The Denver real estate market has not seen such development since the Gold Rush of the 1850’s. Denver’s jobs are now growing at 150% of its historical rate. As a result, the population is also exploding at record levels. What more, this trend is expected to continue into the next decade. And, the building of new homes is not keeping up with the forecast demand.
Kentwood Real Estate Retreat
Peter Elzi of THK Associates explained at the recent Kentwood Retreat. Some 80 Kentwood Brokers and staff met for two days at the Sebastian in the picturesque mountain town of Vail Colorado. Those Kentwood Brokers have been selling nearly $1B of residential real estate annually. We gathered in Vail to hear about the state of the Denver real estate market.
Peter’s consulting firm is involved in forecasting growth and Denver real estate market trends. THK provides those services to many of the companies planning to develop commercial, residential and retail projects in the Denver Metro area. His clients have included the CEO of Kentwood Real Estate, Peter Niederman. The following is a synopsis of Peter Elzi’s presentation at The Kentwood Retreat.
Denver Real Estate Market Report
The Metro Denver Region is defined as a 9-County area that includes Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, Jefferson, Larimer and Weld Counties.
This 9-County area currently includes 3.8 million people living in 1.5 million households and 2.65 are employed. Historically, metro Denver has grown annually since 1980 by 40,300 jobs per year. As a result, this has caused annual population growth of 51,600 people in 21,450 households. Since 2010, the rate of job growth has increased to 61,000 employees per year. Consequently, the rapid job growth has resulted in annual population growth of 66,200 people in 27,000 households. Recent job growth has been as high as 100,800 jobs in 2015.
Of the current population:
When analyzing metro Denver’s job growth by industry and looking at the announcement of new companies coming to Denver, THK estimates that annually, during the next decade, metro Denver economic base will expand by 72,300 jobs per year. And, this will fuel annual population growth by 84,200 people in 32,000 households.
Now, let’s now delve into the real estate product types and locations throughout the metro area. Since 1980, metro Denver has accrued annually the construction of 21,300 units of which 14,600 (68.5%) have been single-family and 6,700 have been multi-family. In the last 5-years total construction has been 21,400 units with 11,400 (53.5%) single-family and 10,000 multi-family units.
New Denver Real Estate Market Development
The most active areas for Denver real estate construction during the last 5-years have been as follows:
Metro Denver is projected annually to average 33,200 units including:
The location distribution for construction will be as follows:
Major new, very active residential communities include these projects. In the southeast, Sterling Ranch, RidgeGate, Canyons, Meadows, Terraine, Hess Ranch, Stroh Ranch, Compark, Kings Point North and South, Dove Village, Inspiration, Whispering Pines and Copper Leaf.
Additionally, in the Denver International Airport area Gaylord/High Point, Panasonic/Painted Prairie, Reunion, Aurora Highlands Prairie Center, Brighton Crossing, Tri-Cities, Leyden Rock, Candelas, and Solterra are in various stages of development.
Multi-family is actively being built close to TODs. There are 110 light rail stations that the government has spent $120 million per station to develop. New light rail stations include RidgeGate, Regatta Plaza, Westminster Plaza, the Federal Center along the west line through Lakewood and Panasonic’s ‘Smart City’ at Pena Boulevard.
Are Apartments Being Overbuilt?
Of course, the apartment market is a concern. There are 30,000 apartment units under construction. And, even though current vacancy is low at around 7%, we are starting to see some softening. Rental apartments are acting as an alternative to townhomes and condominiums. But the State of Colorado passed a law that is starting to limit liabilities for construction defects. And, some of the builders seem to be more willing to take risks. There could be as much as a 2-year supply to absorb all the apartments under construction. In the meantime, the vacancy could increase to above 10%.
Resale and Residential Development
Regarding resales and redevelopment markets, Denver Highlands is still #1. Sloan’s Lake’s new 206 unit Lakehouse condo project is very hot. RiNo has become ridiculously expensive and is very sheik. Baker neighborhood is central. Most noteworthy, I have heard buzz that Ruby Hill and Lakewood are the next emerging markets.
Commercial Retail Development
On the other hand, regarding the commercial Denver real estate market, metro Denver has 126.5 million sq. ft. of office operating at 12.8% vacancy. The downtown/midtown/Capitol Hill area has 36.1 million sq. ft. or 28.6% and SES has 34.9 million sq. ft. or 27.8%, Larimer/Weld has 13.8 million sq. ft. or 10.9% and Boulder/Longmont/Broomfield has 14.8 million sq. ft. or 11.7%. These 4 sub-markets accounts for almost 80% of all office space. The 9-County metro Denver office market is projected annually to grow by 6.2 million sq. ft. per year. Currently, 5.0 million sq. ft. is under construction with most of the new activity in the central business district or in SES Denver.
The retail market in metro Denver includes 108.9 million sq. ft. Of which 5.6 is currently vacant. this is a very healthy vacancy rate. Retail follows rooftops and the biggest concentration is in Larimer/Weld with 29.6 million sq. ft. (37.2%) followed by South/SES with 20.5 million sq. ft. (18.8%) Northwest with 13.7 million sq. ft. (12.6%) and West/Southwest with 14.2 million sq. ft. (13.0%). The Denver Metro’s retail market is projected to grow annually by 4.1 million square feet per year. Currently, 1 million square feet are under construction.
Alberta Development Partners
Alberta Development Partners Emerging is constructing new retail adjacent to the north to the Factory Outlets in Castle Pines North. Also, there is a new Factory Outlet Mall is being constructed in Thornton at the southeast corner of I-25 and 136th. Also, IKEA is building a new center at the northwest corner of I-25 and Highway 7. In particular, the RiNo neighborhood is enjoying a lot of new specialty retail construction. Also, Target is building a new store on the 16th Street Mall. Retail in shopping centers will continue down its hindered path due to the continued growth of online shopping.
Industrial and Hotel Real Estate
The industrial Denver real estate market includes 273.5 million sq. ft. performing at a 4.7% vacancy. DIA environs have 79.2 million sq. ft. (29.0%) Larimer/Weld has 41.8 million sq. ft. (15.3%) Northwest/Boulder has 27.6 million sq. ft. (10.1%) and Northcentral has 34.7 million sq. ft. (12.7%). The metro Denver industrial market is projected to grow annually by 6.5 million sq. ft., and currently, there are 4.9 million sq. ft. under construction. However, the most significant industrial activities are Amazon’s 1.0 million sq. ft. at the Majestic Center and Walmart’s purchase of 160 acres at Portella, near DIA.
In conclusion, I continue to see opportunity in the light rail stations and the 20 new hospitals being built throughout metro Denver. These things create tremendous development opportunities for about 50 acres of development at each hospital. Surrounding uses include MOB’s, rehabilitation centers, retail, rental apartments, assisted living, nursing homes, etc.
Lastly, development activity serving the oil and gas business in the Weld County area will continue to be a great market. Recently, in Weld County, they discovered seven billion barrels of oil. As a result, activity related to this industry should go on for some time.