Apartment vacancy rates on the rise in Colorado Springs

COLORADO SPRINGS, Colo. (KRDO) - According to data published during the fourth quarter of 2023 sponsored by the Colorado Housing and Finance Authority, the apartment vacancy rate for Colorado Springs sits at an average of 7.5%.

Housing analysts say that a "stable" apartment vacancy rate is about one point five to two percentage points lower than that.

While that may not sound like a lot, according to one of the data analysts who produced the 2023 report, that means under half of the new apartment units constructed in Colorado Springs were occupied as of last December.

"The construction pipeline of apartments in Colorado Springs has gotten so big that they're delivering more apartments in Colorado Springs than people who are renting them," Scott Rathbun with 1876 Analytics said.

He says over five thousand new apartments came online in Colorado Springs, while only 2,317 were occupied by the end of the year.

"As vacancy goes up, that puts downward pressure on rents," Rathbun said. "We've seen rents fall on average in Colorado Springs over year over year ... I believe almost 2 percent in total."

However, a 2 percent decrease in average rent prices doesn't add up to much when the average rent for an apartment is around $1500.

Local economist Tatiana Bailey says that even if rent goes down in a low-demand market, creating what is essentially a "soft market," and giving renters more negotiation power in the terms of their leases, it doesn't touch the crux of the problem of affordable housing.

"Builders and investors typically want to build a higher-end product. Why? Because the margins are higher," Bailey said.

That means even if there are thousands of apartment units sitting vacant, people may not be able to afford to fill them.

"I don't think it's that [investors] don't care about affordable housing, but they're looking for a return on their investment," Bailey said.

She went on to say that the report published by 1876 analytics as well as her own analysis of the housing market showed that the trend of vacancy could continue to trend upwards into 2024.

Rathbun agrees but furthered the projection by saying that this trend is part of a much larger year-over-year cycle of rising and falling development rates.

"It disincentivizes future development because people are afraid that they're not going to be able to make the return to cover the cost of construction," Rathbun said. "The reason we have cycles is that we overbuild, and then we quit building, and then eventually that supply goes away and then the demand is high again."