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— Multifamily Properties Quarterly — August 2016
A
s construction continues for
new apartments in Denver,
apartment investors and
developers continue to ana-
lyze apartment absorption.
Many participants in the industry
think there is a new normal and
that averages for yearly absorption
we have seen in the past are no
longer applicable. As multifamily
brokers, this is a topic we wanted to
explore with readers of the Colorado
Real Estate Journal. In this article
we will be checking in with experts,
looking at demographic trends and
economic factors that all are influ-
encing what many see as a new
normal in apartment absorption
here in Denver.
“Historically, apartment absorption
has averaged around 4,000 units a
year in Denver,” said Cary Bruteig
with Apartment Appraisers & Con-
sultants. Bruteig has been tracking
apartments and apartment absorp-
tion for a long time and was one of
the first experts we reached out to
for this article.
Bruteig said his statistics for the
last 30 years show that the Denver
metro area has absorbed 4,433 units
a year, on average. His historical
perspective was a good baseline
to check in on as we explore the
changes in apartment absorption
we have seen recently.
When we start to look at apart-
ment absorption we always first
turn to population growth, which
over the past several years has
trended higher. According to the U.S.
Census Bureau’s American Commu-
nity Survey, population growth for
Denver continues to be strong, with
Denver ranking as the No. 1 city in
the country for
population growth
rate, which was
2.8 percent for the
12-month period
ending July 2015.
This is compared to
the average annual
population growth
rate for the 20-year
period between
1994 and 2014 of
1.91 percent. Colo-
rado ranks third
in the U.S for net
migration.
The research
team at Develop-
ment Research
Partners pointed
out that for the
first time ever in
2014, millenni-
als – those who
were born between
1981 and 1997 and
are the largest
apartment rental
age group – now
exceed baby boom-
ers residing in the
state. The metro
area’s changing
demographics,
strong population and in-migration
growth all set the stage for higher
absorption numbers when compared
to the past.
Second, when discussing absorp-
tion, we need to look at job growth for
the metropolitan area. “Job growth in
Denver remains strong,” said Stephanie
McCleskey, Axiometrics vice president
of research.
When looking at numbers from the
U.S. Bureau of Labor Statistics, the
Denver metropolitan statistical area
has created 48,100 net new jobs over
the 12-month period ending in May.
The Bureau of Labor Statistics predicts
that 2016 job growth for the Denver
MSA will be 45,000 net new jobs, which
falls roughly in line with the three-year
average from 2012 to 2014 of 46,700
new jobs. It is important to compare
these numbers with the average from
the last peak in job growth, the years
from 2005 to 2007, when Denver aver-
aged only 27,400 new jobs per year.
When comparing the two, we can
see why the recent strong job growth
numbers can support the argument of
a new normal in apartment absorption
numbers.
Third, it is important to compare
activity in building permits in single-
family and multifamily development
and look at historical trends from a
supply side point of view.
The chart shows the historical num-
bers from the U.S. Census Bureau.
According to data provided by its office,
the Denver MSA has averaged 17,050
new housing unit building permits
each year from 1996 through 2015.
If you look at the yearly average for
the 12 years before 2008, though, it
averaged 21,078 housing units per year.
The yearly average since 2008 has been
only 11,007 housing units or almost
half.
If we look at the numbers for each
category, we also realize that there
has been a large shift in the market.
With single-family homes, develop-
ers are building only 38 percent as
many homes, on average per year,
John Blackshire
Broker associate,
multifamily
capital markets,
Transwestern,
Denver
TomWanberg
Senior vice
president,
multifamily
capital markets,
Transwestern,
Denver
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T:10.25”
T:7.25”
Transwestern
The number of building permits issued for single-family and multifamily development
each year, using data from the U.S. Census Bureau.
