Metro Denver rent increases, after slowing this year, should kick it up a notch next year, with the biggest hikes coming in more affordable areas and outlying communities such as Bailey, Elizabeth and Black Hawk, according to a new forecast from Zillow.
“Rental growth in Denver will continue to be strong and even slightly stronger than this year,” said Svenja Gudell, chief economist at the Seattle-based real estate information provider.
The Zillow Rent index for Denver is at $2,013 a month, the highest of any major metro area not located along a coast, and way above Chicago at $1,643, Dallas at $1,543 and Phoenix at $1,247 a month.
Zillow is calling for metro Denver’s already elevated rents to rise another 5.9 percent next year following a 4.1 percent increase this year. Only tenants in Seattle, up 7.2 percent, and Portland, Ore., up 6 percent, face steeper projected rent increases in 2017, according to the Zillow Rent Forecast.
Nationally, U.S. rents are forecast to rise 1.7 percent in 2017, matching the pace expected in 2016.
Zillow’s forecast, if it pans out, would put even more financial pressures on Denver-area renters, who have found housing costs consuming an ever-larger share of their incomes.
Unlike other rent surveys that focus just on apartments, Zillow’s measure includes single-family rental homes, resulting in higher rent averages.
But like those other surveys, Zillow’s data support the idea that tenants, in a hunt for affordable options, are bidding up rents in older suburbs and outlying communities.
Zillow calls for rents in Bailey to rise 10.9 percent next year after a 14.7 percent hike in 2016. Elizabeth is expected to see an 8.3 percent increase next year, down from a 12.9 percent increase this year.
Derby, a community in southwest Adams County, is expected to see an 11.3 percent rent increase next year following a 12.6 percent gain this year. Northeast Aurora is projected to see an 8.1 percent jump in rents following a 9.1 percent gain this year.
“A lot of the new product is being built in the central core. As more and more units come on, that market will get softer,” said Richard Bird, Rocky Mountain district manager for Marcus & Millichap.
Of the 11,000 new apartments arriving this year in metro Denver, almost all are coming with pricier rents in a small number of urban neighborhoods. A big theme next year will be high-rise luxury, with 10 projects at 12 stories or taller, including one at 34 stories and another at 31 stories, currently underway in either downtown Denver or in Five Points.
All the new construction is capping rent increases in the luxury apartment market. Class A apartments in metro Denver rent for $1,765 a month on average and have a 7.5 percent vacancy rate, while class C units, with an average rent of $997 a month, have a low vacancy rate of 2.6 percent, according to Marcus & Millichap, which provided its own update on Denver’s multifamily market Thursday.
Marcus & Millichap said class A apartment rents in metro Denver rose 2.2 percent the past year. Rents for class B apartments were up 6.5 percent, while class C apartment rents were 8.7 percent higher.
That would indicate the market is hungry for affordability, but developers, for a variety of reasons, continue to build luxury units in the urban core.
Bird said investors are showing a greater interest in older buildings in outlying suburbs passed over earlier. But they are paying a premium, and that could come back to bite them and their tenants.
“In order to have any cash flow, they have to push the rents up,” he said.
