Millennials in Denver

Colorado Real Estate Journal – April 5, 2017

by John Rebchook

Millennials making it, mostly renting in Mile High City

Millennials. Every city wants them. Denver is actually getting them.

A fair share of the 10,000 or so people moving to the Mile High City every month are in the coveted demographic group. Many of these millennials are renters, good news for the Denver area multifamily market.

“Millennials are the biggest generation ever” and also are the most educated group ever, noted John Burns, CEO of John Burns Real Estate Consulting.

Burns, who is based in California, made those millennial comments earlier this year at a ULI Colorado event. But Burns said that the word “millennial” as a catchall definition for people born between 1984 and 2002 doesn’t make much sense.

“If you are talking to millennials born in the ’80s and those born in the 1990s, you will have a much different conversation,” Burns said.

He decided to dig deeper into the demographic trends.

After three years and 9,000 hours of research, his firm came up with eight different demographics to describe those born in decades from the 1930s to the 2000s. Burns and co-author Chris Porter summed up their findings in a book: “Big Shifts Ahead: Demographic Clarity for Business.”

“Denver looks a little different” than other parts of the country, Burns said.

“Denver is more skewed to those born in the ’80s and in the ’70s than anywhere else in the country,” he said.

Those born in the 1970s, he has dubbed as the “balancers,” and those born in the 1980s are the “sharers.” Those two millennial demographics account for 33.4 percent of the Denver area population, according to research by Burns.

The balancers, of course, want everything: balance between work, family and play.

The sharers are the earliest generation of millennials. They also like social media, such as Facebook, lnstagram and Snapchat. They also remember the hard economic lessons of the Great Recession.

“They learned their lessons from their parents and are afraid of debt,” Burns said.

That is, other than student debt, as they are saddled with much of the $1.2 trillion in debt in the U.S., he pointed out.

Denver, he said, has been a leader in master-planned communities that provide housing, retail and offices in places such as Stapleton, Lowry and Arvada.

“Give me urban with great schools and you can’t miss,” according to Burns.

These are what he calls “surbans,” communities with suburban and urban qualities.

“Give me cool urban in the suburbs. Love that urban feel. Surban sounds better than mixed-use,” Burns said.

Because Denver skews younger than much the U.S., that bodes well for the apartment market, according to Chris Porter, the chief demographer and researcher at Burns, who in addition to being the co-author of Big Shifts Ahead, is the chief demographer and researcher at Burns Real Estate Consulting.

“We know right now the younger population is delaying many of the big milestones in life, like buying a home, and not necessarily by choice,” Porter said.

“As a group, as they enter adulthood, they are tending to rent,” Porter added. “That should boost the apartment market, purely as a demographic shift.”

Indeed, a national report released last week by Florida International University and Florida Atlantic University said that Denver is one of only three cities in the nation where renting an apartment carries less risk than buying a home. The report, by Beracha, Hardin & Johnson, ranked Denver with Dallas and Houston because of rapidly rising home prices.

“It probably does make more sense to rent than to buy in Denver right now,” Porter agreed.

On the other hand, he is not down on the Denver housing market, either. In fact, it is somewhat of a Goldilocks market – not too hot and not too cold, according to Porter.

The younger population in Denver also is good news for restaurants, he noted.

“One thing we are noticing and something you will see across the country is that younger buyers are more cost-conscious,” Porter said.

“They don’t want to rely too heavily on debt and they use debit cards instead of credit cards,” he said.

At the same time, they are more into “experiences than possessions.” “They are willing to pay for experiences. I think if retail and restaurants can help create an experience for them, that will resonate with them.”

What is trending in Denver Area Rents?

The median effective rent at one-bedroom units at 17 large apartment buildings polled by BusinessDen – from Cherry Creek and Golden Triangle up to Highlands, Union Station and RiNo – rose 4.7 percent in December 2016 compared to the same month in 2015, from $1,432 to $1,500. (Effective rent subtracts specials, such as a month of free rent, from the advertised rent and is the most accurate representation of how much renters pay each month.)

Twelve of 17 apartment complexes raised rent in 2016. The Platform at Union Station raised rent the most, charging new renters $1,770 per month, up nearly 16 percent from a 2015 BusinessDen poll.

Part of the reason for the rise around town: many landlords reeled in specials last year that gave new tenants a break on the first month or more of rent.

Put another way: renters at Westend, a building in LoDo which had the median effective rent in our poll this year, will pay $67 more per month for a 2016 to 2017 lease than they would have if they had signed last December, when Westend was touting two months free for new tenants.

BusinessDen surveyed 23 large apartment buildings, 17 of them in 2015 and 2016, totaling about 6,300 units. Many apartments in the survey are part of the residential building boom sweeping the city over the past three years, as newcomers keep coming and developers keep building to house them.

The U.S. Census shows that Denver’s population increased by 11.6 percent, almost 80,000 people, in the five years ended July 2015. Last year, Denver’s population growth was high even by national standards: Census data shows Denver outpacing the 49 other most populous U.S. cities.

Meanwhile, by BusinessDen’s tally, at least 4,600 units hit the Denver rental market in 2015 and 2016, a drop in the bucket considering the U.S. Census counted 140,000 rentals in Denver in 2015.

While the median rent went up in 2016, some landlords are pitching real deals; five of the 17 buildings polled twice, in 2015 and 2016, decreased effective rent.

In Golden Triangle, for example, The Acoma used to be the only high-end apartment tower. In 2015 it rented one bedrooms at $1,945 a month and laughed at any prospects asking about a discount. Now it competes with the new 1000 Speer, called The Joule before it sold for a record price per unit.

Both towers have caved into doling out specials. The Acoma is offering a free month of rent, causing effective rent to drop 11 percent to $1,725 per month. At 1000 Speer, which claims it is 70 percent leased, the deal on the table for renters this December is far better than last year: one and a half months free, plus a $150 break on fees and three months of free parking.

Effective rent comes out to $1,562 a month, even leaving the parking perk out of the equation. Compared to a new renter at 1000 Speer last year, a new renter today would save $450 in 2016.

The only other building to drop effective rent by more than 5 percent was 2785 Speer, a gargantuan complex with 332 units that towers over Speer Boulevard at the edge of the Highlands. That building dropped effective rent 9.5 percent in 2016.

On the horizon in 2017

The Joule was sold in June for $120 million.

The march of new construction goes on in central Denver. At least 5,000 more units in Denver are set to start leasing in the next two years, by a BusinessDen tally.

Those new units pose competition for established properties, says Jonathon Papsin, a real estate broker at Colorado & Company who specializes in residential leases at high-end properties downtown and in Cherry Creek.

Papsin points to One City Block, for example, which is now facing increased competition from new builds like SkyHouse Denver and Alexan Uptown. Even so, according to BusinessDen’s survey, One City Block’s effective rent rose even more than its list price indicates.

“I struggle with understanding where rents are headed right now,” Papsin said. “But base rents will have to come down, just because Denver wages haven’t kept up with rental raises.

“Even with two months of free rent, you still have to qualify financially at the end of the day.”

About the author: Amy DiPierro View all posts by Amy DiPierro

Amy DiPierro is a BusinessDen reporter who covers residential real estate, nonprofits, startups and more. She is a graduate of Swarthmore College. Email her at amy@businessden.com