The Denver metro area remains a popular destination for Millennials, employers, investors, and apartment developers in 2016.
Millennials bring on the rental boom in Denver
Denver and the greater Rocky Mountain region continue to lead the nation in job and population growth. This pace of growth along with a favorable renter demographic and increasing home prices is paying significant dividends to the apartment industry.
Thanks to investment opportunities popping up, job growth in metro-Denver increased 2.7 percent in June 2016, well above the national increase of 1.8 percent. Ans aside from improvements in capital flows, this has fueled population growth, particularly among Millennials. Between 2009 and 2014, Denver saw a net annual migration gain of 12,682 Millennials: the highest of any metropolitan area in the U.S. and has been considered one of the top 10 cities with the most young people (Denver Business Journal).
As a result of this population boom, Denver’s cost of living has dramatically increased, with housing costs seeing one of the biggest hikes. Denver’s average home price is closing in on $400,000, significantly higher than the national average. Millennial residents, burdened with student loans and entry level jobs, find it difficult to raise the down payments and are continuing to rent as a result.
A growing population opting to rent versus own has resulted in Denver ranking as one of the top metro areas for rent growth, and it is one of the eight top markets in the Western region for annual rent growth, according to the Q2 U.S. Multifamily Investment Outlook. Bolstered by vacancy rates that are currently 190 basis points below the long-run average of 6.8 percent, effective rents increased 6.8% in the second quarter of 2016.
Mid- and high-rise properties attract attention
To capitalize on the strength of the apartment market, 23,650 units are under construction and an additional 22,000 units are in planning. This includes mid-rise and high-rise properties, two property types that have been seeing record pricing levels. In June of 2016, Joule, a 16-story high-rise in Denver’s Golden Triangle developed by Lynd Company of San Antonia, Texas, sold for $120 million, or an astonishing $535,000 per unit. Three weeks later, Simpson Housing purchased Broadstone Blake Street and 2101 Market, two mid-rise communities adjacent to Denver’s Coors Field for $143 million, over $365,000 per unit.
Construction debt challenges won’t stop deliveries
Difficulty in obtaining construction debt may lead developers to reassess proposed projects, however, there is no stopping units currently under construction. This wave of delivery will effect rent gains. While the entire market will average four to five percent rent gains in 2016, select submarkets will exceed 6 percent rent growth, while submarkets with significant levels of new construction will see increases as low as 2 percent.
Abundant employment opportunities and an exceptional quality of life will continue to support strong population in-migration over the long-term.
Ray White and Pat Stucker
JLL Capital Markets, Denver