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Denver Apartment Rents On The Rise Again As Homebuyers Are Shut Out

Downtown Denver seen from the Millennium Bridge.

Denver’s multifamily market ended the second quarter of 2023 on solid footing as rents increased to $1,899 per month, $190 more than the national average, according to Yardi’s latest market report.

The rental rate changes in Denver represent a 2.2% annual increase and a bounce back for the multifamily market after several months of declines.

But the market is also struggling to overcome its affordability and availability challenges, which are primarily being driven by high interest rates and low housing inventory in Denver.

As of June 22, the average interest rate on a 30-year fixed mortgage was around 6.67% compared to the 5.3% rate that was available at this time last year, according to data from Freddie Mac. Meanwhile, there were just 693 new listings in Denver in May, according to the Colorado Association of Realtors, which is about 18% less than the number of listings recorded a year prior. 

Yardi’s Manager of Business Intelligence Doug Ressler told Bisnow in an interview that these are two of the biggest drivers in Denver’s declining multifamily occupancy rate. At the same time, renters who can afford to buy are choosing to rent single-family homes instead of apartments or condos, which contributed to Denver’s multifamily occupancy rate falling to 94.8% from the 95.4% figure that Yardi recorded in Q2 2022, Ressler said. 

Yardi found the rents for single-family homes increased by 0.3% year-over-year in April while occupancy for those properties increased by 0.4% year-over-year as well. 

“Baby boomers that own homes are moving out of these homes and into properties where they don’t have maintenance costs,” Ressler said. “At the same time, millennials and younger generations are moving into single-family rentals because they need more space and are starting families.” 

Ressler added these trends are likely to continue through 2025 even as the market continues to add new supply. Denver developers delivered 1,473 units by the end of Q1 and had more than 35,000 more under construction, which earned it the No. 7 ranking nationwide in terms of construction volume, according to Yardi. 

Ressler said Yardi expects Denver developers to deliver about 11,000 units by the end of 2023, which would be about 1,600 units more than they delivered in 2022, Yardi data shows. Ressler expects developers to add about 15,000 units each year in 2024 and 2025.

Some submarkets in Denver stand to benefit from this wave of new construction more than others, according to the report. For example, new supply could help decrease rents for multifamily properties in popular submarkets like Capitol Hill, where rents increased by about 1.5% up to $2,266 per month, according to Yardi. Capitol Hill also had the most robust construction pipeline out of Denver’s 45 submarkets with more than 6,300 units under construction, the data shows.

At the other end of the spectrum, the burgeoning Denver International Airport submarket may not see as many benefits because developers seem to be in a “wait and see” mode, Ressler said. The DIA market is steadily increasing in density and social infrastructure like restaurants and grocery stores are starting to crop up as well, with the most notable addition being a Costco being added to the Flyway Retail Center in Green Valley Ranch. 

“Developers want to see evidence that they’ll get a return on their money before they put a shovel in the ground,” Ressler said. “Part of the equation is building in areas that have large economic diversity and density.” 

Ressler also expects Denver’s multifamily market to continue to grow because the metro area is home to many complementary businesses like oil and gas extraction and manufacturing. Denver’s economy is also roaring as the area’s unemployment rate fell to 2.7% in April and added more than 10,700 jobs in the business service industry, the report found.