Downtown Denver’s availability of multifamily land is shrinking but that doesn’t mean interest in developing in the metro area – and along the Front Range – is waning.
“Land availabilities downtown are few and far between,” noted Steve O’Dell of ARA Newmark, who specializes in multihousing land sales. “There are still parcels but the prices are pretty high. The ‘low-hanging fruit’ was picked a long time ago.”
Interest – and creativity – from developers, however, persists in downtown and in other “good” infill spots like RiNo and Highland, as well as along the Santa Fe corridor, South Broadway and points farther, said O’Dell.
“Denver is the center of the bull’s-eye,” added O’Dell, explaining that since the end of the Great Recession, multifamily development has been growing in concentric rings farther out around the city.
“Development and developers are spreading out around the metro area,” agreed Cary Bruteig, principal of Apartment Appraisers & Consultants.
“They also are getting pretty creative in terms of sites,” he added, noting that developers are eyeing everything from a former restaurant in Lone Tree to older buildings in the middle part of the city to a retail center off Federal Boulevard and Colfax Avenue to be rebuilt with apartments.
“So, you might look at a map of Denver and think there isn’t any vacant land,” said Bruteig. “However, there are certainly a lot of sites that don’t have a very profitable use on them that can or will be sold and the improvement on them will be bulldozed and apartments will be built on the site. We’re seeing that as more desirable sites disappear. But if you look at downtown, there are a lot of parking lots that can have apartments built on them.”
Bruteig, who also owns and maintains the Apartment Insights’ database and authors its quarterly report on the multifamily market, noted that in the second quarter there were around 23,000 units under construction – approximately 100 projects underway – across the metro area with 21,000 to 22,000 units still proposed.
However, he noted that vacancy ended the second quarter at 5.07 percent – consistently trending ever-so-slightly upward – and rent growth is starting to slow from “nosebleed” levels of 12 to 13 percent annually to today at 6 percent. He anticipates rent to have reached its high point and level off while the market will continue to deliver 9,000 to 11,000 units per year with absorption around 8,000 to 8,500 units per year.
“The rate of the pipeline is slowing,” added O’Dell. “We are seeing (land) prices at a high point and don’t expect them to fall significantly, maybe level off.”
In addition to areas of growth along South Broadway and Santa Fe, especially the arts district, O’Dell sees as a lot of activity in Northern Colorado, such as Loveland and Fort Collins. Additionally, activity is growing in Colorado Springs.
The wild card, O’Dell acknowledges, is construction defect legislation.
“That’s a game changer if and when reform happens,” he said. “We’d see a significant amount of new activity put pressure on land sales.”