Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.
Issue link: https://westernrealestatebusiness.epubxp.com/i/888015
48 • October 2017 • Western Real Estate Business www.REBusinessOnline.com LANDLORD VS. TENANT — WHOSE MARKET IS IT? It's the age-old battle of just who has the upper hand in commercial real estate — landlords or tenants? Unfortunately, there is no resounding answer as a look at two specific product types in two diverse Western markets can attest. MULTIFAMILY TENANTS FIND DENVER FAVORABLE COMPARED TO MANY METROS By Craig Stack and Bill Morkes, Multifamily Investments, Colliers International, Denver The population of Denver has been growing rapidly, and with the influx of new residents and businesses, the cost of renting has gone up. This has led some investors to question lately whether Denver has become too expen- sive relative to the area's wages. Rent Vs. Income in Denver Apartment man- agement companies often qualify resi- dents on a ratio of their gross monthly income before taxes to their rent. These companies typical- ly require that income be equal to or greater than three times the monthly rent to qualify. If a prospective ten- ant were earning $36,000 a year, or $3,000 per month, he or she would qualify for $1,000 per month at three times their rent. Another way of look- ing at affordability is the percentage of a household's gross income (annu- ally or monthly) that is spent on rent. If this person were paying $1,000 per month in rent, they would be paying 33.3 percent of their income toward rent. According to the Bureau of Eco- nomic Analysis, Denver has a median household income of just a little more than $70,000. The average metro rent in Denver at the end of the second quarter was $1,399 per month. If we annualize the monthly rent to $16,788 and divide by the annual income, we discover that average households in the metro area would be paying about 24 percent of their income on rent. One of Denver's most affordable submarkets is Aurora North East, which had an average rent of $1,039 per month at the end of the second quarter of 2017. A three-mile radius demographic report in roughly the center of this statistical submarket re- sulted in a $41,000 median household income. This means residents in this submarket would pay, on average, 30 percent of their income on rent. Affordability for Denver's mul- tifamily market drops, however, if we look at the household median in- comes of a single person earning the minimum wage of $9.30 per hour, or $19,344 per year. This popula- tion would be hard pressed to find an option that would allow them to live alone. In fact, a full-time mini- mum wage earner could only afford a monthly rent of $537. Using household median income data from the Bureau of Economic Analysis and average metro rents pro- vided by Axiometrics, we compared the percentage of income spent on rent across several major markets. The chart above speaks for itself. While a single minimum wage earn- er may struggle to live alone in most markets, including Denver, this metro is shown to be a much more afford- able market than many others across the country. These averages only take into ac- count apartment rents and belie the growing demand for affordability in some areas. Single-family housing prices have skyrocketed and the path to homeownership is difficult, espe- cially for low wage earners. Acres of trailer home communities have been bull dozed to make way for new de- velopment in Denver. Older, less ex- pensive houses have been torn down in favor of high-density, more ex- pensive urban development. There is a growing need to address entry- level housing, and many developers throughout Denver and the nation are working to tackle the problem. There are new high-quality Low Income Housing Tax Credit (LIHTC) projects breaking ground in many communities around Metro Denver. Creative solutions are making head- way, such as the redevelopment of an old hotel and ground-up develop- ment that includes more affordable "micro" units. The reform of construc- tion defect litigation laws is paving the way for condo and townhome development, often the first stop for entry-level housing. We only hope these solutions can keep pace with the demand. The Future Looks Bright Overall, these statistics point to a healthy apartment market in terms of rent in relation to incomes. On aver- age, Metro Denver renters are pay- ing 24 percent of their income on rent (based on average household incomes), far less than the maximum qualifying rent and less than the na- tional average. Given the steady in- flux of residents and the number of echo boomers still living at home with their parents, there is pent-up demand for more apartments of all shapes and sizes. Stack Morkes W H A T ' S B U G G I N ' Y O U ? Pest Control for Professionally Managed Properties OFFICE RETAIL INDUSTRIAL RESIDENTIAL Eco-Friendly Solutions | Serving Southern California Pest Control Pigeon Control Termite Control Rodent Control Bee Control Gopher Control 1.877.522.2377 | www.AccessExt.com Select Markets Ranked by Rent as a Percent of Income Source: Colliers International