The Mile High City's Climb

Denver has drawn significant investment in its multifamily sector for years, owing in part to strong population growth and corporate relocations and expansions. Also factoring in are skyrocketing house prices, which have pushed many younger professionals — a large cohort in the metro, which has a median age 1.6 years below the national average — toward rental housing.

Alongside these factors, rents — especially in luxury properties — have soared: Marcus & Millichap's second-quarter outlook indicates that annual rent growth hit 17% in 2021. Growth is expected to moderate this year, owing to an estimated 10,200 units delivering, but even this amount of new inventory is likely to significantly lag the market's demand.

Vacancy in the Center

In an interesting reversal from nationwide pandemic-era trends — when many renters shifted from crowded downtown areas to suburbia — the opposite appears to have happened in Denver last year. Marcus & Millichap highlights that vacancy in the central business district and nearby submarkets has fallen by at least 2.7%, though, according to a first-quarter Colliers report, downtown Denver still had the highest vacancy across the market, at 9%. That said, suburban vacancy does not appear to have increased, showing that renter demand in the market's outer reaches remains strong.

What could push vacancy higher is the spate of construction activity. Colliers reports that more than 23,600 units were underway at the end of March — that's equal to 8.4% of Denver's entire completed inventory — with about one-third of all developments located in the city center.

Investment Trends

In the first quarter of 2022, Colliers data shows that 16 multifamily sales closed, with a total investment volume of $1.2 billion — a 53% increase compared to the first three months of 2021. And with cap rates around 4.3%, per a Lee Associates report, multifamily assets may appear more attractive than more expensive properties in lower-cap West Coast markets like Los Angeles, San Francisco, or Seattle.

As a result, it isn't just investment volume that has increased — the mix of investors targeting the metro has also diversified. More and more foreign and institutional investors are stepping up acquisitions in Denver.

Most assets involved in these deals are high-end, luxury communities, even if they aren't in central locations. Consider the largest deal closed in the first quarter, by Colliers' calculations: Equus Capital Partners paid $97 million for Vistas at Jackson Creek, a 267-unit luxury property in Monument, Colo., a northern suburb of Colorado Springs. The deal marks a per-unit price north of $363,000.