Commercial Real Estate News / Investing / Investing in Denver, CO Apartment Buildings in 2021

Investing in Denver, CO Apartment Buildings in 2021

Published: 08-20-21 Category: Investing

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

This article was updated on 7/24/2023.

Despite recent economic turbulence, Denver's multifamily market is still a favorite: The single-family housing market in Denver saw a 20% year-over-year increase in median home price in 2021, keeping Denver multifamily renters in their units and aspiring homeowners at bay. According to recent data, as of June 2023, the average cost of a house in Denver is now around $629,000.

On top of that, Denver's supply of available single-family homes is shrinking: Compared to June, July saw a 9% decrease in new listings and a 12% decrease in closed deals. Even now, in 2023, Denver still trudges through a housing shortage.

The month also saw a 37% decrease in active listings compared to July 2020, ending July 2021 with the lowest number of active single-family property listings Denver has ever seen in July's history.

The single-family homes in Denver, CO under $500,000 seem to have vanished, its overall supply of single-family homes is dwindling, and signs are pointing to decreased demand for single-family homes in Denver, CO as old and new residents return to or seek multifamily units thanks to the Fed's ever-intensifying fight against inflation.

When the residents of an area start showing declining interest in single-family, they flock to multifamily.

Enter Denver's multifamily housing market: Right now, it's on fire. But the fire's proving difficult to control.

Denver's Multifamily Housing Market as of Q2 2021

Q2 2021 for Denver saw the city's vacancy rates plunge from 5.5% in Q1 down to 3.7%. Vacancies in Denver have reached the frictional rate: New residential tenants are claiming vacant spaces in apartment complexes in Denver, CO almost immediately after they open up.

As of Q2 2023, occupancies for Denver multifamily dropped slightly to about 95% but still indicate a tight market.

Astronomical Absorption Rates

The absorption rate for Denver multifamily for the second quarter of 2021 alone exceeded the annual absorption rate for Denver's multifamily properties in all of 2020; tenants absorbed 10,298 units in Q2 2021 compared to 2020's total of 8,195.

To put that into more perspective, 2018 was a boom year for Denver, seeing 13,708 units absorbed by tenants by year's end. Q2 2021 saw tenants absorb 75% of that number in a single quarter.

Multifamily Rent Statistics for Denver, CO

Average rent for Denver multifamily increased by almost 7% between the first and second quarters of 2021, a record-breaking jump from $1,543.59 to $1,651.44. Now, as of Q2 2023, average rent for Denver multifamily stands at about $1,900 per month, rising back up again after several months of moderation.

The second quarter's median rent increased 6.5% from the first quarter's, rising from $1,483.28 up to $1,579.93. Twenty-four percent of apartment buildings in Denver, CO yield rent greater than $2,000 a month while most apartments yield anywhere between $1,500 and $2,000 a month.

A few of the most affordable neighborhoods in Denver are:

Barnum, Mar Lee, and Westwood: The average rent for each neighborhood is about $1,071 per month;
Chaffee Park: The average rent in Chaffee Park is about $1,367 per month;
Regis: The average rent in Regis is about $1,367 per month;
Hampden: The average rent in Hampden is about $1,391 per month.

The average monthly rent of all of these Denver neighborhoods is below the city's current average of $1,763.

Some of the most expensive neighborhoods in Denver are:

Downtown Denver: Average monthly rent is $2,234;

Belcaro: Average monthly rent is $2,239;

LoDo: Average monthly rent is $2,285.

The asking prices in these Denver neighborhoods exceed Denver's current average monthly rent by more than 20%.

Why Purchase Apartment Buildings for Sale in Denver, CO?

With Denver's multifamily market still recovering the way it is, now is the time to purchase an apartment building for sale or at least keep a close, watchful eye on the city's construction progress.

With the economy back into a sense of normalcy, more tenants are returning to their Denver multifamily units. New high school and college graduates who had to delay getting their first apartment are now returning to the area to do so, and the lifestyle and location of Denver continue to attract young students and professionals alike.

Many investors scooped up apartment complexes for sale in Denver throughout 2021 and 2022, and tenants are flocking back to the area by the thousands. The market is starting to feel this tumultuous shift: Q1 2021 saw a comfortable multifamily market in Denver with modest increases in rent and adequate supply; now, as of Q2 2023, the market is still cramping up despite a slight drop in occupancies and falling trading activity.

The University of Denver's Daniels College of Business recently published a report illustrating Denver's multifamily demand way ahead of its supply. Ron Throupe, an associate professor of real estate at the college and the author of said report, says there's "no slack in the system right now." Landlords are charging higher rents to compensate.

But adjustments are underway: Q1 2021 saw a 45% increase in multifamily construction permits. By the end of the quarter, more than 20,000 multifamily units were being built in Denver.

These new units are targeting high-income renters, and the majority are expected to finish by the end of the year.