AAron Ontiveroz, The Denver Post
Worries about higher interest rates and other drags on the economy have developers slowing down the pace of apartment construction around the country this year.
Once hot markets like Houston and Seattle have seen new units coming to market fall off a cliff. Nationally, new apartment supply is expected to drop 11 percent this year, ending a six-year streak of gains, according to a blog post in RENT Cafe using data from Yardi Matrix.
But apartment construction in metro Denver is accelerating faster than in any other big city this year, Yard Matrix forecasts.
Developers have completed 7,651 apartments in metro Denver in the first six months, more than what the firm counts for all of 2017. And they have told Yardi Matrix they expect to compete another 13,739 in the second half of the year.
If they deliver, one out of every 23 new apartments added in the country this year will be in metro Denver. The total of 21,930 apartments would surpass new deliveries made in 2016 and 2017 combined.
“I don’t think all of those will complete,” said Doug Ressler, director of business intelligence with the firm, which is based in Scottsdale, Ariz.
Delivery of many units will get pushed into 2019, just as delays in 2017 pushed up the 2018 number. But even if developers can match what they did in the first half of the year, Denver would rank third after New York and Dallas, much larger cities, for new apartment supply.
“We see a lot of investors pulling back. They are looking at interest rates, what is the population, supply and demand. They worry ‘Will I be trapped?’,” Ressler said.
Many remain focused on luxury apartments, where the best chance of earning a return has been. But tenants are desperate for affordable units, which the industry claims it can’t build on a large scale and profit.
Nearly a quarter of metro Denver’s new units are expected to come in the Central Business District, Five Points and North Capitol Hill. Another 8.8 percent are coming in the Virginia Village, Hampden and Glendale area. Just shy of 6 percent are going into north Douglas County and 4.3 percent in the Cheesman Park, Hale and Capitol Hill area.
“Apartment developers and capital sources continue to view Denver relatively favorably,” said Greg Willett, chief economist with RealPage, a rival to Yardi Matrix. “Barring a significant stumble in the local economy, it’s likely to take longer to cool apartment building in Denver than in the nation as a whole.”
Willett said the Denver market so far has shown an ability to absorb the large number of units being added without a struggle. Rent growth is slowing, but occupancy remains solid.
Strong job growth and the quality of life keeps Denver popular with young adults. Higher home prices also mean they have a harder time than in places like Texas when it comes to buying a home, which keeps them renting longer.
RealPage has a different way of counting new apartments. It has Denver going from 8,244 units added last year to 12,729 this year. That ranks third after Dallas and New York.
This decade, Denver has typically run closer to seventh, not third, for the number of new apartments added, Willett said.