Denver Market Update: April Rent Collections Report
April, 2020
April Collections
Apartment owners across Denver braced for what they thought would be a rough month of collections due to the COVID-19 pandemic. With many apartments in the Denver MSA occupied by service industry workers, many owners anticipated lower collections for the months ahead.
This turned out to not be the case. Many owners’ collections were higher than expected. In our sample of roughly 20,000 units across the Denver MSA (Denver, Lakewood, Aurora, and Littleton/Englewood), collections averaged 90%, not including vacancies already accounted for in owners’ and managers’ portfolios. Overall, collection rates fell by just 3% to 5% in April. This news was welcomed by all Denver area apartment owners
Outlook for May Collections
As positive news about April collections started to roll in, the focus immediately shifted to May. This will continue to be the topic of conversation in the coming weeks with many believing that, because most residents were still working through mid-March but will not be working in April, May will be a true test of the market’s resilience.
Most owners and management companies that we have talked with believe that May collection rates are dependent on how well the CARES Act is rolled out over the next couple of weeks.
Most media outlets are reporting that most stimulus checks should be in resident’s bank accounts between April 15th and April 30th. If these reports are accurate, renter collections should remain elevated. If this is not the case, we foresee the possibility of an additional 10% to 15% drop in collections. Some opinions suggest it could be even closer to 30% delinquency.
Leasing
In response to our survey conducted at the beginning of April, most management companies reported that leasing has been relatively strong. Others stated that, while leasing remains strong, they have seen a decline in overall traffic compared to spring of last year.
As the pandemic changes renter behavior, we see increased tenant decisiveness as residents look at fewer apartments and make decisions more quickly. We also see a spike in the number of renewals as residents make the decision that, if they don’t have to move, they won’t. Overall, management companies have had to adapt with many offering tours virtually via web-based platforms.
Market Sentiment
Market sentiment remains relatively positive amongst most owners, investors, and management companies despite the understanding that the next couple of months may be tight. Many owners suggest that they see this as a shorter-term problem rather than a long-term market disruption.
As of now, we are trying to focus on how to address the immediate effects rather than predicting lasting changes within the market. As understanding of COVID-19 increases, consumer confidence will improve. This will also bring clarity and help our country and economy move forward.
Out Market Opinion
While the situation may seem bleak from our current vantage point, we believe that the Denver market for class C products is well-positioned for stable, or even a slight increase in, rent and occupancy rates over the next 6 to 12 months.
Renters that have been stretching to afford mid or high-rise apartments will become more conservative with their rental budget. We predict that they may choose to forgo the “non-essential” amenities of class A and B apartments in favor of class C products.
Rental demand for apartments will also be supported as home values stay elevated and renters’ budgets become more conservative. This will widen the gap between what residents want and what they can afford, forcing them to stay in the rental market longer.
Closing Thoughts
As brokers during these uncertain times, we are striving to inform and help owners understand exactly what is going on in the Denver multifamily market. We are happy to get on calls, answer emails, and do anything necessary to help our clients during this time. We hope that you and your loved ones are staying safe and healthy!