As the first quarter of 2017 draws to a close, one thing Denver renters can look forward to this year is the increasing number of apartment options available to choose from due to the tremendous production of new luxury housing in the downtown and Cherry Creek submarkets. Leasing activity at the upper end of the market continues to experience less exuberance compared to years 2013-2015 when inventory was slim, and most renters agree rents remain very inflated. However, the trickle-down effect has positioned some properties with stable occupancy rates to become “affordable luxury,” thus competing on a market-rate basis, while developers and owners of new buildings face mounting competition and attempts to maintain high face rents by funding a lot of incentives upfront to fill vacancies.
Denver’s (for sale) housing demand remains one of the strongest in the country due to lack of supply, and although overbuilding may be occurring for rentals, developers and investors should be able to price intelligently in order to achieve occupancy goals between the peaks and valleys of the market over the next few years. Concessions may exceed the current 1-2 months of free rent, free parking, and gift cards currently offered, perhaps becoming even more lucrative in the third and fourth quarter this year. Renter beware, concessions can come with compromises like unfinished amenities and ongoing construction within the building as developers work out the kinks of new construction. Due to heightened leasing momentum in the first quarter of 2017 and more options than ever before, there will no doubt be considerable relocation activity as 2017 progresses and demand for amenity-rich apartments that offer high walk-scores and easy access to mass-transit remains strong among millennials and empty nesters.
Properties offering market-rate rents will be positioned to compete at lower price points without offering incentives because their occupancy rates are more established, thus creating an entry level for affordable luxury. Many of these properties are just a few years old will be competing for business with their property management reputation and building conditions on the line to lure renters. Demand for some condos and townhomes continues to shift to new apartment developments as renters aim to take advantage of concessions, amenities, location, and low entry expenses. Privately owned properties that offer a more unique living experience than a cookie-cutter apartment will continue to command record rental rates and lease more quickly despite the average days-on-market statistic being roughly 45-days according to REColorado.
With rents remaining high as more inventory pours on the market, renters have little sense of urgency to act on any specials or incentives until they feel they have seen sufficient inventory. This has been the case during the entire first quarter as most renters are touring anywhere from 6-10 properties (and seeing multiple new units within the buildings) before making a decision to sign a lease. Renters are also scrutinizing the fit and finishes of newer properties more than ever before, from functional layouts, to kitchens and baths, amenities, and even outdoor space remains very popular (Colorado weather is beautiful for any of you foreign developers who are missing the boat).
The Highlands (LoHi) and RiNo continue to command record rental rates for both furnished and unfurnished rentals in the downtown submarket. LoHi offers an attractive neighborhood feel with lots of restaurants, parks, and nightlife. RiNo has benefited from the 38th and Blake train stop, appealing to commuters, as well as the large number of breweries, restaurants, nightlife, and close proximity to downtown. Arapahoe Square is the next frontier for downtown, especially along the Welton Street corridor where traffic and Light Rail share the street, you’ll see several high rises taking shape this year, some exceeding 20-stories!
Despite high(er) rents for the foreseeable future, one thing Denverites can look forward to is the reduction of building wood-frame “Texas Wrap style” apartments that have popped up all over town. These properties will continue struggling with sound attenuation challenges and various sloppy developer work, making them an even cheaper (but less desirable) option for renters. On the contrary, the new high rises popping up around downtown and Cherry Creek have been a fabulous addition to the skyline and significantly help to density the downtown market. If only more condos were being built!