CREJ - Multifamily Properties Quarterly - January 2015
Of late, one of the main questions that seems to always come up in conversations regarding the state of Denver’s apartment market is,- - “How long can the market continue to thrive before hitting the inevitable wall?” It’s an interesting question that deserves to be addressed. When looked at through the prism of the current context, the relevance of the observation becomes a discussion of what the city of Denver is evolving into, in contrast to what Denver has always seemed to be. Denver historically has been considered a relatively traditional town, and a place where things, for the most part, stayed the same. That old school, “cow town” mindset is now truly a thing of the past. Denver is evolving from the baby boomer capital of the U.S. into one of the youngest cities in the country, bringing with it a rejuvenated and reinvented outlook on what today’s residents consider important when it comes to how and where they live as well as why. Yes, there is a historic amount of new product being delivered, at rents that would have been considered unrealistic to those living in Denver 10 years ago. But look at how and where Denver has grown in those 10 years. For those of us who have called Denver home for the past decade, I ask: Would you have picked the Highland neighborhood as an area you would have lived in 10 years ago? What about the Baker neighborhood? Five Points? River North Industrial District? I argue the answer is probably no. Now, fast forward to today. The Highlands, especially if you were newly graduated from college and single? RiNo, which now houses some of the top socials venues in the city? Umm, yes please. And you would pay an accepted premium to live in those areas today because the price is well worth the location. Denver is now one of the younger cities in the country, and it continues to get younger, and these younger residents rent. According to the U.S. Census Bureau, the median resident age in Denver has fallen to 33.7, a stark contrast to the median age of the U.S. at 37.6. Let’s also not forget that Denver has become the beer capital of the U.S., and enjoys all four seasons, while still being able to boast 300 days of sunshine per year. Denver and the surrounding markets always have been some of the best places to live; it just so happens that now, the rest of the county knows this and people are flocking to the Mile High City. In an October 2014 article in the New York Times titled, “Where Young College Graduates are Choosing to Live,” Denver was listed as third in the country, nearly doubling that of the national average. This continually increasing influx of college grads has had a twofold effect on Denver: One, it has made Denver a much younger city, and two, Denver now can boast that it is one of the most highly educated cities in the country. During the depths of the Great Recession, Denver continued to see its population increase even as employers were downsizing. The most common response to why someone would move to Denver without a job was, “If I’m going to be unemployed, I might as well be unemployed in a place where I want to live.” This widespread mentality did not fall on deaf ears. With a young, highly educated workforce comes employers and job growth. Employers took note of the trends in population and identified the metro as a core area to establish a presence and consider expansion of existing operations, as well as looking to establish their presence. Denver’s current growth cycle is experiencing both. This is attracting younger, educated residents, who then look to rent. Denver is a city that offers both a high quality of life and one of the top metropolitan areas in the country to find a job and start a career. This combination will keep perpetuating the success that Denver’s apartment market has experienced over the past three years. The mentality of today’s resident is vastly different than 10 years ago. Aside from the high barriers to entry for homeownership in the metro area, which is simply not an option for many, how people view lifestyle is vastly different as well. The average person is now getting married later in life, therefore staying single longer. The average couple is choosing to start a family later in life. Both of these factors denote a trend away from ownership and toward renting. According to the Metro Denver Economic Development Corp., residents ranging from 18 to 35 years old in 2014 made up nearly 22 percent of the total population for the metro area, equating to roughly 800,000 residents. In comparison, the total base of apartment units today is approaching 300,000. I argue that Denver will not be looking at a softening apartment market after new product hits lease-up. Instead, I see a market that continues to prosper for a number of years. Will we see year-over-year rent growth maintain 10 percent to 12 percent, as it has for the last 36 months? Probably not, but I argue that vacancies will remain compressed even with the high volume of construction and new deliveries.