When I am asked to provide information on the land market in Colorado, I generally have an immediate sense of being overwhelmed by the topic. Everything in real estate starts from the land side, and so much of where we are in the market can be associated with the supply and demand for vacant properties. So, the easy way to start this article is to say that demand for all product types has never been higher, and the supply of really good land is sinking slightly.
Over my 23 years in the land business, I have never seen a point where demand for every product type is as high as it is today. We are currently in a development cycle for single-family homes, multifamily rental projects, office, retail, industrial, townhome, churches, hospitality, assisted living, hospital, medical, you name it and we are trying to build it. Colorado, and metropolitan Denver in particular, has become a primary market overnight, and despite being the smallest primary market in the United States, we are mentioned in line with the biggest markets in the country. People continue to move here, companies continue to move here and, most importantly, people do not want to leave once they have found what Colorado has to offer.
The question that I get asked most often is, “When is this cycle going to end?” I probably hear this question every single day in talking to land owners and developers. Of course, this cycle of growth has to turn downward at some point. However, when I look at the fundamentals of development in Colorado, I sometimes think the only thing that could change our direction is the fact that we know a cycle has to come to an end. In other words, if we as a market start to make decisions based upon fear of a turn, then it is possible that we lead ourselves to that turn. In reality, however, I feel that we are sitting at a high plateau for pricing on most product types, and we have become an expensive and desired state that happens to be a great place to live and work.
I anticipate that the biggest benefactors of the great momentum that Denver has seen on the land side are the markets of Northern Colorado and Colorado Springs. Already we have seen the migration of the national homebuilders to towns such as Greeley, Berthoud, Windsor and Mead (as well as Fort Collins and Loveland), and there is a natural connection between Northern Colorado and Denver for residents as well as business. Colorado Springs, however, is finally benefitting from the high cost of living in Denver. The residential market has picked up, and large employers as well as national builders and apartment groups are starting to see the value in being in the Springs. This growth in our neighbors to the north and south has not deterred Denver’s expansion.
Denver does have limitations, of course. There are barriers to entry along the west. There are water issues to the north. We are struggling to build condominiums due to legislative issues. Costs for everything from construction to development to fees have been increasing for years. Time for entitlement and construction has almost doubled. So, we are not without our challenges.
As an optimist, I would say that these obstacles may very well be the reason that we have not grown out of control. I am not certain that if we had unlimited access to lots and land that we would be seeing the success economically that we are seeing. I believe that some of these barriers are keeping us from becoming a volatile, cyclical market like Las Vegas or Phoenix. There is still a cap on how fast and how far we can grow, which may very well be what we need to continue to be the place where everyone wants to be.
New master plans will be changing the landscape of metropolitan Denver shortly. Projects such as Painted Prairie and Highpoint (both adjacent to the Gaylord Hotel), Horizon Uptown, Canyons South, Parterre, Prairie Center, Hess Ranch and others will define the living experience that homeowners are looking for, while infill projects such as Broadway Station and Downtown Superior will recreate new urban development that integrates living, shopping, working and playing. With light rail connecting our city in all directions, the cohesiveness between suburban master plans and infill developments will feel less distant than ever before.
We will continue to see permits and starts for new homes rise as the supply of existing homes on the market continues to shrink. We will continue to see new office concepts and large office users. We will continue to see retailers re-envision their world as a counterpart to the internet. We will continue to see expansion from industrial, apartment and specialty developers. Enjoy this time in Colorado, and let’s hope that our city’s success sustains.