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Page 6 — Multifamily Properties Quarterly — November 2017
Market Update
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COLORADO | TEXAS
2785 Speer
Residence Inn
Park Regency Assisted Living
ONE PROJECT AT A TIME.
A mathematician, an accountant
and an economist apply for
the same job.The interviewer
asks each of them, “What
does one plus one equal?”The
mathematician replies, “Two. Exactly
two.”The accountant replies, “Two
… give or take three percent but, on
average, two.”When the economist’s
turn comes, he gets up, locks the door,
closes the blinds, sits down next to the
interviewer and says, “What do you
want it to equal?”
Economics is funny.While a snapshot
of economic indicators are what they
are, there are a number of levers to pull
and buttons to push in order to move
those indicators in the desired direc-
tion. Ideally, making the right moves
allows us to reverse a recession or
continue economic
growth. But, we all
know that what
goes up must come
might
disagree as to when
the next recession
will hit, but we can
all agree that it’s
coming … sooner or
later.
In general, bro-
kers are optimistic.
Whether that’s by
nature or nurture,
we feel it’s our obli-
gation to inform you that good times
are still ahead.There’s no doubt many
of you are concerned about overbuild-
ing the apartment market. Indeed,
there are nearly
30,000 units under
construction in
metro Denver with
another 25,000 in
planning.This cer-
tainly seems like a
lot, especially when
considering metro
Denver has permit-
ted approximately
4,000 multifamily
units per year on
average over the last
30 years.
Enter optimism.
Per Apartment Insights, annual
absorption was 6,069 in the third quar-
ter, which marked the 14th consecutive
quarter of annual absorption above
5,000. Annual in-migration for the Den-
ver metropolitan statistical area has
averaged nearly 33,000 people per year
since 2010. Metro Denver has experi-
enced annual job growth of 2 percent
or above in 67 of the past 69 months.
Denver’s economy is more diversified
than it’s ever been. As long as our econ-
omy keeps churning, strong absorption
and in-migration should continue. It
may not be enough to immediately
fill all of the units under construction
and currently in lease-up, but that just
means rent growth in some spots will
level off for a bit.
The Class A luxury market will see
the most moderation, and there might
be a few value-add plays that end up
extending their hold period, but given
current levels of leverage and under-
writing standards, the vast majority
should have no problemweathering
any slight dip in the market. All of that
could change if our economy enters
into another recession in the next two
years, but we don’t think that’s likely to
happen.
Instead, we’re busting out the cake
and cookies in celebration of the cur-
rent economic expansion’s birthday!
Happy 101st consecutive month! It’s
the third-longest economic expansion
in U.S. history – dating back to 1854, a
time when you could die from a splin-
ter because doctors didn’t understand
infection.
Not until July 2019 will it surpass
the 120 months during 1991-2001
to become the oldest U.S. economic
expansion. If you’re already doubting
that possibility, then you’re only look-
ing at the typical length of a cycle and
not the whole picture. First of all, you’re
pulling from a small sample size of 34
cycles. If you’re going to use past cycles
as a barometer, you have to analyze
all of their circumstances and indica-
tors.The Bulls only won 30 games in
1985-1986, but that’s not because they
assembled a bad team; it’s because
Michael Jordan was injured for 64
games.
There’s some truth to Janet Yellen’s
argument that cycles don’t die of old
age. Like living beings, they die of
symptoms. Just as modern medicine
has allowed us to overcome splinters
and extend life expectancy, modern
economics has allowed for extended
periods of economic prosperity.The
chart shows the growing trend of pro-
longed expansion.
This chart doesn’t show pre-World
War II times, when expansionary peri-
Travis Hodge
Vice president,
multifamily, capital
markets, JLL,
Denver
Craig Kalman
Vice president,
multifamily, capital
markets, JLL,
Denver
JLL
The growing trend of prolonged expansion in the U.S. since World War II.