Colorado Real Estate Journal - July 6, 2016
Metro Denver’s economic fundamentals continue to strengthen and outperform the nation. The seven-county area is a leading location in which to live and work. A number of factors continue to fuel business expansions, relocations and population growth, including a strong business climate, a well-educated and skilled workforce, a focus on innovation and research, an investment in infrastructure and transportation, a central location and a highly desirable lifestyle. Denver is experiencing tremendous population growth. Metro Denver had a 17 percent population increase from 2004 to 2014. Approximately 70,000 people live in downtown Denver and its city center neighborhood, a 164 percent increase from 2000. Denver’s projected growth rate in the next five years is more than four times the national rate. Denver recently was ranked No. 1 in the nation for annual appreciation of home values, with a 9.1 percent increase from first-quarter 2006, according to HSH.com’s Home Price Recovery Index. As home prices in metropolitan Denver continue to rise, many potential homebuyers (millennials and seniors, in particular) are looking at rentals, dramatically impacting rental rates. Rents in metropolitan Denver rose by 7 percent year over year as of first-quarter 2016, approximately 150 percent higher than the national average of 2.8 percent. Despite high rates, renters in Denver still pay a smaller percentage of their income on housing than renters in other metropolitan cities, especially coastal cities, and Denver’s exceptional quality of life offerings continue to lure workers. Additionally, Denver’s many infrastructure improvements are significantly benefiting the city and attracting companies to relocate to the area, drawn to our highly educated and talented workforce. Diversification of our industries allowed metro Denver to perform better than the national economy, and the area is expected to expand at a faster-than-average pace for the remainder of 2016 and 2017. Colorado’s position as an in-migration leader – adding nearly 101,000 people to its population in a single year with 80 percent landing in the Front Range – translates to a continually tight housing market, especially in affordable housing. Condominium construction is at a record low. According to Metro study, there were 1,674 home starts in the Denver area for the first quarter. Of these, only 18 were condominiums, equating to 1.1 percent. In 2015, there were only 59 townhomes and condominiums built in downtown Denver, compared with 870 in 2007. This gap is due, in large part, to Colorado’s construction defect laws, which continue to be a hot button of contention in the state Legislature. Developers remain cautious of affordable housing developments because of concerns over potential lawsuits for imperfections, like cracked foundations, leaky windows and other structural problems. Until this issue is addressed, affordable housing in desired locations will remain nearly nonexistent. The apartment market has been a huge beneficiary of these laws and will continue to benefit, driving occupancy as well as rental rates higher. On the investment front, cap rates in Denver remain competitive compared to gateway cities. More institutional and national investment managers are drawn to Denver as they chase yield and follow demographic shifts. Overall, the Denver economy runway remains long, and this will lead to increasing population growth, job growth and a very tight multifamily market for the future.