The Apartment Association of Metro Denver held their semi-annual Economic Conference on January 25, 2012. The audience, composed of multi-family developers and their suppliers, were there to learn if 2012 would build on the successful year of 2011. With the equity markets still tight and most developers continuing to hedge their new-construction plans against the uncertainty of the upcoming political year and Euro-zone distractions, the attendees were given both a dose of reality along with some hopeful data.
This year’s economic presenters were Patty Silverstein of Development Research Partners, Jeff Hawks from Applied Research Associates and Ron Throupe from the University of Denver. Our local apartment vacancy rate has steadily fallen from the 3Q08 high of 9% to 1Q12 of 5.4% while average rent has dropped slightly from last quarter’s high of $936 to $932. This number represents an average rent per square foot of $1.09. Discounts and concessions for new renters have also fallen from a high of 10.4% to 8.8%. Economic vacancy – a combination of concessions and vacancy rates – comes in at 14.3% down from 15.3% from last quarter.
For the most part this is all good news. However the general mood within the conference was best described by Economic Committee Chair Rocky Sundling as ‘sluggish’. Whenever the forces of less than 2.5% growth in GDP combine with greater than 3.5% inflation and more than 8.5% unemployment, we are left to fight a tentative recovery which shows little sign of abating. Aggravated by an seemingly anti-business mood across the country – especially in Washington , an onslaught of new regulatory hurdles and ever-increasing resistance to new developments from the municipalities, developers are justified in sheltering their cash and waiting out the storm.
Despite this, 40,000 new people arrive in Denver every year and need places to live. 25,000 of these come from the natural increase in population and the remaining 15,000 are attracted to Denver from other cities. Couple this with the fact that the home mortgage and real estate markets are still on the sidelines, developers are finding a great opportunity in this pool of new renters. We are seeing a renaissance of high-density units within the central core of Denver. Avoiding the suburbs and the garden –style apartments, developers are flocking to the city core where rents are high and the built-product can reach $200,000/unit. These higher rents and the more polished products have not gone unnoticed by suburban owners who are now trying to close the rent disparity by upgrading their units and slowly raising their rents.
All in all 2012 by most accounts will be a pivotal year in Denver’s multi-family arena. Certainly the election will hold tremendous sway over developers’ plans in the coming years. It is our belief within EVstudio, that the trends in vacancy, population, quality of life and available product offerings position Denver as a desirable growth market in the multifamily realm and we are taking an active position in steering our firm to meet those demands. If you are a developer or a property owner and wish to further discuss opportunities within the Denver market, please feel free to call EVstudio.