Investment Forecast: Denver Metro Area Multifamily, 2019
November, 2019
Urban Core Continues to Draw Investor Attention While Buyer/Seller Disconnect Widens in Suburbs
High-quality jobs proliferate as corporate expansions boost employment growth. A talented labor pool is bringing many new companies to the Colorado Front Range and they are creating a number of well-paying positions. Cloud-based software firm Xero recently opened its new headquarters in LoDo, while VF Corp., a worldwide apparel and footwear company, has plans to open its global headquarters in downtown Denver in 2020. The inflow of degreed positions is sparking demand for Class A and B units, pushing vacancy rates for these asset classes into the lower-5 and mid-4 percent bands, respectively. As the number of available apartments declines, developers will be adding more than 14,000 rentals to the market, many of which will be luxury units. The urban core will receive a sizable portion of the new supply, particularly the Five Points neighborhood where more than 1,000 units will be finalized in 2019. In addition, Capitol Hill will witness the completion of nearly 400 apartments as the area’s revitalization efforts progress. Demand for apartments will remain strong in 2019, and the average effective rent will rise by more than 3 percent.
Urban assets garner elevated interest. As value-add options in Capitol Hill continue to diminish, investors will likely increase their interest in the East Colfax corridor near the UC Health University of Colorado Hospital. Here, cap rates in the upper-6 percent band are achievable, attracting many private buyers, particularly those targeting assets under $2 million. Neighborhoods closer to the urban core just south of City Park will lure investors with similar criteria, though cap rates in this area will be up to 50 basis points lower to the proximity to the city center. Moreover, buyers are being more selective and focusing on assets near the core, also applying downward pressure on yields in and around Downtown Denver. The bidding for outer-ring suburban properties, meanwhile, remains relatively subdued, widening the bid/ask gap and potentially encouraging owners to lower pricing in correspondence to market conditions.
