MARKET SNAPSHOT: Economic Upswing, Light-Rail Expansion Paving Way for Investors in Denver

By Gabriel Circiog, Associate Editor

The economic upswing and the light-rail expansion in the Denver market will be the beacons that will light the way for investors through 2014. Denver employment is forecasted to rise at one of the fastest paces in the country this year. The highly educated workforce is kindling the growth in multiple metro high-tech industries such as energy, bioscience, healthcare and financial services.

According to Marcus & Millichap’s Apartment Research Forecast, the Denver market’s 2014 NAI Rank is 3rd, up eight places from last year’s rankings. Denver employers are expected to create 49,100 positions this year, taking the employment growth to 3.8 percent, the same level as last year. On the construction front, completions will double compared to last year as builders will deliver 10,000 units in 2014, increasing stock by 3.7 percent.

One of the most important catalysts for new developments is the much-anticipated re-development of Union Station in downtown Denver, which will be completed midyear. The new multi-modal transportation hub has spurred construction in the CBD and close to 4,000 apartments are under construction and several other projects have broken ground in the path of the rail lines. A surplus of inventory is expected to threaten to soften certain submarkets this year but the strong job growth and household formation should attenuate the upswings in vacancy. Overall, vacancy will go up 30 basis points to 5 percent by year-end. In 2013 effective rents have grown 6.1 percent and the ascending trend will continue through 2014, growing another 4.5 percent to $987 per month.

Overall, investment activity will remain sharp through 2014 as investor confidence is maintained high by the bright economic outlook and the increase in household formation. The limited number of properties available for sale could however hinder transaction velocity in the coming months. Investors are attracted to purchase assets located along the planned light rail routes and the area along the I-225 rail line has also been popular. The anticipated opening of that particular rail line, combined with the job cultivation and the development close to the Fitzsimons Life Science District, are attracting an increased interest in area properties. The recent opening of the West Rail Line is also expected to generate movement on the market as investors who have stabilized assets will try to cash out and search for new opportunities.

The Vallagio at Inverness is just one of the latest examples of the confidence shown in transit-oriented developments, Metropolitan Homes Inc. is currently planning to add a total of 364 new homes to the project, and upon build-out Vallagio will include an estimated 1,000 residences. Driven by the bustling economy and with the light rail paving the way for investments, the Denver market is expected to be a dynamic one in 2014.