CREJ - Multifamily Properties Quarterly - November 2016
Denver’s robust multifamily market continues to defy expectations as construction and rent growth remain on the rise headed into 2017. After four years of double-digit rent growth, developers have responded with expansive projects across the Denver metropolitan statistical area that are adding over 20,000 units to the existing stock. Rent growth in core areas of development has come off its peak as new supply is delivered, yet absorption and rent growth remain extremely positive. The result has been a record-setting year for prices and transactions with over $6 billion expected to trade in 2016 across the Front Range. This trend is not limited to Class A and Class AA properties. It’s already common for older, valueadd multifamily properties in the area to sell well above $100,000 a unit, according to CBRE Research. Likewise, new product in core locations can be seen approaching sale prices of $400,000 a unit with a recent outlier north of $500,000 a unit. Furthermore, market forces behind this phenomenon are not only spurring development across the Denver metro area. These trends are representative of a larger shift that is impacting neighboring markets like Fort Collins and Colorado Springs. Major population growth is just one of the many factors solidifying Denver’s status as a premier location for multifamily development. Denver and its neighboring markets attracted 78,000 new residents in 2015, pushing the region’s population to 4.5 million. Moreover, the region saw the addition of 70,000 jobs over the same time period. Equally notable are the region’s unemployment rates, which reliably fall below the national average in Denver (3.1 percent), Colorado Springs (3.8 percent) and Fort Collins (2.9 percent). As a result of this population and job growth, Denver boasts the seventh-fastest-growing economy of the 100 largest multifamily markets in the U.S. Future population growth in Colorado will play a significant role in multifamily trends. In fact, Colorado already is the second-fastest growing state in the country. Over 270 consumers relocate to Colorado daily and an overwhelming majority of these new residents are drawn to Denver. Over the next 25 years, Denver’s population is projected to increase by more than 50 percent, according to American City Business Journals. In response to recent and projected growth, the region already is investing billions into infrastructure improvements designed to make public transportation more widely available. The recently completed FasTracks light and commuter rail has streamlined travel between Denver and adjacent submarkets. Likewise, ongoing highway improvement initiatives and upgrades to Denver International Airport are expected to enhance accessibility across the region as local populations continue to skyrocket. Investors looking forward to 2017 have reason to remain optimistic. While fluctuations in interest rates and development costs may influence construction in the short term, a bevy of positive factors like strong population growth, high quality of life and a young, highly educated workforce suggest that opportunities for multifamily development in the Denver metro area will remain plentiful. Despite surface impressions, multifamily experts are not concerned about overbuilding. As the short-term construction pipeline becomes exhausted and construction lending tightens, development will slow to a steady – rather than breakneck – pace that will match the demands from current and future renter pools. Keep an eye out for investors, domestic and foreign, looking to transition away from well-established, coastal markets and reinvest capital in more cost-effective markets like Denver. A large workforce comprised of highly desirable talent and a location central to both the East and West coasts has turned the Denver metro area and surrounding markets into hotspots for investors in search of strategic, high-yield assets.