Colorado-Real-Estate-Journal_474477

Page 8 — Multifamily Properties Quarterly — August 2025 www.crej.com D enver’s multifamily sector is entering a pivotal phase – one that may define the next cycle of opportunity for investors. After several quarters of elevated supply and pricing adjustments, the market is beginning to find its footing. Strong leasing activity, a sharp slowdown in construction, and a solid eco- nomic foundation are aligning to create one of the most compelling setup periods we’ve seen in years. n Developers pull back, creating space for rent growth. The construc- tion cycle has shifted meaningfully. While Denver has led the nation in new multifamily deliveries over the past 12 months – adding 16,816 units – developers are now step- ping back. As of the second quarter, the active construction pipeline has dropped to just 4.2% of existing inventory, its lowest level in more than a decade. The result? A rare window where demand is starting to catch up to supply. n Leasing activity surges – demand outpaces the 10-year average. That demand story is striking. Second- quarter net absorption reached 4,085 units – the strongest quarterly figure since mid-2021 and a 41% increase from the same period last year. On a trailing 12-month basis, Denver absorbed 9,469 units, which is 17% above the 10-year average and over 3,200 units higher than the pre-pandemic norm. It’s also the fifth consecutive quarter where annual absorption exceeded 8,000 units – a clear signal that renter interest remains strong across the metro area. Just as impor- tant, this quar- ter marked the most balanced match between new completions and absorption in nearly three years. That kind of alignment sets the stage for healthier rent growth, stronger occupancy, and a more stable investment envi- ronment in the quarters ahead. n Occupancy holds firm – afford- ability keeps renters in place. Occu- pancy has leveled off at 91.8%, a figure that has remained steady since late 2023 despite sustained deliveries. South Jefferson County and the Denver Tech Center-south- east corridor lead the metro area with 94.1% occupancy, while south Adams County (86.8%) and Aurora (90.8%) continue to offer value-add opportunities for operators willing to navigate near-term softness. Asset-level performance has also been consistent. Class A proper- ties are holding at 92.1%, followed by Class B at 91.9% and Class C at 91.5%. While Class C product has seen slightly softer demand, it con- tinues to offer a critical affordability layer to the market. Speaking of affordability, Denver renters remain well positioned. The average monthly rent consumes just 24% of household income, com- pared to 49% for a mortgage – giv- ing multifamily a clear advantage in today’s interest rate environment. n Signs of rent stabilization signal a market shift. While rents are still below year-ago levels – down 3.8% annually as of the second quarter – recent momentum suggests a turn- ing point. Rents rose 0.4% in the second quarter and 1.1% in the first quarter, and while annual growth remains negative, we’ve now seen two consecutive quarters of modest gains. All asset classes posted year- over-year declines (Class B: -4.2%, Class C: -4%, Class A: -3.4%), but the pace of decline has slowed mean- ingfully. Select submarkets like Elbert County and south Jefferson County even posted modest rent gains, showing signs of stabilization on the horizon. n Investment outlook: The window of opportunity is now. As development slows and leasing activity remains ele- vated, investors are already beginning to shift their focus. Well-located assets are better positioned than they’ve been in several years. Properties with solid fundamentals and manageable lease-up exposure are expected to benefit most from the tightening pipe- line and improving market balance. Looking ahead, market conditions in Denver are poised to improve steadily. Developers are facing real hurdles – capital costs, regulatory timelines and tighter lending standards – which is keeping new starts in check. This pause in the pipeline creates a critical window of opportunity for existing owners and value-seeking investors, especially in supply constrained sub- markets. The combination of resilient demand, favorable renter economics, and a cooling construction pipeline sets the stage for a more balanced, performance-driven market in late 2025 and into 2026. For those with a long-term view, this next cycle offers opportunity not just to recover – but to outperform. Read the full Q2 2025 Colorado Market Report: https://mmgrea.com/ denver-q2-2025-market-report/ s sam.bretz@mmgrea.com Denver MF: Development slows, demand surges Sam Bretz Sam Bretz Senior adviser, MMG Real Estate Advisors