Metro Denver’s apartment construction boom is peaking

Over the last year, the metro Denver area saw a historic number of new apartments coming onto the market.

The region had nearly 7,400 new units delivered within the second quarter of 2024 and 19,000 over 12 months, according to the Apartment Association of Metro Denver’s second quarter report released Thursday.

It’s about the size of building a new small town within a year, said Drew Hamrick, the association’s senior vice president for government affairs and general counsel.

And it’s the highest number of new apartments added in the region since the organization began its data report 44 years ago.

But this wave of new construction isn’t expected to last.

A slowdown in the pipeline

In a sign the market is peaking, the number of projects starting to come off the ground in the Denver metro area is low compared to the number of new deliveries, according to another quarterly report from commercial real estate firm CBRE.

The local apartment association expects healthy growth to continue for another year or two, said Mark Williams, executive vice president for the Apartment Association of Metro Denver.

“But what we're unfortunately seeing is a lot of those units that are under the planning stages,” Williams said, “some of those are being pulled.”

Rents have stayed fairly flat at around $1,900, up 1.3% year-over-year, according to the association.

While stable rents is good news for renters, it may disincentivize developers from building more units.

“They might have bought the land, got things approved, but they're pulling the deal because it doesn't make sense anymore,” Williams said.

The recent surge of construction may be “artificially” inflated because of local laws in Denver, Longmont and Littleton requiring developers to include some affordable housing apartments in every new rental complex, the CBRE report released Thursday said, and some developers have sped up their timelines to avoid these requirements.

As those laws have gone into effect and high interest rates have made it more expensive to obtain construction loans, the metro Denver market could start seeing far fewer cranes rising.

“CBRE expects to see a significant decline in deliveries by 2026 as many proposed deals are unlikely to break ground anytime soon,” the report said.

Renters are filling the spaces

Along with the new apartments coming onto the market, the number of people signing leases is also rising.

“The net absorption level is also a record high, at 7,892 units showing that the industry is delivering the new housing units that we desperately need in Metro Denver,” Williams said in the association report.

Renters are gravitating towards larger and cheaper apartments, said Hamrick.

Studio apartments in the region had the highest vacancy rates at 6.6%, according to the report. One-bedroom apartments were at 5.5% and two-bedroom and three-bedroom units were at 5.1%.

Older buildings built before 1970 have the lowest vacancy rates at 4.5%, while the newest post-2020 buildings have the highest at 6.8%.

“People are looking for more value in their apartments and the luxury units are a little less in demand,” said Hamrick.

Still, developers are inclined toward building more luxury units because of market conditions despite a push for more affordable housing, Williams said.

The association executive warned that an emphasis on building affordable housing in the area could have the opposite effect desired. The influx of new housing has been a main contributor to the stable rents the area has seen in the last two years, according to the report.

In short, Williams said more housing is better than no housing.

“We need more affordable units built now,” Williams said. “But if a developer can't get a deal to pencil out with an ‘affordable’ community, they're not going to build it.”