Colorado Real Estate Journal - September 2, 2015
The Denver light-rail system consists of 48 miles of track connecting 46 stations. With construction currently underway on five different light-rail lines, an additional 98 miles of track and 34 new stations are expected by 2018. As a result of this rapid transit growth, pun-intended, transit-oriented rental apartment developments are abounding and attracting an urban-centered demographic focused on finding a sense of place that minimizes transportation costs and congestion hurdles. The mixed-use developments along TOD stations are further connecting Coloradoans’ doorsteps directly to the airport, sporting venues, downtown attractions and suburban locations like Aurora and Wheat Ridge. The level to which demand is driving development and investment to previously overlooked areas, including Broadway Station and the Regatta Plaza at Nine Mile Station, is now evident. We compiled an inventory of rental apartment buildings with more than 20 units from CoStar’s database for the seven-county area of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties. The data in the charts details how apartment characteristics change with proximity to light rail and how those characteristics differ among individual light-rail stations. Furthermore, a proximity comparison of apartment supply and characteristics by unit type between January 2010 and August 2015 and for units currently under construction and planned also is shown. In Chart 1, apartment unit characteristics are segmented into three timeframes – a 15-minute walk, a 16- to 60-minute walk and a 60-plus-minute walk from the nearest light-rail station. The aggregated CoStar data assumes that it takes about 15 minutes to walk one-half mile. While light-rail stations tend to be built along populated areas that naturally command higher rents, regression analysis that isolates the true impact on rental rates of light rail from higher-priced real estate locations is beyond the scope of this article. Instead, this article focuses on poking holes in or confirming ideas about economic impacts on apartment rents, square footage, supply, unit mix and overall development trends along the lines throughout Denver. Chart 2 details apartment unit size, rent and rent per square foot by proximity to light-rail stations. There were 22,425 apartment units built over the last five years, and there are currently 27,716 apartment units under construction and planned within the seven-county area. Of the units built over the last five years, 41.1 percent are located within a 15-minute walk of a light-rail station, while 40.4 percent of units under construction or planned will be located within the same proximity. By comparison, 18.5 percent of units built over the last five years are located within a 16- to 60-minute walk time of a light-rail station, while 27.7 percent of units under construction or planned will be located within the same proximity. Finally, 40.4 percent of units built over the last five years are farther than a 60-minute walk from a light-rail station, while 31.9 percent of units under construction or planned are located at the same proximity. These statistics give rise to the notion that, although numerous sources and professionals are purporting a large volume of apartment developments occurring near light-rail stations, the exact distances at which these apartment developments are occurring need clarification. The number of apartment units under construction and planned within a 15-minute walk of a light-rail station as a percentage of total apartment construction is projected to decrease slightly over the next several years. In contrast, the number of apartment units under construction and planned within a 16- to 60-minute walk of a light-rail station as a percentage of total apartment construction is projected to increase by 49.7 percent, and the number of apartment units under construction and planned beyond a 60-minute walk of a station as a percentage of total apartment construction is projected to decrease by 21.1 percent over the next several years, according to THK Associates. The data totals shown for each walking time are weighted averages, and the 15-minute walk time category is further detailed according to light-rail station. For all unit types located within a 15-minute walk of a light-rail station, the average unit size is 885 sf, the average monthly rental rate is $1,873 and the average monthly rental rate per sf is $2.12. For all unit types located within a 16- to 60-minute walk from the nearest light-rail station, the average unit size increases slightly to 897 sf, while the average monthly rental rate decreases to $1,795, or $2 per sf. Apartment units that are located beyond a 60-minute walk from the nearest light-rail station have the largest average unit size of 942 sf, approximately 6.4 percent larger than the average size of units located within a 15-minute walk of light rail. These apartment units also are the cheapest, with average rents of $1,631 per month or $1.73 per sf, approximately 18.4 percent lower than the rate per sf for the average of all units located within a 15-minute walk of a light-rail station. It is interesting to note that while the average of all unit types increase in sf and decrease in rates from the 15-minute-walk proximity to the more than 60-minute-walk proximity, the individual 16- to 60-minute walk time unit sizes and rates do