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— Multifamily Properties Quarterly — October 2015
I
t should come as no sur-
prise to those who follow
local real estate news:
Metro Denver’s apart-
ment owners and devel-
opers are enjoying a healthy
run of strong performance.
This trend continued in the
third quarter, with quarterly
effective rent growth of 3.3
percent and an average sta-
bilized occupancy just below
96 percent.
Given the recent cover-
age of this trend, it is a
good time to examine the
factors driving demand for
apartments. The robust rent
growth recently experienced
in metro Denver is not a
unique phenomenon. Many
markets across the country
are experiencing similar
escalations. By looking at
trends of primary apart-
ment demand drivers – fall-
ing homeownership rates,
employment growth and
a rapidly increasing popu-
lation – the tremendous
demand for apartment units
in many major markets can
be quantified.
Demand Drivers
Metro Denver is among
the nation’s leading cities in
population growth. With an
average annual population
increase of 1.41 percent from
2010 to 2013, metro Denver
added 143,000 residents.
This increase in population,
coupled with Denver’s aver-
age home-
ownership
rate of 62
percent
and an
average
household
size of 2.6
people,
created
demand
for nearly
21,000
apart-
ment units
between 2010 and 2013. Yet,
deliveries totaled less than
15,000. This pent-up demand
carried forward and likely
drove the strong local mul-
tifamily sector growth seen
in 2014 and 2015. Similarly,
peer cities such as Seattle,
Portland, Oregon, and Aus-
tin, Texas, experienced simi-
lar population growth and
rent growth over the same
time period.
Looking to the future,
population growth forecasts
across Denver estimate
more than 1 million new
Front Range residents by
2040. By the same metrics
presented above, there is
implied demand for more
than 6,100 additional apart-
ment units for each of the
next 25 years – well above
the average deliveries of
4,600 per year seen over the
last two decades.
Equally as important for
quantifying apartment
demand is employment
growth, and it should come
as no surprise that Denver
enjoyed tremendous growth
in total employment over
the last decade. When com-
pared with the aforemen-
tioned peer cities, Austin is
the bellwether with nearly
40 percent growth in total
employment since 2005.
Denver ranked a respectable
second among the group
with a gain of 21.45 percent
over the last decade. Inter-
estingly, Portland demon-
strated a relatively lackluster
employment growth rate
of 16.34 percent but still
enjoyed robust rent growth
of 5.54 percent annually.
Employment growth fore-
casts for metro Denver and
Boulder are optimistic with
an expected average gain of
2.3 percent and 2 percent,
respectively, through 2019.
This projected growth rate
is a slight increase over the
growth rate seen through-
out the previous decade and
will result in the addition of
approximately 36,000 jobs
annually.
New Supply
With approximately 18,000
market-rate units under
construction, the perception
of an overheated market
is widely held by those not
active in the multifamily
space. However, investors in
new development projects
Jeff Haag
Associate director,
HFF, Denver
Market Update
