By Chris Mitton, Advisor, Pinnacle Real Estate Advisors
Denver has been seeing major growth of new residents from 2020 through the second quarter of 2022. Denver is gaining many residents from coastal cities due to our lower cost of living, and gains of such tech giants as Conga, RingCentral, Xactly, Slack, and Angi. Since 2020, Denver has added 8,100 jobs in business services and 2,900 jobs in the financial activities sector. Over the last five years population growth in Denver has increased 8 percent compared to the 3.8 percent national average.
Chris Mitton, Advisor, Pinnacle Real Estate Advisors
The multifamily market has benefited from this population growth. Denver has absorbed 6,400 units over the past 12 months, placing it in the top 15 metro areas in the country. Colorado has seen record high prices in single family homes as well, which is pricing out many first-time homebuyers. This is forcing many renters to stay in multifamily apartments. However, if you haven’t been living under a rock, you know that the Federal Reserve has been increasing interest rates at a record pace. The single-family market has seen an increase from 1,200 homes for sale during the start of the year to 7,300 homes in August. With this increase in supply comes tighter lender restrictions, and higher interest rates. We are seeing a slowdown in the prices in the residential market.
This, in turn, will start incentivizing renters to buy a house and stop renting, thus increasing the vacancy rates of multifamily properties. Another factor that will affect the vacancy is new construction projects coming to completion in 2022. Many of these projects were delayed last year because of labor and supply shortages. Around 26,000 new units are under construction and due to be completed later this year and through early 2023. The vacancy rates have remained steady at 6 percent to 6.5 percent throughout the year. Projections say that new construction will likely increase the vacancy rates and slow down the rent growth through the end of 2022.
Increased interest rates, supply and vacancy rates point toward higher cap rates and decreases in rent prices for the remainder of the year.