September - Landlord and Tenant Trends in 2017
The Leasing Market is Softening
September 6, 2017
To our Colorado and Company Clients,
First and foremost, we want to acknowledge and thank you all for a great couple quarters here in Denver and Boulder. Your business and trust are of the utmost importance to us, and are very appreciated.Our intent, in this letter, is to keep you informed of the market trends we are seeing in the leasing markets, both from our analytics and impressions from our strong presence in the leasing market.
Rental Inventory Update
2017 has seen things change in the leasing world at a relatively rapid rate. As of mid 2017 the Downtown Denver Partnership has quoted that over 9,000 NEW residential units are being built downtown and a majority are apartments for rent. With the plethora of new apartment buildings being built in Denver and the metro Denver area, we are seeing rental rates shift significantly for the first time in many years. Privately held condos in the $2500-$4000 per month range have been hit particularly hard, and we are seeing a downward trajectory in their rental rates as apartment buildings are offering tenants incentives, flexible terms, and amenities, that are very difficult for our private owners to compete with. Generally speaking, we are seeing rents decreasing in the condo markets nearest these apartment communities, by $50 to $250 per month, depending on the size. Condos outside of these dense populations of new apartment buildings are being hit less hard, but are still seeing stabilizing or even downward trending rental rates. Tenants are savvy to this, using apartment pricing and incentives offered, to argue the pricing that privately held condos have been getting for years prior. They have many choices now, allowing tenants the luxury of selection and time, both of which did not exist prior. Landlords are having to get used to multiple showings on their units, average days on market closer to 45 days, tenant's bargaining rental rate, and having to give up “no pets” clauses and such in order to pull in quality tenants. That is not to say that every type of condo is being hit hard. Affordable and micro-units are few and far between, and units that are priced from $900 to $1500 tend to move much more quickly, as they are highly desired, especially by millennials in a market saturated with a large inventory of overpriced luxury units.
Homes and townhomes are having less of a hard time renting, though they have not been left out of this downward rental rate trend. In the past two years specifically, as Denver has grown in popularity and homeownership has become more expensive, we have seen a definite trend upwards in investors purchasing properties to rent. This influx of rental property inventory has created a more balanced market, with tenants getting to choose from more properties. Due to this, days on market and potential vacancy loss have increased slightly and rental rates have not generally increased from the 2016 rental rates. Much as in the condo market, many owners are having to give up on luxuries they have had in the past, such as a “no pets” clause, as tenants find they have more options and power.
The 2017 tenant trends in the luxury markets have also experienced some changes. The luxury market continues to have a stronger presence in the 35+ age range, though 20 somethings are becoming more frequent within a couple of specific scenarios. The tech and marijuana industries, along with employees having the ability to work from home, have brought forth some very well to do young tenants, who were not on the luxury radar before, and now are. Second, the younger tenants have really changed the face of roommates, and you will often find three or more of them asking to live together in homes. Owners who are open to roommates are finding they have more options than those who have restricted their tenant scenarios and can sometimes secure higher rental rates.
Some of the changing landscape with tenants includes animals specifically. As homeowners continue to use “no pet” clauses, pet owners are getting around it (both in a legitimate and non-legitimate manner) by establishing their animal as a service animal or emotional support animal. Both fall under the ADA and/or Fair Housing guidelines and a homeowner cannot reject, or charge a deposit on, an animal that has such a designation. Registering an animal is easy and tenants know it, and many find it easier than arguing about a deposit. Cat owners continue to have a harder time finding a home, as Denver’s ever-increasing love of dogs dominates pet clauses in leasing. Homeowners who open their home to cats will likely find many people clamoring to see their property and willing to pay large pet deposits.
Lastly, as millennials start to dominate the pool of renters in Denver, multiple advantages to homeowners and investors have appeared. Homes that are clean, updated, and near to public transportation (e.g. light rail, bus, bike paths) tend to be more popular. Having seen the crash their parents went through, many millennials are seeking affordable housing situations in increasing numbers, doing so through being ok with smaller spaces in ideal locations, flexibility in term (e.g. being able to replace one roommate for another or move for a job) or multiple roommates in homes. They are not seeking the same things their predecessors have.
Our Final Thoughts
The next two years will be a bit of a change for many homeowners seeking to rent their properties. As apartment inventory continues to flood the market in 2018, rental rates will likely not be increasing much, if at all, and are more likely to change positively for properties that are more desirable in specific ways and have less competition in their general price range or location. Marketing and presentation is going to become very important. Word of mouth, or simply using Craigslist, doesn’t work anymore and may cause higher rates of vacancy. As people become more tech savvy, and their phones and computers become their biggest allies in their rental searches, being present on multiple platforms and large networks, in addition to being professionally responsive is going to be incredibly advantageous. Additionally, those who are tech savvy, are also scam adverse, and will be looking for signs of a scam. Being able to provide a trustworthy face to your property will be important to those tired of scam artists looking for their money and social security numbers. Homeowners are going to have to learn to stick out, not blend in, so they are not lost in the mix of thousands of units as they come online this year and next. Lastly, homeowners and investors will have to become more flexible on terms as trends continue to favor tenants.
Thank you, as ever, our customers! We appreciate you!
Christina Freyer-Walker and Hadley Smith
President and VP of Colorado and Company Real Estate