Valley remains a renter’s market
December 9, 2003
A recent tally of the rental classifieds in this newspaper showed more than 150 “for rent” ads.
This year in Eagle County there are more long-term rental units available than ever before, and, according to property managers, fewer people looking for rental properties than in the past. It’s the fourth year of a reversal of a decades-long tight housing market in Eagle County.
“It’s definitely a renter’s market,” said Dale Bugby of Vail Resort Rentals, who has been in the valley since 1980. “I’ve seen a lot more availability than in years past.”
In the 1980s and 1990s finding a rental unit was more a matter of luck and a willingness to pay a little extra than it was a matter of choosing which unit to rent. Now the pendulum has swung and the new trend may continue. Property can be rented cheaper than before and leases tend to be shorter in duration than in prior years.
That swing has come from a number of quasi-public and private affordable housing projects, such as Avon’s 244-unit Buffalo Ridge, and low interest rates that make buying a home a viable alternative to renting.
What that means for property managers is that business as usual no longer works.
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“We’ve definitely had to resort to some clever marketing and incentives,” said Marybeth Walker of Vail Management Company. “It’s definitely a tougher market.”
She said she had to lower rents or offer one month free and shorten leases in order to fill some of the units she manages. She recently filled all of her units.
For Lisa Agett of Vail Property Sales and Management, it means some of the properties she manages are empty.
“There’s too much inventory and not enough workers,” she said. “There’s a lot of units open right now.”
A drive through the residential areas of the county reveals a number of vacancy signs proclaiming the availability of units.
The monthly rental price for units has dropped a bit, too. Agett, who has been managing property in the valley for two decades, said she estimates prices are 10 to 20 percent less than last year. Bugby estimates the rental rate of a two-bedroom unit will range from $1,000 to $1,200, while the highly coveted one-bedroom unit will rent for $900 or more per month.
Compounding the effects of the oversupply of rental units is a new force that landlords are contending with. Before the rental supply pendulum swung, property managers were often able to insist that renters sign a year-long lease. Not any more.
“People who are coming in just want a seasonal rental,” said Agett. “Used to be they’d do six months. Now we’ll do three months.”
At the same time more units have come on line, there are fewer people looking for housing. At the height of the building boom in 2000, when real estate sales hit $1.7 billion in annual sales, the burgeoning demand for housing for construction workers helped drive the market.
That market fizzled when a national recession, compounded by terrorism and war, caused the county’s construction industry to shrivel, and with that downsizing, part of the demand for housing also fell.
“A lot of the people are here on work visas for three months,” said Agett. “We’re trying to accommodate people as much as we can.”
Commercial space too
It’s not just housing rentals that are affected. The commercial real estate market has also been impacted by the end of the booming ’90s.
“The office market is overbuilt,” said Mike Walter of Walter Realty Group in Edwards. “When the boom stopped, people kept building.”
Walter said the retail market outside of Edwards still appears to be soft, but is improving.
“It’s not booming,” he said. “What I see is the bottom of the crash. We’re on the up-cycle and people are adjusting (rental) prices. It’s not unhealthy. It’s just the market doing its deal.”
But the oversupply in the residential market won’t be going away soon.
Vail’s $23 million, 142-unit Middle Creek affordable housing project is under construction and units will be available next fall. Vail’s Housing Authority floated bonds for a private developer to build the project.
That project, however, is being driven by historically low interest rates, and the desire by the town of Vail to reverse the downvalley migration of residents, which has been identified as one of the causes of the town’s decade-long decline in retail activity.
“What’s interesting to me is we have added impacts in Avon and when we add more in Vail, it will have an even more dramatic impact on landlords,” said Bugby. “I don’t know that it’s a good time to be a landlord.”
It is estimated that nearly three-quarters of the residences in Vail are second homes that remain vacant for large portions of the year.
Low interest rates
The oversupply of rental housing also comes at a time when plenty of purchasable entry-level housing projects are coming on line all across the county. Two Rivers in Dotsero, Buckhorn Valley in Gypsum, the Miller Ranch in Edward and other projects are opening up with dozens if not scores of affordable units.
But there’s also another housing market -the short term, or vacation rental, market for people who want to rent a private residence for their ski vacation. That market has been holding steady over the last few years, real estate managers said.
“We’re definitely up over last year,” said Walker. “We have not raised prices over last year. We’re optimistic it will be a good season.”
But the trend of booking at the last minute, driven perhaps by the convenience of online bookings, continues.
“We’re seeing a lot more last-minute bookings,” said Agett. “People are looking for (last-minute) deals.”
Bugby said much of his short-term rental inventory is booked for the holidays.
“Short-term vacation rentals appear to be better this year than they have the last couple of seasons,” he said. “Each year it gets more and more challenging because people are booking closer and closer to their arrival date.”
Eagle County’s dramatic increase in the residential vacancy rate isn’t unique. It’s a trend that is being felt across all resort towns.
Aspen’s vacancy rate doubled between September 2002 and this year, from 9.7 percent to 18.1, a state survey shows.
Eagle County’s vacancy rate shot up from 1.2 percent in September 2002 to 17.1 percent. In Glenwood Springs the vacancy rate increased from 10.1 percent to 12.5 percent during the same period while in Lake County, which serves as a bedroom community for both Summit and Eagle counties, the vacancy rate increased from 14.2 percent to a whopping 32.8 percent. Summit County’s rate increased just a bit, from 5.3 percent to 7.3.
Across the state, vacancy rates have declined a smidgeon, from 11.6 percent to 11.1 percent.
One developer of affordable housing, Michael Coughlin, developing Vail’s 142 unit Middle Creek, said the statistics in the state report may distort what’s actually occurring in the residential housing market.
“Conclusions are only as good as the data,” he said. “If the data is bad, so are the conclusions.”
Coughlin reviewed some of the vacancy data and said some of it comes from projects such as Vail’s Timber Ridge, which is being refurbished because of a mold infestation.
Coughlin said the report indicates that rents actually increased at the same time vacancies increases -an unlikely scenario he said..
He suggested that Eagle County’s vacancy rate may be closer to 12 percent instead of the 17 percent.
The average rent statewide is $776. To afford this monthly rent, a household needs to have $31,000 of yearly income, or an hourly wage of $14.90.
–Statistics based on the Colorado Division of Housing’s Multifamily Rental and Vacancy Survey for September 2003.
Cliff Thompson can be reached at 970-949-0555 x450 or email@example.com