MARKET SNAPSHOT: Declining Homeownership and New Tech Jobs Send Vacancy Rates to Floor in Denver

Overall vacancy in the Mile-High City is set to hit 4 percent this year, its lowest level since 2000.

By Philip Shea, Associate Editor

Source: Marcus & Millichap

Denver—Overall vacancy in the Mile-High City is set to hit 4 percent this year, its lowest level since 2000. Meanwhile, the rate for single-family and condo rentals has already dipped below 2 percent. Marcus & Millichap notes that renter demand has remained strong throughout the recession, this due to above-average household formation, declining homeownership and elevated foreclosures.

However, a new driver of decreased vacancy this year will likely be a positive employment outlook. Employment in the Denver area is expected to increase by 1.3 percent in 2012, adding nearly 15,000 positions to the local job market. This growth will be almost double what the city saw in 2010 and 2011 combined. Forbes recently ranked Colorado the country’s fifth-best state for business, while the Harris Poll ranked Denver the 10th-best city to which to relocate.

According to Marcus & Millichap, a great deal of the employment growth will come from the technology and energy sectors. Denver is currently home to a wide array of natural gas companies, and Colorado has one of the country’s largest reserves of the alternative fuel. As reported by the Associated Press earlier this month, Gov. John Hickenlooper recently signed an initiative with Oklahoma Gov. Mary Fallin to increase the number of natural gas vehicles in their respective states, thereby encouraging further development in the industry.

Source: Marcus & Millichap

Additionally, according to the Denver Business Journal, venture capitalists recently invested $66.1 million in six Colorado companies working in the areas of biofuel, medical devices and biopharma. ZeaChem, a biofuel company located in Lakewood, received $19 million while Surefire Medical, a medical device company located in Westminster, received $6.1 million.

The accelerated decline in vacancy made possible by a renewed investment and subsequent employment will be ample enough to promote new multifamily construction, especially in the northern parts of the city. Nearly 2,500 units are expected to come online in 2012, an almost 200 percent increase from the 838 units that opened in 2011. Yet even with the new construction, Marcus & Millichap expects asking rents to rise 3.7 percent this year to $940 per month. Effective rates will increase even faster, by 5.2 percent—equating to $866 per month.

Transactions velocity for all apartment classes is expected to gain steam as growing demand incentivizes more owners to list their properties. Owners of Class B and C properties will be further motivated to do so due to lower interest rates, according to Marcus & Millichap, while Class A sales will increase largely due to private, out-of-state buyers targeting premium assets for long-term investment.

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