CREJ - Multifamily Properties Quarterly - May 2016
Northern Colorado is a great place to live. Just ask nearly anyone who lives here and he’ll be happy to tell you. In many cases, you may not even have to ask the question to have someone tell you how much he loves the area. With the quality of life that Northern Colorado residents enjoy and the enthusiasm with which they explain to others why they love the area, it’s no wonder that the area continues to experience strong population growth of approximately 2.5 percent year-over-year from 2014 to 2015. Quality of life means different things to different people, but several of the top contributors to the definition include: 300-plus days of sunshine per year, an abundance of outdoor recreation opportunities, world-class craft breweries, the vibrancy contributed to the region by two major universities, convenience and proximity to the Denver metro area with a smaller-town feel, relatively low crime and the bike culture. People don’t just come for the beer and bikes, however. Northern Colorado benefits from a robust and diversified economy, which includes industries ranging from bioscience and energy to agriculture and advanced manufacturing. Colorado State University, the University of Northern Colorado, the diverse regional economy and opportunities for employment all contribute to a region with a highly educated workforce and strong employment growth. This is evident in the unemployment rates in Larimer County, 2.9 percent as of the end of 2015, according to a University of Colorado study, and Weld County, 3.4 percent – both are below the state average of 3.8 percent. So what do population and employment growth have to do with the apartment market? Demand. Our firm has been involved, either as listing brokers or selling brokers, in land transactions for the development of over 1,100 units in the past three years, with contracts in place for nearly 800 additional units. I am often asked the question, “Is Northern Colorado overbuilt, or will we be overbuilt soon?” The answer is relatively simple: No. The apartment market in Northern Colorado remains quite strong, although the Class A or institutional-quality communities experienced some minor softness in 2015, largely due to 500 units being in leaseup in the Loveland area. Those 500 units are roughly split between Gateway, near the southeast corner of Interstate 25 and U.S. 34, and Bristol Pointe, in southwest Loveland. Both of these communities experienced relatively strong leaseups. Gateway is approximately 50 percent leased and Bristol Pointe is about 80 percent leased. Another likely contributing factor to the temporary softness was the extreme increase in rental rates at several communities, which resulted in a drop in occupancy at those communities as renters went elsewhere. Those communities then lowered rents to be more competitive in the market and they experienced significantly increased occupancy rates. With that said, I believe demand for apartments in Northern Colorado will remain strong given the population and employment growth mentioned, as well as rapidly rising home values, which keeps many would-be homebuyers in the rental market. Fort Collins’ median home price is projected to reach $350,000, while Loveland’s median home price is projected to reach $335,000 and Greeley’s median home price is projected to reach $285,000 in 2016, according to the Everitt Real Estate Center at CSU. Additional factors driving apartment demand include living preferences of the millennial and baby boomer generations, separate from the influx of population from these generations in Northern Colorado, and the current construction defect legislation in the state, which makes condo development nearly nonexistent. Many people within the millennial and baby boomer generations are drawn to renting in urban or suburban apartments, which allow for close proximity to dining, entertainment, culture and night life, while also being able to enjoy the community and shared spaces within the apartment buildings. Even if millennials can afford to move to a house in a suburban neighborhood, many will choose to live in apartments instead, according to Forbes Magazine. Fifty percent of millennials are renters. Almost half of all adults, and 73 percent of millennials, report they are very likely or somewhat likely to move in the next five years, according to the Urban Land Institute. Apartment living allows renters to move with ease instead of being tied to one place. The number of millennials choosing to rent rather than own results in a decline in homeownership, leaving a record- low percentage of American homeowners under the age of 35 since 1982, according to U.S. News. On the supply side of the equation, there are several major factors that limit developers’ ability to deliver new apartment communities in some of the most desirable areas of Northern Colorado. Several of these factors include geographical and political barriers to entry, construction costs, which have risen rapidly over the last few years, availability and cost of raw water for development, land costs and lengthy entitlement timelines in some municipalities. With these demand drivers and supply constraints, I believe there will be significant opportunities for additional apartment development over the next few years. Long story short, there is more room for growth in Northern Colorado.