Six years after breaking the $100,000/unit price point, Central Denver apartments averaged over $204,000/unit in 2019. We calculate the average price per unit annually from Central Denver’s transactions between 10-100 units, excluding sales of recently constructed projects. The average price for the year is a 12% jump from 2018, and marks the first time that the average price surpassed $200,000.
Falling interest rates, slower construction activity, strong rents and lower vacancy rates contributed to the increase in apartment sale prices. There continues to be a healthy level of investor demand both locally and from the West Coast states. Several first-time buyers from California and Chicago were introduced to the market, but the vast majority of Central Denver sales were completed by investors that already had holdings in our neighborhoods.
Sales volume remained low for a third year, with only 31 transactions (10+ units) in Central Denver in 2019. As we see more owners handing over keys and operational responsibility to management companies, fewer buildings are coming to market. The other key factor in lower sales volume is the continued consolidation of ownership in our market. Large portfolio owners have tended to buy and hold, rather than buy and flip. Lower sales volume has become another contributing factor to rising prices.
Market fundamentals remain strong in Denver. The 4th Quarter Vacancy & Rent Report by the Apartment Association of Metro Denver contained lots of positive information when it was released last month. The metro-wide vacancy rate of 5.3% is the lowest 4th quarter figure in five years. Central Denver’s 4th quarter rate of 6.1% was the lowest in four years, despite several large construction projects that have not yet completed their initial lease-up. Central Denver’s vacancy rate for buildings between 9-50 units (a category most-reflective of buildings our clients own, and too small to include the large construction projects) was only 4.5%.
The pace of multi-family construction continues to be limited by available labor and materials. 10,000 units were completed in 2019, while nearly 11,000 net new renters were added to our market. Because demand outpaced supply, we saw the vacancy rate decline for the year.
Looking ahead to 2020, we expect low vacancy rates will lead to another bump in rents. Interest rates, which are 75 basis points lower than a year ago, will continue to boost prices. With our strong local economy expected to continue, it seems only a large national economic shift could slow down our market.
by Greg Johnson