Chicago Multifamily Market Report – June 2023
June 7, 2023
- Category: Denver
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Denver, Colorado has been a consistent beneficiary of job growth and migration for more than a decade. New tech companies, a rapidly expanding aerospace industry, and coastal relocation have driven growth in the Mile High City. Yet over the past 5 years this growth has been overshadowed by faster growing peer markets to the south and east. While job growth is not as strong as in Texas, and in-migration is not as robust as Phoenix, Denver maintains some of the most consistent multifamily demand in the nation. Its new supply pipeline is finally leveling off after several years of above-trend deliveries, which had been weighing on property fundamentals. As some sunbelt markets including Phoenix, Las Vegas and Nashville have underperformed over the past 12 months, Denver’s apartment fundamentals, including rent growth, occupancy and traffic remain strong and accelerating.
Traffic and Leasing on a Tear Since January
Radix data shows the occupancy rate just a hair below the national average at 94.31% for the market.
While occupancy has been improving across the metro since the beginning of the year, Southwest/Central Aurora is the singular submarket that has seen occupancy rise on a year-over-year basis. As a cheaper alternative to urban living, Aurora has been a highly sought-after submarket in recent months. Not only is the submarket occupancy up 1.32% on an annual basis, but Southwest/Central Aurora boasts the highest occupancy rate in the metro at 95.32%.
Other suburban submarkets including Jefferson County, Douglas County, North Lakewood, Arvada/Broomfield, and Littleton all have occupancy rates hovering around 95%.
Given the significant new deliveries in the urban core over the past few years, it is no surprise that Downtown Denver, Northeast Denver and Central Denver maintain some of the lowest occupancy rates in the market.
The Central Denver submarket, which includes Cherry Creek, Golden Triangle and South Broadway neighborhoods, has seen occupancy drop by roughly 2% year-over-year.
Same-store net effective rents are up 2.2% on an annual basis in Denver, which outpaces the national average growth rate by more than 3 times. Average rents are nearing $2,000 per unit across the MSA. The most expensive submarkets are Central Denver and North Denver, which includes the rapidly growing River North district, where much of the new supply is being added.
Given that occupancy has grown so dramatically, it is no surprise that Southwest/Central Aurora, tops the rent growth rankings, as NER is up 7.9% year-over-year. South Denver/Glendale rents have also performed well, increasing 6.4% over the past year.
Downtown Denver and Far Southeast Denver are the only two submarkets currently experiencing negative annual rent growth, as NER has fallen 2.8% and 2.1% respectively.
Concessions have increased in a number of submarkets, especially in the urban submarkets south and east of downtown and the eastern suburbs. While these remain some of the strongest submarkets in the metro, concessions were practically non-existent a year ago in these submarkets, and now most properties are offering some concessions on their available units.
The number of units delivered in the Denver metro peaked in 2019 and 2020, however developers remain active in the market.
With the exception of major development in River North, Golden Triangle, and Green Valley Ranch, most of the new supply is spread out across the metro. Developers are still adding new units along the I-25 corridor between Downtown and the Tech Center, as well as the northern suburbs, but the concentration of development is less than it was a few years ago.
There will still be lease up pressure in and around where new projects are being built, especially as the economy continues to soften, however, widespread discounting is unlikely as demand will balance the new supply coming online.
While multifamily fundamentals in Denver have recovered since the beginning of 2023, the employment market is weaker than it has been in recent years, and job growth is slower than in some of its peer markets.
Over the past 12 months, the Denver metro has only added 10,000 new jobs, a figure well below other markets of similar size and employment base. The labor market remains tight, as the unemployment rate is currently 2.7%, yet the growth remains sluggish. As the economy softens, especially for the tech industry, apartment demand may wane if job growth is not supplemented by other sectors.
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