With rising apartment rents far outpacing the rise in the prices of goods and services, investing in multi-family properties can serve as a hedge against inflation, industry experts say.
Apartment rents nationwide are an average 19 percent higher than they would be if they had grown only at the rate of inflation from 1999 to today, according to research by Grubb & Ellis Co., a real estate advisory firm.
In Denver, rents are 37.8 percent higher than inflation.
“Denver has a younger population of people moving into it and renting rather than buying,” said Steve Rahe, senior vice president of Grubb & Ellis’ multi-housing investment group.
“We have historically good immigration levels, and generally, people rent first,” Rahe said.
It is a good time to buy because of the threat of inflation resulting from government spending and because no new construction will hit the market for several years, said Tom Wanberg, another Grubb & Ellis senior vice president.
“Investors are moving toward apartments because inflation is coming,” Wanberg said.
Meanwhile, rents for other types of property have not kept pace with inflation over the long haul.
Denver apartment rents adjusted for concessions are 26.8 percent over inflation.
Office rents adjusted for concessions are 4.21 percent over inflation, and industrial rents are 7.15 percent above inflation, according to the Grubb & Ellis analysis.
Short-term leases for apartments allow more flexibility to adjust rents upward as the economy improves.
“As jobs grow and unemployment decreases and we get closer to the 5 percent vacancy rate, we will see rent inflation,” said Lauren Brockman of Orion Real Estate Services, a Houston based multi-family management company.
The apartment-vacancy rate for metro Denver fell to 7.4 percent during the third quarter, marking the first time it has fallen in seven quarters.
The vacancy rate is at its lowest level since the third quarter of 2008, when it was 6.5 percent, according to the Apartment Association of Metro Denver and the Department of Local Affairs Division of Housing.
A vacancy rate of 5 percent is considered equilibrium.
Denver apartment investor Dave Thyfault, 60, said the vacancy rate in his 300 units was about 14 percent a year ago. Today, it’s down to 7 percent.
“That’s putting upward pressure on rents,” he said. “It’s a good hedge against inflation. I’m encouraging my kids to buy now.”
With population growing at a faster rate than apartment construction, it’s likely the vacancy rate will continue to fall. Apartments also have lower property taxes than other types of real estate.
Existing Denver inventory has increased by an estimated 1.5 percent over the past 12 months with the completion of 2,570 rental units, according to a report by Marcus & Millichap. About 3,160 apartment units are under construction in metro Denver.
“The barrier to entry on new construction has been more onerous than in other markets,” Wanberg said.
Investment activity in the second and third quarters was up from the first quarter, and the median price of an apartment property in Denver increased 1 percent to $63,100 per unit.
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
