New high-end apartment units cause rent spike

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The average cost of apartment rent in Colorado Springs continues to rise as more high-end units enter the market.

“Part of this most recent increase really isn’t a rise in rents as much as the product that is coming online and being included are higher-end properties,” said Laura Nelson, the executive director of the Apartment Association of Southern Colorado. “When you take the average rent over the entire city, obviously, when those higher end units get added to the total, the average jumps.”

In the past five years, average apartment rent has increased from about $807 to $1,157, according to the Colorado Springs Metro Area Apartment Vacancy and Rent Study.

Between April and June, 222 units were added to the local apartment stock. Those additions mainly came from more buildings being finished in northern Colorado Springs at the Overlook at Interquest, the Springs at Allison Valley and La Bella Vita Apartments.

In the near future, Nelson believes another spike in rent might occur because the majority of the announced apartment projects and those already being developed in the city are also considered luxury and not necessarily affordable.

“For instance, there is more coming online this month, such as the 333 ECO Apartments in downtown, but those are very high end,” she said.

Nor’wood Development Group and Griffis/Blessing Inc. teamed up to build two downtown apartment buildings, including the 169-unit 333 ECO Apartments building on the corner of Wahsatch and Colorado avenues, and a 187-unit apartment building on the corner of Cascade Avenue and Rio Grande Street.

“[The two projects] will be for apartments even higher in cost than those that just came online in the north end of town,” Nelson said.

Still, she says any supply being added to the market is beneficial because it will help create more vacancies.

“Those folks who are looking to get a newer unit will move up and open up some of the affordable units,” Nelson said. “Rents were really low for a long time, so that’s part of this big increase that’s been happening too. The owners were almost idle for a decade, and now that the market is ripe, they have to recoup and are doing a lot of renovations and that kind of stuff.”

Some apartment complexes in the city recently started offering move-in deals, more of an indication the recent rise in the monthly rent average is because of additional high-end units and not a market-wide increase.

“There are some properties in the middle of town because of military deployments that have had to add some specials,” Nelson said. “The military is our largest group of renters in the Springs, so when they leave, even for a short time, it can really affect the apartment market.”

Apartment prices also can vary significantly depending on their location and when they were built.

“Some of them drop down as low as $900 a month; some even lower than that,” Nelson said. “So there are more affordable units out there, but they are obviously not the state-of-the-art ones that are coming online now or brand new.”

These trends haven’t been limited to Colorado Springs. Nationwide there are not enough apartment units to meet demand.

“Denver’s market is actually finally starting to turn — after years of rising rents — because they have added, like, 200,000 units in recent years,” Nelson said. “They have a lot of apartments coming online a lot faster than the Springs, and we still are getting runoff from their high rents with people moving from there to here.”

Likewise, the city continues to see an influx of out-of-state people relocating to the Springs.

As of April, the Colorado Springs metropolitan area’s population is about 734,400, which is an increase of roughly 11,100, or 1.6 percent a year, since 2010, according to HUD’s July Market at a Glance report.

“People just love Colorado,” Nelson said. “It’s really hard to get caught up with so many people moving here and looking to rent apartments.”

Steve Posey, the Department of Housing and Urban Development director for Colorado Springs, said it’s individuals living on fixed incomes, including seniors and disabled people, who suffer the most when rent goes up.

“They typically are not able to adjust very well to changes in the rent,” he said.

Both Posey and Nelson said part of the reason there aren’t more affordable apartment projects being built is because of the complexities involved in financing them.

“It can take quite a while to get all the money lined up that is necessary to build them,” Posey said.

The developer is responsible for putting together the project’s financing package, he said, adding the funding can be complex as it typically comes from various sources such as tax credits and “soft money” from local governmental entities.

He is aware of a few affordable apartment projects currently being built in the city, which includes a 180-unit senior project to the northeast.

“There also are multiple developers who have contacted my office about starting the process of identifying a piece of land and putting together the financing for more [affordable housing] projects that will be in the pipeline later this or early next year,” Posey said. “They are different types of projects but for sure more workforce housing and another senior project are coming.”

Meanwhile, Nelson said neighborhoods throughout the city need to become more accepting of diverse housing stock that includes affordable options.

“We have more and more people needing to rent, and it shouldn’t be so cumbersome to get those [affordable projects] built because people don’t want them near where they live,” she said.

Posey expects to see apartment rent prices level and possibly even fall later this year or in early 2019.

“At the moment, there is a lot of apartment rental inventory that is either under construction or in the pre-leasing stage,” he said. “Once those units are actually completed and fully leased up, I think both the pace of apartment building here in the city and the rent could potentially drop a little bit.”