over-year percentage changes in the vacancy rate, we find that the fourth quarter of 2010 was the seventh quarter in a row during which the vacancy rate has fallen compared to the same period the previous year. This is the longest string of annual drops in the vacancy rate in over ten years.

Graph 2

Median rents in the Colorado Springs area have been moving upward, as would be expected in a period of declining vacancies. As can be seen in graph 3, median rents are now at record highs in the region, rising to $711.12 during 2010's fourth quarter from $700.17 a year earlier. Note that median rents from 2004 to 2008 were often declining, driving overall drops in revenue for many apartment owners.

Graph 3

Since early 2009, however, median rent growth has been sustained with only 1 quarter of the past 8 showing a year-over-year drop in median rents. Graph 4 shows how for most quarters since the first quarter of 2009 have shown year-over-year increases of 2 percent or more. Clearly, the trend is now toward considerably more rent growth since 2009 than was the case during 2007 and 2008.

Graph 4

Finally, graph 5 shows movement in rent per square foot, and as can be seen here, rent per square foot saw sustained growth during 2010 in contrast to years of very limited growth between 2002 and 2008.

Graph 5

All of this points to tighter markets for renters as well as sustained rent growth in the short and medium term. Owners will be looking to make up for several years of declining rents (in inflation-adjusted dollars) during the past decade.