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Page 14 — Multifamily Properties Quarterly — November 2017
Market Insights
I t is readily apparent
that Denver’s multifam-
ily market has surged in
recent years, reaching
new levels of strength,
stability and growth. Vacancy
rates remain below the mar-
ket’s historical average, sitting
at 6.6 percent, despite a large
number of deliveries over the
preceding three-year period.
Net absorption year to date is
on pace to break the 10-year
high achieved in 2014 (9,189
units of net absorption). Rent
growth has cooled slightly in
the past 12 to 18 months, but
it has been on a strong, posi-
tive run since coming out of
the 2009 Great Recession.
Most believe that the
recent slowdown is more of
a correction rather than a
warning sign. However, it’s
important to note how and
where this success originated
in order to
recognize
what warn-
ing signs
might sub-
stantially
affect them.
Upstream
of this mar-
ket growth
is a strong
foundation
of funda-
mental economic drivers that
are laying the framework and
positioning Denver for con-
tinued, sustainable growth.
• Population and demograph-
ic shifts. Population growth
has been one of the key driv-
ers for Colorado multifamily
with the true value coming
from the “who” as opposed
to “how many.”The answer:
millennials
and well-
educated
adults. Den-
ver ranks
among
top cities
like Aus-
tin, Texas,
Seattle,
Dallas and
Richmond,
Virginia, in
terms of
millennial in-migration to the
area.
Colorado also is the nation’s
second-most highly educated
state for residents with a
bachelor’s degree or higher,
according to the U.S. Census
Bureau. In October, Bloom-
berg released its annual Brain
Concentration Index report,
which ranked Boulder, Fort
Collins and Denver as No. 1,
4 and 10, respectively, in the
nation measuring business
formation as well as employ-
ment and education in the
sciences, technology, engi-
neering and mathematics
fields.
• Job growth and higher
wages. The second key
driver for apartment market
demand is Colorado’s ability
to continually add a con-
sistent number of new jobs
while maintaining one of the
nation’s lowest unemploy-
ment rates. Employment
gains for the Denver area
peaked in 2015 around 4
percent and has moderated
slightly since then. Colo-
rado employment increased
2 percent between August
2016 and August 2017, add-
ing 48,800 new jobs. A report
by the Brookings Institute
listed Denver as a high-per-
forming metro area with large
increases in employment for
research- and technology-
intensive advanced industries
like information, energy and
professional services. Colora-
do also ranks second, behind
North Dakota, in the nation
for lowest seasonally adjusted
unemployment rate in Sep-
tember. A recent Manpower
Employment Outlook Survey
indicated that over 30 percent
of metro Denver employ-
ers would be looking to hire
throughout the third quarter
(one of the highest rates in
years).
Large corporations are tak-
ing note of Denver’s poten-
tial and are investing in its
future. In June,
announced plans for a second
Colorado fulfillment center
inThornton, which will cre-
ate more than 1,500 full-time,
associate-level jobs. Trimble
Inc., a GPS-technology com-
pany, plans to add hundreds
of jobs once itsWestminster
office is expanded next year.
Another important factor
spurring multifamily rent
growth is the accompanying
growth in wages throughout
the Denver area. According to
PayScale Inc., a Seattle-based
compensation data company,
Denver tied for second place,
with San Diego and Austin, in
terms of year-over-year wage
growth across 31 major U.S.
metros. Area wages grew an
incredible 3.5 percent in the
second quarter.
• Threat of overbuilding in
core submarkets. Confidence
in future market performance
appears high throughout Den-
ver and Northern Colorado,
evidenced by the historic
number of units either under
construction or recently
delivered. More units are
under construction right now
(21,399 units) than in any year
since 2000 and is 158 percent
above the all-time average.
Nearly 12,000 new units are
forecasted to come on line in
2018, which is second only
to 1973 when 12,300 units
were delivered. As of the third
quarter, there were more than
10 properties simultaneously
in lease-up, with properties
targeting the high end of the
market seeing slowed traffic
and increased upfront con-
cessions.
So, at what point is the
construction pipeline outpac-
ing the actual demand for
new residential units in the
area and what warning signs
should we start looking for?
One key metric to follow is
the occupancy of these new
projects at delivery. New
construction delivering in
2017 has, on average, been
occupied at 35.8 percent at
the time of delivery, which
is below the all-time average
of 47.4 percent and a far cry
from the nearly 70 percent
occupancy at delivery seen in
2014. One encouraging coun-
terpoint to this recent shift is
that properties delivering in
2017 are achieving stabilized
occupancy much quicker
(nine months, on average)
than the prior four years. ▲
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Penny Bradbury
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720-639-5715
Cell: 720-217-5450
Timothy Hoppins
Director
Affordable Housing
720-639-5722
Cell: 303-378-0993
Stephen Wessler
Director
FHA
720-639-5718
Cell: 303-906-6154
3033 East 1st Avenue, Suite 815 | Denver, CO | 80206
Ryan Floyd
Senior director,
Greysteel, Denver
Scott Whitfield
Director, Greysteel,
Denver