CREJ - Multifamily Properties Quarterly - January 2015
A quick glance at any market report will tell you all you need to know about the Denver multifamily industry this past year. Key phrases such as construction boom, strong sales activity, busiest year on record, low vacancy, high absorption and rent growth littered the pages of quarterly market reports. The Downtown Denver Partnership offered a simple statement that could help explain this trend: “The Economic Update paints a clear picture: People want to be in Downtown Denver.” The strong multifamily market doesn’t start and end with downtown either; the entire metro area is experiencing high levels of activity. Projections indicate that the industry will continue to stay hot through 2015. “The multifamily industry is in good shape right now,” said Jeff Wikstrom, vice president of multifamily development at Evergreen Development. “There’s a demand in the Denver metro area for apartment units and when those units are coming onto the market, they’re being absorbed.” The positive business climate benefits everyone in the production chain, from title, legal and design consultants to contractors, bankers, property managers and brokers. Apartment communities provide safe, comfortable housing options to our growing work force, create jobs in the construction and management segments, and add increased property and sales tax revenue to our municipalities. There are many factors contributing to the high absorption rates, leading to the belief this current cycle can be sustained for a longer period of time. "Many factors are helping the apartment market right now, exemplified by the shrinking homeownership rate, like high student debt, flat incomes, a mobile workforce and minimal condo development," said Cary Bruteig, principal of Apartment Appraisers & Consultants. “The state recently released updated population projections, which are higher than last year,” he said. The Denver metro area has been one of the fastest-growing areas in the nation according to the U.S. Census Bureau. People having transient jobs, waiting longer to start families, paying back student loans or simply enjoying the appealing amenities offered at apartments are other reasons individuals are opting for apartment life rather than buying homes. How long this current cycle of apartment growth can last is still anyone’s guess. At the moment, there’s nothing to suggest that the multifamily market won’t continue on its upward trend into 2015 and beyond. Currently, almost 50 percent of building permits are allocated toward apartment buildings. “This is double the historical ratio of apartment permits,” said Bruteig. While the ratio of permits being allocated to apartment buildings could decrease, a reverse back to building more single-family or detached homes is unlikely, he said. As many know, multifamily development is cyclical. Having been through ups and downs, Wikstrom remains cautiously optimistic. “Everyone is busy, stretched and doesn’t have a lot of extra time because business is so strong,” he said. “Looking forward, we always need to remember the past and prepare for the times when the cycle slows. The key to surviving the slow times is what you do while things are good.” A look back to the down cycle five or six years ago tells the story – development slowed and companies either went out of business or downsized offices. “I think it is really important to remember those times, especially when we’re experiencing what’s currently happening,” said Wikstrom. Inexperience, greed and complacency are all factors that can lead to reckless behavior and are what separate good business people from savvy veterans who understand what it takes to survive the real estate roller coaster ride. Wikstrom said that how you conduct yourself and interact with others when business is good sets you up to “be able to keep the office open” when experiencing a downturn. Relationships are important in any business, but especially in the real estate industry where so many people and companies have a hand in making a development successful. Now that you have your peace of mind, let the good times roll.