APARTMENT REPORT
“You can look at what the market has done
historically with in-migration/demand, absorption,
and interest rates during an apartment boom because it has happened before,” stated Justin Hunt,
Vice President at ARA. “Interest rates rose earlier
this year, which typically means a decrease in property values, but investors actually increased their
prices because they know rates are still historically low. Now, with a recent interest rate drop and
this many buyers in the market, there’s no way to
predict how aggressive buyer underwriting will get
to acquire more properties.” This has shown in our
most recent sales as well. ARA’s two most recent
transactions, The Wellshire and Cruise, are both
renovated buildings located in central Denver. These
properties sold for an average sale price of $191,667
per unit. In comparison we sold The Patrician, a
unique but unrenovated property for $175,000 per
unit. No one can predict how investors are going
to react in a market with so few listings, nor how
high they’re willing to go. Justin explained, “When
marketing recent central Denver listings we are
seeing buyers including non-refundable money up
front just to have the opportunity to purchase the
asset. Seller terms like these would have been
laughed at just a year ago.”
However, the growth in these submarkets has
priced a lot of renters out, and is going to lead to
more prosperity and higher returns in the surrounding suburban markets. Demand is increasing for
units that are further from the largest, established
employment centers, and this trickledown effect
will result in stronger rent growth in the coming
years. Furthermore, the additional rail lines
throughout suburban Denver will allow the same
tenants to live anywhere in Denver and enable them
to commute easier, quicker and cheaper. Some of
the suburban markets are already experiencing
substantial rent growth since the opening of the
new West Rail Line. The North Lakewood submarket’s average rent per unit increased 18% yearover-year and their vacancy rate has decreased to
3.2%. “There are approximately 17,400 apartments
under construction right now in metro Denver, but
just 1,086 units or 6% of the total inventory are in
Jefferson County,” said Spencer Bradley, Associate
at ARA. “There are only so many infill sites left
before you reach the mountains, so the Jefferson
County submarkets should benefit from the heightened demand in Denver and two new light rail
lines connecting to Union Station and DIA.” The
second rail line in Jefferson County, the Gold Rail
Line, is expected to reach completion in 2016.
Englewood and Littleton have experienced
strengthening apartment fundamentals in 2014
too. In the first quarter 2014, the average rent per
unit in Littleton increased 21%, the highest for any
submarket in metro Denver. The Englewood/
Sheridan submarket has experienced very high
demand over the past year, so much so, that conces28 | TRENDS • AUGUST 2014
10745-10775 W. 13th Avenue is located across the street from the Oak
Street Station on the West Light Rail Line and sold for $98,750 per unit, a
record for non-townhome product in Jefferson County.
sions from the bigger properties have burned off
and have resulted in a 23% increase in effective
rents per square foot. “Many renters from central
Denver and the DU area look at Englewood and
Littleton as the most desirable areas to rent after
they’re priced out of the core locations,” noted
Spencer Bradley. “Their rents are still much lower
than the core areas that strong rent growth can be
expected in the coming years, which is great for
the owners who’ve been able to purchase assets for
half of what they’d pay in central Denver or DU.”
Aurora is poised for strong growth as well.
“Aurora has consistently had some of the lowest
rents in metro Denver, which means it will be one
of the last submarkets to experience strong rent
growth,” stated Justin Hunt. Adding, “Now is a
great time to own there, especially near the Fitzsimons redevelopment where there’s a need for quality units. There are thousands of high-paying jobs
being created but very few renovated apartments
and only 173 units are being built in this submarket.”To date in 2014, the highest sale price for units
within 1.5 miles of the Fitzsimons redevelopment
is $54,833 per unit, just 42% of the average sale
price in central Denver. Renovated properties in
this area are getting one-bedroom rents above $800
per unit, many higher depending on their proximity to the redevelopment. There is an abundance of
potential in Aurora for owners looking to expand
their portfolio and achieve longer term rent growth
in an underutilized submarket.
Moving forward the focus of the metro Denver apartment market is going to be on the construction pipeline. Central Denver and downtown
account for approximately 6,500 of the units under
construction, or 37% of the pipeline. These submarkets will experience the highest vacancy growth
as the units are completed but not occupied yet.
Rents will top out at some point in central and
downtown Denver, and while the new properties
compete for the urban tenants, the suburban properties will prosper as many renters are priced out
of core locations. Not every renter is going to upgrade to nicer properties, especially when the trickledown will make even the cheaper units more
expensive. This will result in tenants paying more
in the coming years for the cheapest option in the
suburbs and sustained rent growth in these submarkets for the foreseeable future.
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