2022 National Multifamily Investment Forecast

Denver Welcoming Newly Untethered Workers; Competitive Bidding to Further Pressure Sales Price

January, 2022

Excerpt of Full Report:

Arrival of coastal firms bolster outlook for rents and vacancy. The Mile High City provides business-friendly policies and access to a skilled workforce at a lower cost than coastal cities. The health crises accelerated this movement in 2020 as many tech firms chose to follow renter demand into less dense cities. In addition, Denver is more in line with coastal culture than competing markets, a motivating factor for software developer Palantir’s recent move. Vacancy rates in urban Denver spiked when COVID-19 lockdowns began, but have recovered beyond pre-pandemic levels without siphoning demand from suburban neighborhoods. Entering this year, all submarkets had vacancy rates below 4 percent besides downtown, which sits at 4.1 percent. The majority of 2022 construction will open downtown; however, in-migration will push rental demand above supply this year, putting upward pressure on rents across the metro.

Institutions target assets downtown and along public transit routes. Sales volume in downtown is robust as institutional and international investors compete for properties in the city center. Entry costs for Class A assets in the core are experiencing explosive growth as low vacancy and consistent rent increases draw investors willing to accept cap rates in the mid-3 percent range. West Denver remains a highly liquid sales market, driven by the area becoming more desirable to renters and thus, investors. West Colfax is also a targeted location, however renewal efforts in recent years have now extended into other western neighborhoods. Entry costs in downtown-adjacent Jefferson Park and Lohi are similar to the core but can dip below market average in more distant areas south of Colfax. Farther west in Lakewood, local investors keep transaction activity high as they seek lower price points. Class B/C buildings make up most of these exchanges with first-year yields usually recorded around 5 percent. Aurora is the most active trading site in East Denver, as cap rates near 6 percent and lower per-door prices lure smaller investments.

2022 Market Forecast

NMI Rank

Downward vacancy movement and noteworthy rent growth help Denver secure a high position in the 2022 MNI.

Employment up 2.9%

The gain of 45,000 roles will push Denver ahead of the February 2020 employment tally by nearly 35,000 jobs.

Construction of 8,200 Units

Construction represents 2.6 percent of all rental units. Deliveries have ranged between 2.5 percent and 3.0 percent of inventory each year since 2018, when it was nearly 4 percent.

Vacancy Down 10 BPS

Net absorption exceeding 8,000 units contracts vacancy slightly to 3.4 percent. Year-end vacancy rates have not increased in Denver for six years.

Rent Up 4.9%

The average effective rent reaches $1,810 per month in 2022, driven by low levels of vacancy and the addition of new Class A units in submarkets popular with high-income earners.

Investment

Sub-4 percent Class A vacancy metrowide is a far lower rate for higher-tier buildings than seen in other large tech hubs. This has drawn many investors to luxury assets in Denver.