Chris Cowan
Executive managing director, Newmark Knight Frank
The apartment landscape in metro Denver has changed tremendously over the past decade. Construction of new multifamily assets has added 58,000 units of inventory to the market since 2010. This new supply has developers looking for innovative ways to make their communities stand out among the competition and increase their bottom line. We have seen four distinct trends evolve in Denver, highlighting this multifamily model represented below.
1. Micro-units. When it comes to micro-units, the name says it all. Micros have all the comforts and amenities of traditional units but in a smaller floor plan, generally under 500 square feet compared with the typical 850-sf units found at urban multifamily communities. RiDE Apartments is a great case study. RiDE was developed by McWhinney in 2018 and consists of 84 studio apartments averaging 455 square feet. These smaller floor plans provide an opportunity to cut down on development costs and land costs, while increasing density. Additionally, developers can unlock smaller land sites in highly desirable locations that would not be feasible to develop with a traditional unit mix.
Craig Ratterman
Financial and research analyst, Newmark Knight Frank
Renters have shown an appetite for these units as well. Micro-units offer a renter the opportunity to live in trendy neighborhoods, without having to pay the large rents commanded by traditional units in those areas. RiDE Apartments offers an average rental rate of $1,250 per month, while the average rental rate of other Class A multifamily communities in River North reach $2,000 per month.
2. Co-living. Co-living, a concept that has succeeded in pricier rental markets like San Francisco and New York City, is a new approach to Denver. The co-living model offers residents a blend of private and semiprivate space with their units. For example, one could rent a private bedroom and bathroom that shares a kitchen and common area with other tenants. This concept offers residents a more socialized living experience. Residents new to town or looking to meet new people are afforded the opportunity to “rent-a-friend” through shared communal spaces. Co-living also provides a lower monthly rent payment than conventional apartments.
There are two developments under construction that will bring the co-living model to Denver. Carmel Partners is building CoLAB, a 253-unit community in the Lincoln Park neighborhood, and Property Markets Group is building X Denver, a 251-unit community in the Union Station North neighborhood. There are also three developments planned downtown using this model. Still unknown is how the Denver market will receive the concept of co-living. Like renters of micro-units, there is a demand for product that delivers Class A locations at a lower price point, even if that means sacrificing private living space.
3. Corporate and short-term rentals. Corporate and short-term rentals have blurred the line between residential housing and hospitality. Short-term rentals cater to tourists and more permanent tenants alike, offering fully furnished units with lease terms ranging from a few days to a few months. Some brand names associated with short-term rentals are Sonder, Airbnb and Pillow.
In the last 24 months, there have been several communities that have experimented with this shorter-term lease structure. Most recently, AMLI Residential partnered with The Guild to operate 41 short-term rental units at the AMLI Riverfront Green community. This concept can be especially beneficial for lease-up communities experiencing hundreds of vacant units once construction is complete. Owners can more quickly generate income from large blocks of vacant units that would otherwise require months to lease-up via the traditional apartment model. This hybrid residential/hospitality market is relatively uncharted in Denver and the legal implications remain to be seen. Communities operating this model may require a lodging facility license from the city and unit modifications to comply with hospitality building code requirements.
4. Single-family build-to-rent homes. Unlike the prior concepts mentioned, single-family home rentals are targeted at suburban markets. Renting a single-family home is nothing new; however, what NexMetro Communities is doing in northern metro Denver drives a modern approach. The Phoenix-based developer is building entire neighborhoods of rental homes complete with parks, pools and walking paths. So far, NexMetro has three communities in the works: Avilla Buffalo Run, which will offer 123 homes in Commerce City; Avilla Prairie Center, which will include 136 homes in Brighton; and Avilla Eastlake, which will feature 244 homes in Thornton. These communities cater to a variety of renter types. Young couples and families that have grown out of smaller urban apartments can expand their footprint in the suburbs, without having to scrape together money for a down payment and compete for limited inventory in the red-hot for-sale residential market. Seniors looking for less maintenance also are attracted to these communities. Baby boomers have all the perks of single-family home living with the amenity of 24/7 maintenance service. Rents at these communities generally are on par with those of conventional Class A multifamily communities in similar submarkets.
While traditional apartment communities are alive and well, savvy developers are finding new ways to stand out and increase the profitability of their investments. Denver is on the front lines of innovation in the industry and the market is likely to see additional twists on the traditional multifamily model.
