Denver Market Report: Multifamily 3Q/23
Supply Influx Accompanies Notable Population Growth; South Denver Outperforms
Increased migration coincides with record deliveries. Totaling roughly 18,200 individuals this year, net in-migration to the Denver metro nearly triples 2022’s count and will be the largest influx since 2016. Over the upcoming five years, local population growth is set to register as the third-fastest rate among major non-Sun Belt metros. These sizable population inflows will help local multifamily fundamentals stabilize amid a considerable construction pipeline. At year-end, annual deliveries will have exceeded the prior record by over 1,000 units. Although near-term supply pressure maintains upward vacancy pressure, the adjustment will be one-third the magnitude of last year’s 240-basis-point hike
Southern suburbs proving to be more resilient. Entering July, all of the metro’s 19 submarkets noted vacancy hikes of at least 100 basis points year-over-year. Areas to the south of downtown, such as South Lakewood and Parker-Castle Rock, recorded a notably muted rate of expansion compared to the market average. This helped vacancy in both areas stand at 5.0 percent in the second quarter, the lowest in the metro. South Lakewood’s connectivity to downtown and Interstate 70 aid demand from commuting professionals that desire access to the Rocky Mountains, while few recent deliveries direct renters to existing units. Parker-Castle Rock’s performance is bolstered by its proximity to the Denver Tech Center (DTC), while offering an average effective rent below the DTC itself.
2Q 2023 - 12-Month Period
Construction: 8,834 Units Completed
Builders completed 2,500 units in each of the first two quarters of 2023, helping increase metro inventory 2.8 percent year-over-year in June.
Tight conditions in Parker-Castle Rock warranted notable supply expansion, growing local stock 9.5 percent. Still, Northeast Denver accounted for the largest influx of any submarket, adding more than 2,000 units.
Vacancy: 210 basis point increase in vacancy y-o-y
Metro vacancy elevated to 5.9 percent during the first quarter and held steady over the proceeding three months. Despite a sizable annual increase, the rate is just 20 basis points above its long-term mean.
The vacancy hike in the suburbs outpaced the CBD, elevating 220 and 180 basis points to 5.8 and 6.3 percent, respectively.
Rent: 2.2% increase in the average effective rent y-o-y
Gains to the metro’s average effective rent continued to temper over the year ending in June, slowing to its lowest growth rate since early 2021. This reduced improvement ticked up the figure to $1,898 per month.
A below-market average vacancy rate in the Arvada-Golden submarket contributed to a local rent growth rate that doubled the metro mean.
Investment Highlights
Partially resumed trading activity in the $10 million-plus price tranche helped facilitate an uptick in overall velocity during the second quarter of the year, following a near decade-low during the initial three months. Investors deploying this level of capital frequently identified the northern portion of Adams County near Thornton and Henderson. A notable amount of deliveries here in recent years helped facilitate this uptick while a substantial pipeline may sustain higher caliber trades moving forward.
Individual investors are bolstering deal flow in Capitol Hill-Cherry Creek and Lakewood. Properties traded here during the initial six months of the year were typically less than 30 units in size and below the metro’s average price per unit. Class C vacancies were also under the market’s rate here.
Over the 12-month period ending in June, the metro’s average cap rate elevated to 4.9 percent, up 30 basis points from its record low noted across the 2022 calendar year. Higher first-year yields are indicative of more buyers and sellers coming into agreement as long-term owners look to capitalize on sizable gains made over the previous decade. Substantial in-migration trends are also helping improve overall investor sentiment.
Denver Office:
Adam Lewis Vice President, Regional Manager
Tel: (303) 328-2000 | adam.lewis@marcusmillichap.com
Prepared and Edited By:
Benjamin Kunde Research Analyst | Research Services
For Information on national multifamily trends, contact:
John Chang Senior Vice President, National Director | Research Services
Tel: (602) 707-9700 | john.chang@marcusmillichap.com
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated based on the last month of the quarter/year. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; Bureau of Labor Statistics; CoStar Group, Inc.; Real Capital Analytics; RealPage, Inc. © Marcus & Millichap 2021 | www.MarcusMillichap.com