Metro Denver’s Urban Apartment Market On ‘Extended Hiatus’ After Years Of Building

Denver’s multifamily market is amid a pivotal and seemingly contradictory moment as a sharp decline in the new construction pipeline and concerns about future undersupply collide with last year's supply glut and renewed investor interest in the market.

The metro’s construction pipeline saw a 23% year-over-year drop in the third quarter of 2024 while the proposed pipeline was down 19%, according to Apartment Insights.

This reflects high interest rates and rising costs that have forced developers to pull back as about 20,000 new units delivered last year drove concessions up and rents down in urban cores, according to local players and Q4 data provided to Bisnow by JLL. 

Meanwhile, suburban markets thrived and investors poured $5B into multifamily transactions, nearing prepandemic levels. 

Experts warn that the current slowdown in development could set the stage for escalating rents in the coming years, as today’s oversupply risks flipping to a future shortfall. It typically takes two to three years for a multifamily development to complete in Denver.

“It is a vicious cycle,” Vivek Sah, director of the University of Denver’s Burns School of Real Estate and Construction Management told Bisnow. “With this lag, accumulated demand will surpass supply in a few years and we will see escalating rents as a consequence of this mismatch.”

Sah and other industry insiders see parallels to and even ripple effects from the Great Recession in the story playing out today in Denver’s multifamily market.

Essentially, the Denver area has moved from a much-needed multifamily expansion triggered by massive in-migration in the 2010s to oversupply as high urban rents, work-from-home and other Covid-era trends caused many urban dwellers to move to the more spacious suburbs.

“In 2008 and 2009, there was this massive cratering in the entire housing industry, including multifamily, which wiped out nearly every multifamily builder,” Northmarq Regional Managing Director Dave Martin said. “Then from 2012 to 2016, Denver rents doubled because we didn’t have enough supply to meet the demand. It’s no different this time around.”

Still, his Minneapolis-headquartered company sees the upside in the Mile High market. It just sold The Alta Green Mountain apartment community in Lakewood at a rate of $403K per unit after paying about $350K per unit in 2020, Martin said. 

Denver has the fundamentals out-of-state investors are looking for, he said, in terms of a highly educated workforce, wage growth, occupancy and supply.

“You can’t say that about Nashville or Austin,” Martin said.

Mortenson Rocky Mountain Region Vice President Taber Sweet told Bisnow he’s looking at suburbs like Lakewood, Littleton, Arvada and Wheat Ridge as areas of opportunity.

Denver’s urban multifamily market “is on an extended hiatus,” Sweet said. The city’s Inclusionary Housing Ordinance, which requires developers to include affordable units on large multifamily projects or pay a fee, and its aggressive effort to cut greenhouse gas emissions through the Energize Denver program, have only added to the larger market dynamics shrinking the construction pipeline, he said.

Every municipality should have a rigorous entitlement process, he said, but “people still need to live somewhere, and developers will find ways to satisfy the demand; it just might not be in Denver proper.”

Boise, Idaho-based investor and development firm Roundhouse entered the Colorado market in 2016 through the acquisition of The Vineyards apartment community in Colorado Springs, and the Denver market this past November by buying Aurora’s Alexan Westerly Creek. 

Managing Director of Investments Michael Caldwell told Bisnow he sees the Denver’s market as being largely in line with high-growth metros across the nation.

“Around mid-year, we saw cap rates compress about 25 basis points as the market clearly received a ‘green light’ from many investment committees, which is also illustrative of the amount of dry powder that has been sitting on the sidelines,” Caldwell said in an email.

Investors like Roundhouse are increasingly targeting Denver’s suburban markets, which accounted for 62% of the $4.9B in 2024 area multifamily transactions, according to JLL’s report. 

Will Haass, a director of capital markets at JLL, pointed to the fact that $5B is in effect a normalization in line with past years’ deal volumes. With the exception of 2021, which saw an abnormal $12B in multifamily deals, every year since 2015 has seen Denver-area transactions hit close to the $6B mark.

He isn’t as concerned about the future of availability, and JLL’s data shows a 94.3% occupancy rate.

“We don't expect Denver to be an oversupply market in perpetuity,” Haass said, adding that nobody should expect decreased rents to last.

JLL’s report shows that effective rents dropped 3% year-over-year compared to a national drop of about 1.3%. But nearly everyone interviewed for this story said they expect Denver’s urban core to make a comeback.

Doug Elenowitz, co-founder and partner at Denver CRE investment firm Trailbreak Partners, said he expects “turbulence” and “choppiness,” in the market but that he loves “the vibrancy of the urban core in cities.” His company, along with local Quannah Partners, recently acquired Kabin Apartments, a 194-unit property in Zeppelin Development’s trendy Taxi project. Trailbreak Partners is also ramping up a multifamily project in the Highland neighborhood.

Submarkets like Highland and Kabin’s home in the River North Art District have shown more resilience than the city’s central business district. A two-bedroom apartment in the Highland neighborhood rents for about $3,967 each month, according to rent.com data, while a downtown two-bedroom unit goes for about $3,655.

Northmarq’s Martin, who calls himself “one of the three oldest brokers in town,” points to recent moves by big companies to end work-from-home policies as well as downtown’s proximity to sports events, nightlife and concerts, to show the impermanence of downtown’s struggles.

“Two words I never believe are ‘paradigm shift,’” Martin said. “Historically, downtown Denver has been the leader in demand or absorption in the metro — and it will return to that.”

If that happens, the market could quickly pivot from concessions to competition, flipping Denver back into a cycle of rising rents and constrained supply.

CORRECTION, Jan. 23, 2:15 P.M. ET: This story has been updated to correct the name of JLL's director of capital markets.