not appear to follow this trend consistently. For example, rental rates per sf for studio apartments were slightly higher in the 16- to 60-minute walk than for any other proximity. The highest rents per sf within a 15-minute walk of any light-rail station are found at apartments located near the 20th and Welton, 25th and Welton, Union Station and University of Denver stations. Studios and one-, two- and three-bedroom units that are located within a 15-minute walk of light rail command rents per sf that are 3.8 percent, 14.4 percent, 19.4 percent and 9.8 percent higher, respectively, than those unit types located beyond a 60-minute walk, according to THK Associates. Chart 3 details apartment development by unit type and by proximity to light rail over the past five years as well as for units that are under construction and planned. Analyzing units developed over the time frame of January 2010 to August 2015 shows that within a 15-minute-walk time, 9.9 percent of the total apartment units constructed were studios. As the distance from light rail increases to encompass apartments that are located within a 16- to 60-minute walk and located beyond a 60-minute walk, the percentage of studio units constructed drops to 6.2 percent and 3 percent, respectively. The percentage of one-bedroom units constructed is relatively constant as the walk time distance from light-rail stations increase. The percentage of two-, three- and four- bedroom units built as a percentage of total units, however, generally increases with distance from light-rail stations. This change largely is due to the fact that light-rail stations are built closer to downtown core areas with higher land values and rents that translate into a higher demand for smaller, affordable units. As people rent apartments in locations farther from light-rail stations, larger units become more affordable. The trend is proven, as four-bedroom inventory largely only exists in apartment buildings that are located beyond a 60-minute walk from light-rail stations. The units coming on line, however, appear to consist of unit mixes that are not tailored based on proximity to light rail. Over the same time frame, studio apartments as a percentage of total units developed decreased as distance from light rail increased. In contrast, studio apartments as a percentage of total units under construction and planned appear to increase with distance from light rail. The unit mixes of apartments that are under construction and planned depart from the last five years of construction when higher concentrations of smaller units were found closer to light-rail stations. This counter-intuitively suggests an assumption by developers that demand for smaller units over the next few years will not decrease as distance from light rail increases. To elaborate further on a comparison between the two time horizons of construction, there is a great shift occurring within each unit type built as a percentage of total units built. Although there are a total of 4,399 units, out of 27,716 units, under construction and planned that have not revealed unit mixes, approximately 85 percent of unit mixes are available. Over the last five years, studio apartments built within a 15-minute walk of a light-rail station accounted for 9.9 percent of total apartment unit development. Over the next few years, the number for studio apartments will jump to 42.7 percent of the total apartment unit development. In contrast, the number of one-bedroom units under construction and planned within a 15-minute walk of light rail is projected to decrease from 54.4 percent to 35.5 percent over the next several years. The number of two-bedroom units under construction and planned within a 15-minute walk of light rail is projected to decrease from 33.3 percent to 4.9 percent over the next several years. From January 2010 to August 2015, all studio units accounted for only 6.4 percent of the 22,425 apartments constructed. Moving forward, studio units are projected to account for a staggering 52.2 percent of the 27,716 apartment units under construction or planned. In contrast, this figure decreases from 11,517 to 6,311 for one-bedroom units, from 8,466 to 2,271 for two-bedroom units and from 836 to 272 for three-bedroom units from the last five years to the next several years. Chart 4 indicates that the station that saw the largest number of developed units in the past five years is Union Station, with a total of 2,988 units. This represents 32.5 percent of the total units constructed within a 15-minute walk from light rail. Over the next several years, units constructed at Union Station are projected to account for only 22.5 percent of all apartment units within a 15-minute walk of light rail. This is because the local environs surrounding Union Station have less available land for development. The next largest active station, Belleview Station, is projected to decrease from 10.5 percent to 2.3 percent of total apartment development occurring within a 15-minute walk from light rail. Apartment developments at 18th and Stout, Alameda, and Littleton-Mineral stations are projected to decrease in percentages over the next several years as well. However, apartment developments at 20th and Welton, Dry Creek, Lincoln, and 30th and Downing stations are projected to increase in percentages of total apartment development occurring within a 15-minute walk of light rail over the next several years.