Lower Interest Rates Help Prop Up the Market
Central Denver Apartment Market Report: Cover page of our 2019 Q2 newsletter
Denver’s apartment market has been on the rise for nearly a decade. That run has some investors worried that we are now “late in the cycle”, anticipating that an inevitable downturn is on the horizon. However, there are several reasons to believe that the market will continue to push ahead.
In a July presentation to the Apartment Association of Metro Denver State Demographer Elizabeth Garner forecasted net migration to Colorado will continue to be about 60,000 new residents per year for the next decade. Her data showed the majority of new residents settle in the Denver metro area. For apartment investors, ongoing population growth is a very good thing, because Denver currently has almost 15,000 apartments under construction today, and over 25,000 total units under construction metro-wide.
Though rent growth has slowed down, vacancy rates remain low. Owners continue to see good operational performance, and with lower interest rates currently, good operational performance is leading to good financial results.
Interest rates are down around 4% this summer, and that has been welcome news for apartment investors. Rates today are about .75 percentage points lower than last summer, and back to where they were two years ago. Transactionally, lower interest rates are keeping CAP rates in the 5.0%-5.25% range, which keeps values high for apartment buildings.
How much longer this current upswing will continue is uncertain, but most industry-watchers agree that it will take a national economic downturn to slow Denver’s apartment market.
by Greg Johnson