Four key factors are deterring young people in Denver from buying a home and fueling demand for apartments.
First, home prices in Denver, now 30 percent above pre-recession peaks, continue to soar. Home prices increased by about 11 percent year-over-year and houses sell faster in central Colorado than anywhere else in the country, according to most estimates. Second, student debt in the state is up from an average of $15,000 for four-year graduates in 2004, to $25,000 in 2012, a trend showing no signs of reversing. Third, on a national level, Millennials continue to delay marriage and childbearing, key indicators of the switch to home ownership. And finally, emerging regulations continue to thwart condo development that might otherwise provide relief to the metro’s soaring home prices. A proposed revision of the CDARA (Colorado’s “construction defects” law), which makes condo development highly exposed to class action litigation over purported building defects, failed to make it through the State Senate in April and is unlikely to be revisited until late 2016 at the earliest. Combined, these factors encourage renting versus owning to a degree that may be unmatched elsewhere in the entire nation.
Renters in Denver’s hottest neighborhoods may finally get some much-needed relief.
Developers continue to flock to hot neighborhoods in Downtown/Cherry Creek and West Denver. In fact, these neighborhoods comprise about half of the 10,000 new units expected to deliver in the Denver metro area in 2015. However, the pace of new supply is beginning to outpace demand, and competition for tenants is heating up. Because of this, vacancy rates in Downtown/Cherry Creek and West Denver shot up by 10.2 percent and 9.3 percent year over year, respectively. Meanwhile, rent prices in these neighborhoods have increased by only 3 percent and 2 percent, respectively — far below the citywide average increase of 6 percent.
For bargain hunters, move-in incentives are on the rebound as well. In Downtown/Cherry Creek and West Denver, 60 percent of apartments built since 2014 are offering prospective residents one-month of free rent on at least one floor plan.
Stiff competition is forcing developers to get creative and triggering a spike in studio construction.
In the frenzy of new supply, developers have been upping the ante on amenities in order to set their properties apart from ever-growing competition. Anyone who’s seen Steele Creek’s terraced infinity pool with views of the Rockies and the downtown skyline can attest to this. But with affordability becoming a growing concern, some developers are taking a different approach. Alliance Residential’s Broadstone at RiNo building is on track to be completed by mid-2016, and more than half of its 270 units will be studios, targeting 20-somethings who would otherwise be priced out of new buildings in the Downtown area. Nichols partnership’s conversion of the former VQ Hotel in West Denver is set to open this Fall and employs a similar strategy — 168 of the building’s 179 units will be 339-square foot studios. The mere size of these units is representative of yet another trend emerging both in Denver and nationwide. Not only are developers building more studios than ever before; they’re also making them smaller.
By shifting their focus to studio construction, and building smaller, more creatively-spaced units, developers are able to provide prospective renters with the location and building attributes they want, at a price they can better afford.