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Page 6 — Multifamily Properties Quarterly — February 2017
Market Update
The commercial real estate
market experienced a strong
year in 2016, with economic
momentum expected to carry
into 2017. Apartment con-
struction in the Denver metro and
Colorado Springs has been consis-
tently increasing, and this trend is
expected to continue in 2017. The
current strength in the job market
will continue to support apartment
absorption over the coming year,
with expanding construction and an
influx of new residents persisting
through 2017.
Despite job gains in the Denver metro
throughout last year, a slight slowdown
in 2017 is anticipated, with 41,500 jobs
expected to be added, down from 46,000
jobs in 2016.With a continued increase
in construction, vacancy may rise to 5.5
percent this year. However, the rise in
homeownership costs in Denver will
contribute to the increase in apartment
construction and absorption, signaling a
positive outlook for investors.
Throughout 2016, job growth increased
nationally, and metro Denver and Colo-
rado Springs have
reflected this trend
and continue to look
positive for 2017,
despite some tight-
ness in the labor mar-
ket and a slight step
down in growth. In
spite of a certain level
of market uncertainty,
vacancy remains low,
particularly in Class B
and C properties, and
apartment absorption
continues to show
strength. Denver, in
particular, has been experiencing a con-
struction boom and this is not expected
to slow in 2017.
Job growth, along with costly and
limited single-family home options, are
pushing households toward apartments
as homeownership costs continue to
rise and outpace wages and rental costs.
This trend promises growth in apart-
ment absorption through 2017, and cir-
cumstances have been driving a boom
in construction with around 30,000 units
added over the last four years.Vacancy
decreased slightly in 2016, but is expect-
ed to moderately increase this year as
construction continues to rise. Close to
11,900 apartments are expected to be
added in 2017.
Nationally, apartment construction in
2017 will reach its highest level in over
30 years. Households turning to rental
options over ownership will continue to
bring demand for apartments, and mil-
lennials – the portion of the population
with the highest propensity to rent – are
further supporting this trend by provid-
ing a continual flow into the workforce.
Although the Denver area sees a
consistent influx of new residents,
currently it is experiencing a some-
what tighter labor market. Positive job
growth sustained household formation
in 2016. However, market uncertainty
following the election is likely to cause
some turndown, with just a modest
expansion expected in 2017, accord-
ing to an article written by Aldo Svaldi,
“Colorado Economy Facing Headwinds
in Coming Years.” Projected job growth
in 2017 will be 2.9 percent, or 41,500
jobs, which is slightly down from
2016’s numbers.
In Colorado Springs, job growth is
expected to remain largely positive,
according to the University of Colorado
Springs Economic Forum, according to
a Gazette article written byWayne Hei-
lman. The metro’s housing market also
is expected to remain robust. Colorado
Springs ranks consistently high in job
growth within the state, and growing
technology, science and math-skilled
industries continue to attract skilled
labor into the area, according to a Vec-
tra Bank 2016 report. The slight labor
shortage Denver and Boulder are expe-
riencing may affect Colorado Springs’
economy, and job growth could poten-
tially slow within the next year or two.
At the end of 2016, the area’s unem-
ployment rate fell to 3.5 percent and
local payrolls have shown growth over
the last 12 months, a positive sign for
the coming year.With this improve-
ment comes higher consumer confi-
dence, according to Heilman, and an
expected boost to the local economy.
With the vacancy rate in Denver
expected to remain below 2000 levels,
increased construction has resulted in
significant interest frommultifamily
investment buyers. Household forma-
tion will remain steady in Denver and
Colorado Springs, and investors can
expect to see sustained demand for
rentals over homeownership.
Decent competition in transaction
activity will keep prices high, and
private, local buyers are particularly
active in the market. Suburban areas
will supply upside potential for buyers,
as Class B and C buildings are in high
demand. Low vacancy levels support
healthy rent growth in the Denver area
and allow investors to capitalize on
net operating incomes and property
values. Sellers are reinvesting in high-
er-yield opportunities in other metro
locations as well as Colorado Springs.
In spite of some market uncertainty
as 2017 kicks off and a slowdown in
job growth, apartment construction
and absorption remain healthy in
metro Denver and Colorado Springs.
Investors can expect to see vacancy
levels remaining low and an increase
in rental rates, at around 3.5 percent.
The intersection of high ownership
costs and increasing apartment con-
struction will keep absorption high,
offering both sellers and buyers a
strong market through 2017.s
Greg Price,
First vice president
investments,
Marcus &
Millichap, Denver
The slight labor shortage Denver and
Boulder are experiencing may affect
Colorado Springs' economy, and job
growth could potentially slow within
the next year or two.