Colorado Real Estate Journal - July 6, 2016
A strong local economy has made metro Denver a leading location in which to live, work and do business. Metro Denver is where people of all ages want to live, and the area continues to grow in both attraction and retention. Population growth equates to housing demand. As the metro area employment base grew and population increased, demand for apartments continued with 10,100 units delivered over the past year. Of these, more than 70 percent were absorbed. Vacancy is nearly drum-tight; all seven counties experienced an average vacancy rate of 5.3 percent for 2015. As the metro area’s employment base grows, and natural and in-migration population growth continues to exceed expectations, demand for apartments is expected to remain, keeping vacancy rates low throughout the seven county area. During first-quarter 2016, 19,995 apartments were under construction with another 10,991 units planned for delivery through 2019. As of the end of the first quarter, year-over-year absorption was a record 7,327 units. Forecasts for absorption continue to be strong and the lack of condo construction due to construction defect laws will push absorption for apartments to record levels in the next few years. Record high single-family home values are making it more difficult for people to buy homes, especially millennials, the largest population group in metro Denver, adding more demand to the rental market. A recent study from Apartment List states that a college-educated person who is under the age of 36 with no student debt will need 14.8 years on average to save the 20 percent down payment typically required on a median-priced home in metro Denver, compared with a 5.3-year national average. Underwriting standards for debt and equity for new construction continue to tighten, with equity required for new developments rising from 30 percent to 35 percent. This will focus attention of strong sponsors on sites with transit and/or submarkets with viable underwriting. Demand for well-located infill and transit oriented development sites remains strong. Land prices will remain stable going forward as apartment developers compete with office, retail and hotel developers. While a 30,000-unit pipeline in metro Denver could be alarming to some, the strength of the economy, job growth, population growth and the desire to live in Denver – recently ranked the “best place to live in America” by U.S. News and World Report – the demand for apartments should continue to grow and absorb the new units coming on line without much of a change to vacancy. ARA Executive Managing Director Chris Cowan also was named NAIOP Colorado 2015 Land Broker of the Year.