Denver’s Multifamily Market Tests Its Limits
An interesting metric was reached in the Denver multifamily market during the first quarter of 2018 — and that’s record absorption.
The city already boasts accolades for quality of life, talks of strong in-migration and speculation of becoming the location for the second Amazon headquarters. After these, the most common topic of conversation for multifamily professionals is the unprecedented construction pipeline and just when will we hit an inflection point where the market won’t accept any more Class A, market-rate apartments.
It seems we’re still not there.
As of the first quarter of 2018, the trailing 12-month absorption was more than 10,000 units. That’s more units than what was completed in 2017 and the highest absorption on record. The result was metro-wide vacancy dipping year-over-year to 5.79 percent, limited concessions and metro-wide annual rent growth at 3.8 percent.
Denver’s average rent now stands at $1,405 per unit and $1.62 per square foot.
The Central Business District (CBD) experienced the most absorption this quarter, accounting for nearly 25 percent of total metro absorption. Annual rents also grew by 2.7 percent, leading the CBD to regain its title for most expensive rental submarket in Denver with rents per-unit averaging $1,835. But development is occurring all around the metro. With more than 30,000 units currently under construction and another 23,000 units in the planning stages, developers are hoping these statistics aren’t an aberration.
The most active developers in the Denver Metro are Embrey Partners, Trammell Crow Residential and Lennar Multifamily. The most interesting development currently under construction, however, is perhaps the St. Paul Collection in Cherry Creek by BMC Investments.
The St. Paul Collection is positioned to test the high end of the luxury rental market in Denver with amenities, finishes and rents that will rival luxury rentals in Manhattan. Though some doubt exists regarding the depth of the ultra-luxury rental market in Denver, BMC has a very strong development track record in Cherry Creek and is the obvious authority to prove out this concept.
Concern for the large pipeline and the growing cost of construction still remain, but the overall housing shortage in Denver and its positive outlook for economic and population growth should give developers confidence in the Colorado front range for years to come.
— By Craig Stack, senior vice president, Colliers International; and Bill Morkes, vice president, Colliers International. This article first appeared in the May 2018 issue of Western Real Estate Business magazine.