Denver Market Update: June Rent Collections Report
June, 2020
May Revisions
May rent collection rates ended the month at 97% up for percent from the numbers we reported during the middle of last month. This high collection rate once again demonstrates that most renters continue to fulfill all rental obligations. Overall, this was another strong month of rent collections for property owners and management companies. Since the shutdown began in mid-March, many property owners in the Denver MSA have reported unexpectedly high collection rates that resemble pre-COVID levels. The continuation of these elevated rates is largely explained by the success of Federal stimulus efforts.
June Collections & Outlook
Collections as of June 15th were in line with May collections for the same time period, reaching a steady 93% across the 30,000 units we surveyed in the Denver MSA. Because of this month’s similarity to May’s collection trends thus far, we expect to conclude June with collections rate in the upper 90s. This continues to instill confidence among many owners, management companies, and lenders. A combination of factors including elevated collections rates, an extremely high leasing velocity, and relatively stable rental rates signal that the summer months will resemble those in previous years.
June has seen an acceleration in reopening efforts with restaurants leading the pack. While restrictive guidelines like 50% capacity limits and heightened sanitation requirements remain in place, we see most Denver restaurants open or on their way to being so. We also see many restaurants embracing creative efforts to expand their capacity including using their sidewalks and parking lots as outdoor eating areas.
According to Moody’s Analytics, Denver, is in the top 10 best cities to bounce back from the coronavirus. This status is supported by Denver’s rapid pre-coronavirus growth rate as well as Denver’s highly educated workforce. Unlike previous recessions, states like New York and California are poorly positioned to recover because of their high population density. Denver is not burdened with this same density problem and is thus positioned for a strong recovery.
According to CBRE Research, the national rental turnover rate is at the lowest level in 20 years, falling from 47.5% in April 2019 to 42.1% in April 2020. Low turnover rates carry more pros than cons, providing owners and management companies with cost savings both from the continuation of rental income and from lower “make-ready” expenses. While Denver does have a higher turnover rate than the national average, continued strong leasing activity, stable rental rates, and continued in migration will support the market during the year’s most leasing-heavy months.
Our Market Opinion
Over the last decade, Denver has seen a large population increase (i.e. renters) which has rapidly expanded the MSA’s rental market. This large influx of renters, along with the high quality of life Colorado offers, has made Denver MSA an attractive investment opportunity for investors from both coasts. We strongly believe that post-coronavirus Denver will see a continued rise in population. This trend was present before coronavirus, and we believe this effect will be exacerbated as people continue to move out of states that are experiencing more extensive shutdowns and slower recoveries like Illinois, California, and New York. The continuation of shutdowns in these major states weighs heavily on companies and workers, forcing a majority of employees to work at home for extended or indefinite periods of time. This allows for companies and renters alike to consider relocation to regions like Denver that are experiencing a stronger recovery. Population growth combined with Denver’s high housing prices and renters’ strong propensity to rent for longer is a recipe for long term success for the Denver market.
Despite this positive outlook, there are still potential difficulties ahead for owners, management companies, and renters. The end of July marks the expiration of many stimulus efforts including PPP/EIDL and the additional $600 per week provided by expanded unemployment. While the future of new stimulus efforts is uncertain, we do know that the White House began discussions about a potential second round this week. If there is not a continuation of stimulus efforts, some believe that the end of July will herald a significant drop in rent collections.
In addition to expanded stimulus efforts, economic recovery will also rely on a series of uncertain factors including the degree to which the country reopens, the number of jobs that are added, and the number of workers who cannot return to work. We will be tracking recovery responses over the coming months and reporting back, continuing to keep you up to date and informed.