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The 2015 Denver Rental Market – A Wrap

As a busy year of Denver’s hot residential real estate market draws to a close, so too comes a much needed softening in the heated downtown rental market. At the beginning of 2015, 20 projects were under construction and 15 projects planned for development in downtown, Denver, including nearly 4,000 residential units. While builders and leasing staff raced to completion and implemented strong pre-leasing efforts to capitalize on the historically hot summer months’ activity, prices peaked between May and July 2015, and have declined steadily since.

What happened to the hot market and all the people moving here?

First, the desire to move to Colorado remains strong, more than 200,000 people relocated to Colorado between 2013-2014 according to the U.S. Census Bureau. Second, the Denver Metro Area spans a vast territory and single-family rental homes have become a hot commodity in the suburbs surrounding downtown, keeping prices high in this sector. A wave of new cookie-cutter urban-luxury rental inventory hit the downtown market by mid-summer, leaving developers pinned against each other competing for renters and offering generous concessions, the first sign of pushing the rental price limits. This caused a ripple effect with some owner-occupied rentals, forcing private landlords to drop prices and invest in upgrades to bring dated inventory up to par with new construction product hitting the market.

By the end of August, Rental Brokers noticed a significant lack in sense of urgency to secure an apartment. Renters had options with time to shop, leaving only the landlords with unique inventory immune from any wait time in lease-occupancy. Perhaps the most remarkable sign of the overheated Denver rental market was Sam Zell’s historic $5.4 billion sale of Equity Residential’s apartment portfolio in Denver earlier this year. Zell, is known in the industry as the “grave dancer” for spotting opportunities in distressed properties, pulled off a strategically timed sale of a commercial portfolio just prior to the credit crisis and mortgage meltdown in 2007. While the timing of this sale is no doubt noteworthy, other factors such as wages not keeping pace with rising rental costs, significantly impacting one of Denver’s largest influx demographics, Millennials.

Finally, developers who refuse to acknowledge construction oversights and fail to plan apartment layouts intelligently will continue to struggle with leasing their less desirable inventory, signaling further price cuts and concessions. Some new construction apartment materials and layouts in downtown are so poorly designed that it almost isn’t possible to comfortably occupy the space, even if it’s just a pied-à-terre. On the luxury side, some builders have failed to deliver an amenity package that meets the standards of the discerning renter. For example, don’t believe the developers who say adding a hot tub would be too much trouble and ongoing maintenance, it’s nonsense and they’re too cheap to invest in it. Who doesn’t love a hot soak after a long cold day on the mountain? When leasing, you should be able to justify the rental price based on the space, fit and finish, and property amenities available to you.

My outlook for the coming months:

2016 Will certainly be an interesting year in real estate as many expect the first rate hike by the Fed in early Q1. Denver’s high rents captured the attention of the entire state, and even the nation in 2015, causing a media frenzy. A correction in rental prices and additional concessions will be the norm until the summer months of 2016. Privately owned rental properties that don’t stack up to newer construction will continue to see lower price-per-square foot rents. In my opinion, Denver will experience another active year of commercial and residential development. With access to new public transportation coming in early 2016, commuter traffic stress and congestion should ease and neighborhood businesses will benefit greatly from new residents and ease of access.

If you’re moving here in 2016, you will come to find Denver has a playful, cosmopolitan vibe with a great art, foodie and live music scene, making it an attractive city for many demographics. One of the best qualities about a growing city is the emphasis of revival and preservation of historic buildings, such as Denver’s Union Station, and seeing new construction tie a neighborhood community together. With an attractive job market and many opportunities, 2016 will no doubt be another great year to live in this city!

Please keep me in mind to serve your real estate needs, whether you’re buying, selling, leasing or investing, I welcome the opportunity to work with you in 2016!

Denver goes vertical: Some of the tower cranes over new developments I photographed throughout the year:

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