Q2 2022 Multifamily Market Report: Denver, CO
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Denver, Colorado’s multifamily real estate market performed fairly well in Q2 2022, with rents rising and new Denver multifamily development projects underway in response to growing employment.
Despite these sectors of growth, vacancies in the Denver multifamily sector inched slightly higher than what we saw in Q1.
Multifamily sales in Denver gained momentum above Q1 numbers, however, and 2022’s median sales price for multifamily buildings has inched up to nearly $355k.
Here’s an overview of Denver’s Q2 2022 multifamily market performance.
General Area Overview
Denver is one of the fastest-growing cities in the United States, and this growth has had a major impact on real estate prices. Denver is also one of the most affordable cities to live in Colorado and offers affordable housing options across all income levels.
Located at the base of the Rocky Mountains and along a major interstate highway corridor, it is considered an excellent location for businesses seeking access to both coasts and midwest markets.
Denver is home to six Fortune 500 companies that include Chipotle Mexican Grill, Inc., Noble Energy Inc., Waste Management Inc., Qwest Communications Corporation, Level 3 Communications Inc., and Liberty Media Corporation.
The city has also been ranked among the top ten best places for job seekers by Forbes magazine.
Denver Population Demographics & Household Income
Denver’s population is predicted to grow by 4.1% in 2022. This should lead to a healthy demand for multifamily housing in the city.
The population of millennials (ages 18 to 34) will also continue to grow over the next four years as this age group makes up 27% of the population in Denver.
Nearly 73% of Denver’s population is white, 10% black, 3.5% Asian, and 7% other races. The median household income in Denver is about $73,000 annually.
How much has rent increased for apartments in Denver?
In the second quarter of 2022, multifamily rents in Denver increased by about 4.5% from the first quarter of 2022 to about $1,870 per month.
This is a 15.5% increase from Q2 2021 and a significantly stronger annual rent increase than what Denver was used to seeing between 2015 and 2020.
Vacancy Rates for Denver Multifamily
Denver multifamily vacancy rates in Q2 2022 were at 4.8%, a slight uptick from Q1’s numbers. Denver multifamily vacancies in Q1 2022 were flat compared to Q4 2021.
Year-over-year, however, vacancies in Denver multifamily are down by about 10 basis points. With multifamily construction in Denver ramping up, vacancies are expected to inch higher and peak at about 5.0% by the end of 2022.
Denver Multifamily Net Absorption in Q2 2022
Nearly 1,600 multifamily units were absorbed in Denver in Q2 2022, a slight decrease from Q1’s number of about 2,000.
Denver’s steady rent growth may be squeezing prospective tenants out of premium locations, like the Central Business District and Denver’s Northeast submarket. This, combined with inflation and aggressively rising interest rates, may be contributing to slower net absorption in Denver.
Cap rates for Denver multifamily have fallen from 3.8% in 2021 to 3.5% in Q2 2022.
The Pacing of Multifamily Rents in Denver
In Q1 2021, the average monthly rent for apartments in Denver was just shy of $1,200. Now, in Q2 2022, the average monthly rent for apartments in Denver is nearly $1,900, with some premium submarkets averaging as high as $2,300.
This is nearly a 63% increase year-over-year in Denver multifamily rents. The growing employment rate, Fortune 500 companies relocating to the city, and a low overall vacancy rate all contribute to this steep rent growth.
We anticipate, though, that we are well over the peak at this point in time, with rising interest rates and inflation slowing down the economy. Denver multifamily rents should decrease going into Q3 and Q4 2022 as new units are delivered to market, increasing vacancies.
Employment & New Multifamily Developments in Denver
Year-over-year employment in Denver has exploded, with nearly 70,000 new jobs delivered to the area. Denver saw the most employment growth in Q1 2022, with nearly 20,000 new jobs added during that time period.
This year-over-year increase in jobs added reflects a 4.5% increase in Denver employment.
Nearly 2,500 new multifamily units were delivered in Denver in Q2 2022, with more expected to be on the way. New Denver multifamily development projects with more than 40,000 units have increased in Denver by about 40% year-over-year. These projects are expected to be delivered in coming years.
Notable Multifamily Sales in Denver in Q2 2022
Several notable multifamily transactions occurred in Denver in Q2 2022, including:
- A 402-unit multifamily property that sold for $110 million;
- A 232-unit multifamily property that sold for $94 million; and
- A 220-unit multifamily property that sold for $65.7 million.
The median sales price per unit for multifamily buildings in Denver was about $350,000 in Q2 2022, with transaction activity increasing by nearly 25% in Q2 2022 over Q1. However, nearly half of properties sold in Q2 were Class C properties.
Takeaways for Multifamily Investors
Denver has seen some incredible growth in recent quarters; however, this growth is expected to moderate as vacancies rise, new multifamily development projects hit the market, and the overall cost of living increases.
Q3 and Q4 2022 will likely see moderations and slight declines in some statistics mentioned here.
Investors should anticipate deliveries from the large multifamily development pipeline currently underway in Denver and look for investment opportunities there that will meet Denver’s rising demand for housing.
Do your research, stay diligent, and happy investing.
Methodology
All figures presented in this article are based on MyEListing.com’s commercial real estate listing data in corroboration with other freely available data and information covering the commercial real estate industry.
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