(Continued from page 2)
By comparison, 49 projects with 11,420 units were proposed at the end of the 1
st
quarter. Of the proposed projects,
however, we anticipate that only about 3,000 to 3,500 units are the most likely to start construction in metro Denver
during the next twelve months.
The reduction in units underway indicates the beginning of a necessary slowdown in development activity in the face
of the softening market. However, to put the amount of new construction into a starker perspective, metro Denver
only experiences net absorption of about 5,000 to 6,000 apartment units in a "normal" year. Too much inventory is in
the pipeline.
From the early 1990s until early 2001, the vacancy rate in metropolitan Denver trended in a 4% to 5% range, allowing
rental rates to increase and encouraging developers, investors, and lenders to start new apartment properties. As the
economy slowed last year and finally fell into recession, the vacancy rate rose as demand declined and new units
came on stream.
The following chart shows vacancy, net absorption and development trends in metropolitan Denver. Vacancy rates
are as of the 3rd quarter of each year. 2002 numbers are for the first nine months of the year.
During the 3rd quarter
of 2002 developers
finished 2,850 units in
apartment communi-
ties of fifty units or
more in metro Den-
ver. Units were com-
pleted in all seven
counties, led by
Arapahoe with 965
units. Douglas, Denver
and Jefferson counties
each had completions
of more than 300 units
during the 3rd quarter of
2002. For the first nine
months of 2002 devel-
opers have completed
6,775 units in metro
Denver and started only
3,687 units (in commu-
nities of fifty units or
more).
In 2001 Denver experienced a substantial amount of negative absorption, indeed, the worst in at least 20 years and
the first year to experience negative absorption since 1988. To make matters worse, developers completed 7,095
units in 2001, with well over half of those located in the southern and southeastern suburbs.
The 3rd quarter 2002 study of the apartment market for the Apartment Association of Metro Denver estimated that
5,242 units were absorbed during the first nine months of 2002, including units in small properties. The association's
report also estimated that the metro vacancy rate rose from 6.8% at the end of the 3
rd
quarter of 2001 to 9.4% at the
end of September 2002.
(Continued on page 4)
Volume 1, 4
The Apartment Perspective
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
New Units Completed
5,669
6,445
3,526
5,594
7,761
5,626
7,095
7,810
Net Unit Absorption
2,752
6,355
4,058
5,818
5,432
6,604
-2,904
5,242
Percent Vacant
4.30%
5.30%
5.10%
4.60%
4.50%
4.90%
5.70%
9.40%
1995
1996
1997
1998
1999
2000
2001
2002
Vacancy, net
absorption and
development
trends in
metropolitan
Denver
Page 3
The Metro Denver Apartment Market
(continued)
James Real Estate Services, Inc.
