The continuing dreary performance of the local economy amplified by concerns over the future of defense-related employment, a significant renter cohort, has put a damper on the local apartment market—even with the recent augmentation of demand that arose from weakness in the single-family sector. Thus, while net absorption has remained positive (69 units through the first half of 2012) and in excess of same-term new supply (until October 2012, there had been none delivered since 2009), vacancy rates have been very low and rent growth has been positive in the 32,237-unit apartment market, there has been little enthusiasm for new construction.
To some extent, however, that may be changing, albeit cautiously. The 230-unit Peaks at Woodmen complex completed construction this October in northwest Colorado Springs. While no other market-rate projects are scheduled to deliver this year, three, with a combined total of 682 units, were under construction per the date of this report. Of these, one, the 260-unit North Pointe Apartments in the same submarket, is expected to complete in December 2013. Nor’Wood Development Group, active with other local projects as well, is the developer. Construction began in June. According to a broker with Apartment Realty Advisors as reported by the Colorado Springs Business Journal in August, “Everybody is really sensitive to supply and demand. There have been a number of announcements, and not all of them will be built.” Adds this source, “Rents aren’t quite where they need to be, in most cases, to justify new construction. But they’re getting close, which means they’re close enough.” Current construction, according to this perspective, is relying on additional rent growth. “I don’t think there’s any question it will,” adds the broker, “it’s just—how long is it going to take?”
Reis’ reporting on market-rate rents shows moderate but steady increases from 2008 through 2011, followed by accelerating growth this year. At $733 and $683 per month, asking and effective averages for the latest quarter were up 1.1% and 1.3% from the quarter before and were up 1.5% and 2.2% since year-end. With net absorption through July and August at 63 units, rents showed additional gains of 0.6% by both measures. The market, meanwhile, remains tight. Second quarter vacancy was 4.5%, down 30 basis points from the quarter before, down 40 year-over-year. By the end of August the rate had slipped to 4.3%.
October’s delivery will have no negative impact on the vacancy rate, which is projected to close the year at 4.2%. Ongoing rent growth will result in gains of 3.5% and 4.6% for the asking and effective averages for the year, according to the forecast. Barring unforeseeable setbacks, the market should remain tight in 2013 as rent growth remains strong and measured development continues. The military base issue bears watching.