Slowing Metro Economy May Pull Rug From Under City’s Building Binge, Real Estate Firm Warns
by Glen Richardson
Home sweet apartment home! To millennials and older lifestyle renters apartments are not only a place to hang their hat but the linchpin for Denver’s apartment building binge. As apartment projects currently under construction come onto the market, however, weakening in demand could be on the horizon by year-end warns Denver-based James Real Estate Services (JRES).
In an average year there are approximately 4,000 to 5,000 new apartment units built in Denver, but in 2014 alone almost 10,000 units were built with another 20,000 units anticipated for 2015. An additional 20,000 units are in the planning stage for 2016. Thus over three years, over a decade’s worth of apartment houses may be built. Of course Denver is experiencing an influx of millennials because of its booming economy, but any slowdown may leave a glut in the apartment market.
In its latest quarterly analysis of the metro market known as the Apartment Perspective, Eric Karnes — JRES Director of Market Research — writes, “we see a strong possibility for deteriorating market conditions during 2015 and 2016.”
Skewed Numbers?
It is generally considered that if the apartment vacancy rate is below 5% it is an indication of an extremely healthy market for developers. But JRES raises doubts about the claims that the vacancy rate in Denver is actually under 5%. In reality Apartment Perspective says, “We believe that the metro Denver vacancy rate is more accurately in the 6-7% range rather than the estimated 4.9%.”
Stinging Analysis
In Denver the influx of younger residents or “millennials” benefits apartment demand, as does the rising demand for apartments by 
older “lifestyle renters” who no longer desire the responsibilities of property ownership. To some extent the number of college and university students also affects the market. In terms of younger renters, however, JRES says it is important to recognize that many are burdened by student loan debts and may not be making adequate salaries to justify renting some of the apartment units popular among developers.
An article in The Wall Street Journal in May indicated that continued high rent in cities like Denver is a result of the type of apartments being built. The article points out: “ [I]n some places, including Denver, Tampa, Baltimore and Phoenix, virtually all new apartment construction has targeted to high-end renters.” As a practical mat-
ter that means the developers of the high-end apartment complexes may soon be in a bind. The higher rents are necessary to pay the loans taken out to build the units and a downturn in the economy may result in a significant amount of bank foreclosures similar to what happened in Denver when the office building boom crashed in the 1980s.
But studio apartments, also called “efficiencies” by some, are returning as a popular unit type, especially in new upper-rental rate apartment communities. Many of these projects are oriented to younger residents who are attracted to urban locations and amenities, but prefer to live alone and do not need large apartments. Smaller “micro” apartments are popular in expensive cities such as New York, San Francisco and Seattle and are coming to Denver. One such project is Turntable Studios, recently opened in a former hotel near Sports Authority Field. There will be apartments at Turntable under 350 square feet but will cost over $1,000 a month to rent.
Demand Is Key
Overall, since upcoming supply is known, it now all boils down to demand. JRES recommends that buyers, sellers and renters maintain a healthy skepticism and carefully track employment growth. Even if there is a downturn in the apartment market, however, it should not last more than several 
years as long as the economy remains healthy and excessive development is avoided, JRES suggests.
James Real Estate Services, Inc. is a commercial real estate appraisal-advisory firm based in Cherry Creek. The firm offers a wide range of real estate appraisal services and products that help clients effectively analyze commercial and residential real estate assets and markets — as well as manage asset risk to realize asset value in a changing real estate marketplace. Information: 303-388-1100.
A Dozen Denver Apartments Open In 2015’s Second Quarter; Another In Glendale
A dozen new apartment complexes opened in Denver County during the second quarter of 2015 alone. Furthermore, Solana Cherry Creek — a new 341-unit development — just opened in nearby Glendale.
Apartments opening in Denver in recent months are:
Avenue 8 — Offering 163 units at 5805 East 8th Ave. by Rosemark Development Group in the Denver East.
Peregrine Place — A 65 unit complex by Catamount Properties at 4400 East Mississippi Ave. in Denver South.
Platt Park North — This is a 60-unit town home rental complex at 110 East Mississippi Ave. by Pando Holdings.
Steele Creek — The 12-story building at 3222 East 1st Ave. in Cherry Creek East is by BMC Investment.
Studio LoHi — Simpson Housing Group has opened this 114-unit complex at 2559 17th St.
