CREJ

Page 4 — Multifamily Properties Quarterly — May 2021 www.crej.com Market Update D enver’s multifamily market demonstrated an impressive level of resiliency through- out the health crisis, build- ing on strong prepandemic fundamentals to reinforce investor confidence in Denver’s metropoli- tan statistical area. As of March, an impressive 93.5% of Denver area rent- ers reported being up to date on their rents, 5% higher than the national average, according to data from Real- Page. During the same period, Colorado apartment owners reported strong col- lection rates of 98%, down just half a percent year over year. Prepandemic, the Denver MSA ben- efited from high levels of population migration, strong household forma- tion, a highly edu- cated workforce and employment growth.These trends helped to buoy the market through the lockdown and have accelerated as Colo- rado experiences a wave of capital migration driven by investors looking to extricate them- selves frommore restrictive primary markets.The Den- ver MSA has proven to be an attrac- tive option for out-of-state investors who, faced with extended pandemic recovery timelines, restrictive regula- tions and climbing tax rates in their primary market, are looking to move their capital else- where. The largest sourc- es of this influx in out-of-state capital are Oregon, Califor- nia and NewYork. According to Marcus & Millichap’s sales data, transactions of apartment assets in Colorado involving Colorado-based buyers dropped 13% between 2019 and 2020, while transactions involving Cali- fornia- and Oregon-based buyers rose by 14% and 4%, respectively. Colorado stands out as a strong choice to investors in these states for many reasons, but a primary factor is Colorado’s 4.55% flat income tax rate. Compared to tax rates of 9.9% in Oregon, 13.3% in California and 8.82% in NewYork, Colorado’s tax environ- ment offers investors the opportunity to increase cash flow, pay lower taxes, diversify their investment portfolios and eliminate burdensome govern- ment regulations.This decreased tax burden is a major driver for investors as well as those wanting to live and work in the state of Colorado. Investors are not the only ones look- ing to move out of primary markets. Driven by severe lockdown restrictions, a desire for larger living spaces and the rise of remote working options, renters also are packing up and moving on. In 2020, Los Angeles, which already was experiencing outmigration prior to the pandemic, saw vacancy increase by 80 basis points year over year as almost 4,000 suburban rentals hit the market. NewYork City had a negative absorp- tion close to 15,600 urban rentals, which equals 1.9% of the local apart- ment unit inventory. Conversely, Colorado is the eighth- most moved-to state during the pan- demic, with 1.34 people moving into the state for every person who moves away.The state’s comparatively strong market fundamentals and famously desirable lifestyle are attracting renters in search of a new home city. Urban net absorption in Denver was among the nation’s highest, with more than 2,000 additional units becoming occu- pied in 2020. The effects of the mass migration of capital to the state are magnified by the nation’s uncertain economic recov- ery in the wake of massive federal relief efforts. In- and out-of-state inves- tors alike are turning to real estate as a stable investment option largely protected from inflation.The combina- tion of these factors has resulted in an inventory that is severely supply con- strained with the number of available listings registering significantly lower than in years prior. Nationally, existing housing inventory was down 32.6% year over year in February and repre- sented the largest annual drop ever recorded. Locally, the Denver MSA’s existing housing inventory was down 11%. Heightened demand and tight inven- tory will reinforce Denver’s market fundamentals. Since the end of Febru- ary, multifamily properties have seen a marked decrease in inventory and an Heightened demand, tight inventory reinforce market Boomer Beatty First vice president investments, National Multi Housing Group, Marcus & Millichap Peter Standley Vice president investments, National Multi Housing Group, Marcus & Millichap Projected new construction starts are falling well behind the prior five-year average and expanding by just 2.2%, or 6,820 units, in 2021. Please see Beatty, Page 34