The Mile-High City finds itself in the midst of continued urban revitalization via transit-oriented development. At the center is the redevelopment of Union Station, which is seeing new infrastructure and the prospect of “work-play communities” surrounding it.
According to Marcus & Millichap, this year will see the completion of a 12.1 mile West Rail Line connecting Denver’s city center to Lakewood, Golden, and Jefferson County—already spurring new multifamily construction and fueling investor confidence in the area. Overall, the amount of new supply in the market is expected to jump 10 percent—a staggering figure underlining the city’s strong fundamentals.
Indeed, while vacancies continue to hover within the 4 percent range, asking rents have been rising steadily since 2011 and are expected to rise another 4.6 percent in 2013 to $974 per month. Meanwhile, effective rents will see a slightly steeper increase of 5.1 percent to $888 per month. Marcus & Millichap notes that high demand resulting from expanded employment will keep rents rising even with the surge in supply.
With respect to the job market, employment in the city has grown steadily since the end of the recession, and job creation is on pace to slightly surpass 2012 levels with the expected addition of 34,900 positions this year—equating to 2.8 percent growth. Much of the employment expansion will take place in business and entertainment districts near new transit development.
Investors are certainly taking note of the prime conditions in the Denver market, many of them out-of-state. Marcus & Millichap reports that renewed investment activity “enlarged the buyer pool during the second half of last year,” leading to compressed cap rates for “stabilized, lower-tier product to around 7 percent.”
Additionally, as new projects come online over the course of the next year, capital is expected to become more concentrated in the Class A market, further encouraging “private buyers to search for lower-tier, stabilized assets across the metro.”
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