Lakewood/Wheat Ridge - Denver MSA First Half 2019

Submarket Highlights

High home prices in Denver metro drive rental market in Lakewood. The Lakewood/Wheat Ridge submarket is bordered by the city of Denver to the east and the Rocky Mountains to the west and encompasses the cities of Lakewood and Wheat Ridge. The city of Lakewood is the third most populous in the metro, following Aurora and Denver. The submarket has grown in tandem with the metro over the past several years as the Denver market has attracted new businesses. While new employers have brought higher-paying jobs to the area, the rental market in Lakewood has improved. Amid elevated home prices and the high cost to rent in the Denver city center, the appeal of Lakewood is motivating more residents to rent in this area. In particular, Colfax Avenue, one of the oldest thoroughfares through Denver, is where the recently completed Denver Light Rail Network’s W line travels. Its ability to improve commuter access to and from downtown Denver has enticed apartment development near the lines stations. Though new completions have slightly lifted the submarket vacancy, this will rebound as these new units are leased up. The submarket’s location relative to Denver’s central business district, and the mountain’s appeal to renters, allows owners to rent units at a higher average price than other Denver submarkets.

Lakewood Class C rental properties are attractive to investors looking for long-term holds. Deal flow in the Lakewood/Wheat Ridge submarket is centered in the northern portion of the submarket, between West Colfax and Sixth Avenue. Class C properties comprise the largest share of inventory in the submarket and are trading at a much higher velocity than Class A and B assets. These Class C trades are providing initial returns ranging from mid- to high-5 percent. The submarket provides investors with long term buy and hold investment opportunities, as the area’s rental demand will continue to grow with the metro’s overall population growth.

Market Map - Wheat Ridge

Market Vital Statistics

Market Map - Lakewood

Construction Trends

• Last year, approximately 750 units in the Lakewood/Wheat Ridge submarket were completed. The two largest projects were Beacon85, located just off West Colfax, and Windsor at Pinehurst, which is on Wadsworth, south of Interstate 70. The two projects combined will provide 700 new units.

• The market will receive 500 units in 2019, with an additional 165 apartments set to finalize in early 2020. The scheduled completions for 2019 are focused in the north Lakewood area between West Colfax and Interstate 70.

• Outlook: The market will absorb the new development as rental demand in north Lakewood stays strong. The light rail’s impact on development in the area will bring dense apartment projects.

Rent and Vacancy Trends

• The Lakewood/Wheat Ridge submarket vacancy rate increased 20 basis points to 4.9 percent in 2018 as two large projects entered the market. Despite the recent uptick, vacancy here is still 30 basis points lower than Denver. Class C properties have the lowest vacancy at 3.5 percent.

• Multifamily apartments here are leasing for $1,393 per month, roughly $70 less per month than Denver’s metro average. The recent completions have helped boost rents in Class A properties, raising rents by 32 percent year over year.

• Outlook: The growing demand in this submarket will drop vacancy by 10 basis points and drive rental pricing 3.5 percent higher to $1,441 per month as more people are willing to commute particularly from Lakewood to Denver.

Sales Trends

• Deal flow in the Lakewood/Wheat Ridge submarket has remained steady outside of a small surge of investment in 2017. Lakewood, north of West Sixth Avenue, is actively targeted by investors seeking lower-priced Class B/C rental properties. These properties are in high demand as the area continues to renovate and add new retail. Several of these older buildings provide steady cash flow and future opportunities to add value through renovation.

• Initial returns in the submarket on average range from 5 percent to 6 percent, with properties in the north Lakewood area offering yields on the higher end of the spectrum. The Denver metro apartment buildings trade at a cap slightly higher than its western submarket. While only a handful have traded, recently built and well-located Class A properties are averaging 4.5 percent first-year returns.

• Outlook: In 2019, investors will continue looking to trade properties in the Lakewood/Wheat Ridge submarket, between West Sixth Avenue and Wheat Ridge. Specifically, those properties with close proximity to the new light rail line will achieve rents that will be more competitive with downtown Denver.

*2019 Forecast

Prepared and edited by Jonathan Ferrendelli, Research Associate

Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; RealPage, Inc.

The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.