Highlights:
- The Downtown Denver Partnership released an economic update on Tuesday.
- The report finds 45 times as many apartments as for-sale units are moving forward.
- Housing consultant says too many apartments, not enough homes, are being built.
There are 45 times as many apartment units than for sale housing homes planned or underway in downtown Denver and surrounding neighborhoods, according to a report released on Tuesday.
There are 132 for-sale townhomes under construction in downtown and nearby neighborhoods, compared with 6,107 apartment units, according to the Downtown Denver Economic Update report released by theDowntown Denver Partnership,
Another way to look at it: Of the total 6,149 residential units in the pipeline, townhomes account for a mere 2.1 percent.
The number of apartment units to hit the market is more than three times the 1,836 residential units that have been created so far this year, according to the Partnership.
Brian Phetteplace, senior manager of economic development for the Partnership, said the imbalance between rental and for-sale homes is due to a number of factors.
“One of the prevailing themes we hear from developers and people in the industry is while there remains a preference to build for-sale construction, but when they look at it is the mitigating risks associated with building for-sale product as opposed to rental, it is easier to do rental projects,” he said.
By “risks” he is alluding to the likelihood of costly lawsuits involving construction defect litigation.
State legislators have tried, but have been unable, to pass a law to reform construction defect litigation.
Denver Mayor Michael B. Hancock has testified in favor of reforming construction defect laws.
Also, the apartments, mostly luxury units, have filled quickly, Phetteplace said.
“They seem to be very well-received by all the millennials moving here,” Phetteplace said.
“The apartments seem to be a good fit for their lifestyles,” he said.
It’s also important to keep in mind that apartments typically out-number for-sale units by a wide margin in downtown, he noted.
“The makeup of the breakdown in the roughly 10 years I have been with the partnership the split is usually about 70 percent rental and 30 percent rental,” Phetteplace said.
Still, it is clear that downtown could use far more for-sale units and that is something he would like to see.
“Absolutely,” Phetteplace said. “We need a diversity of housing product in all of Denver. I look forward to more for-sale products in different price points being built. I encouraged that the townhomes and row homes being built seem to be enjoying brisk sales. I think there is quite a bit of pent-up demand for that kind of product.”
The Curtis Point/Five Points area had the most for-sale units underway, with 67 units. By contrast, there are 435 apartments moving forward in that area.
There are, 1,780 apartment units moving forward in the Central Platte Valley/Denver Union Station area, the most of any submarket.
There are no for-sale units underway in the CPV/Union Station area of downtown, according to the Partnership.
Housing consultant S. Robert August said that developers are meeting the demand by building apartments instead of for-sale homes in downtown Denver.
He said as communities from Commerce City to Lakewood to Douglas County take it upon themselves to reform construction defect litigation, more market –rate, but affordable condos will be built.
“There is a huge demand for housing below $400,000,” said August, principal of North Star Synergies.
A number of builders are targeting renters in luxury apartments, he said.
“I think a lot of renters will be surprised to learn that for less than what they are paying in rent they can buy a home with a lower monthly mortgage payment and all the benefits of home ownership,” August said.
He also said he thinks the apartment market has become overbuilt.
That will become clear as more renters leave apartments to buy homes at a time when more units come on-line, he predicted.
“Based on demand, I think we have reached the point where apartments are coming to the end of this cycle,” August said.
“We are seeing apartments starting to offer more incentives, which is a signal they can no longer keep raising rents,” he said.
Overall, the Downtown Denver Economic Update report shows that downtown was firing on all cylinders by a variety of measures including employment, retail, hotels, offices and residential sales.
“Downtown Denver is well positioned to continue its role as an economic hub for the city, state and region,” said Tami Door, president and CEO of the Downtown Denver Partnership.
“We have more people working Downtown than ever before, our residents, workers and visitors are contributing to retail sales tax collection increases across a variety of industries, and residential and commercial real estate markets continue to grow, all underscoring progress towards our vision of a prosperous center city,” Door said.
Highlights from the Downtown Denver Partnership report include:
- Employment levels in downtown rose 4.4 percent to total of 123,365 jobs between the fourth quarters of 2014 and 2015, exceeding both state and national employment trends.
- Employment levels in the Natural Resources and Construction “super-sector” saw the largest increase of 15.3 percent between the fourth quarters of 2014 and 2015.
- The total number of homes sold in downtown increased by almost 19 percent in the first quarter of 2015, as compared to 2014.
- The commercial real estate market downtown improved between the second quarter of 2014 and 2015, with vacancy rates declining 1.8 percentage points for office space and 0.7 percentage points for retail space.
- Retail sales tax collections downtown grew by 7.8 percent in the first quarter of 2015, as compared to 2014.
- Downtown Denver’s largest retail category, restaurants, accounts for 51 percent of retail sales tax collections downtown and grew by more than 11 percent.
- The average daily hotel room rates in downtown rose by 5.5 percent when comparing year-to-date totals as of June 30. Revenue per available room also grew by 4.4 percent.
Interested in buying a home in downtown Denver? Please visit COhomefinder.com.
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com.DenverRealEstateWatch.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal
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