Everyone loves Denver.
And it’s a key factor in the continued construction of apartment properties across the metro area, which doesn’t show signs of slowing down in the near term, according to the multifamily forecast panel at the 2016 Development & Construction Summit presented by the Colorado Real Estate Journal.
“We’re seeing an urban shift in development,” said Andy Hellman, director of ARA Newmark, who moderated the panel. “Why is it happening? Everyone loves Denver: the population growth of millenials, a drop in the homeownership rate, the quality lifestyle and the job growth in Colorado.”
It’s a trend that Hellman sees continuing in Colorado with sustained multifamily development through 2017 as the population grows.
Yet the trend of a shortage in skilled labor and rising construction costs also will continue, he cautioned, as current all-in construction costs for high-rise properties are $300,000-plus per unit, $240,000 per unit for midrise product and $200,000 to $220,000 for garden-style communities.
Increases in construction costs have affected developers, noted Brian Wynne, managing director of Mill Creek Residential Trust LLC.
“It has had a huge effect,” Wynne said of construction prices. “In downtown and core infill areas, we can still make development work. Rents have kept up with construction prices. We can make it pencil. The increases in construction prices have killed anything in a tertiary, periphery market.
“There is upward pressure on rents with inmigration and young professionals moving from higher rent markets,” he continued. “They, however, are not moving to tertiary markets.”
Both Adam Killian, director of self perform, Shaw Construction, and Tim Kretzschmar, operations manager, Swinerton Builders, agree that construction costs are leveling off.
“The good news is big price increases are leveling off,” said Kretzschmar.
However, noted Killian, the workers who left the industry to work in oil and gas are returning, and expecting wages similar to what they were earning there. As well, there remain skilled labor shortages.
“We’ve seen a constant theme of projects taking longer due to a shortage of skilled labor,” said Kretzschmar.
Not only is a labor shortage impacting construction but also delays are coming from not just municipalities but public infrastructure – such as Xcel and Century Link, added Killian.
Construction of multifamily properties also is being impacted by the wants of the young professional.
“Amenities, it’s paramount. They are more important than the actual interior of homes.” said Wynne. “It is prime for this generation. There are other demographics, empty nesters, Gen Xers. But to us, they are secondary to the young professional. They are the real demand driver and we cater to them. In building small apartments, you have to get out of a 600-square-foot home and use those common areas, a secondary, defacto living room.”
These evolving amenitized properties are challenging to contractors due to their ambiguity.
“The bigger challenges are working through a project and then the developer wants to do a dog room, late in the game, as reaction to what is going on in the market, and getting it done on time,” said Kretzschmar.
“It’s the schedule,” agreed Killian. “It remains nebulous until the end of a project. It’s typically a last-minute push to get information coordinated and in place.”
All of the panelists agreed that multifamily construction in Denver will continue as population grows and delayed homeownership persists.
“We feel the same way,” said Hellman. “You look at the trends, the numbers, it’s hard to argue it will soften anytime soon. Home ownership is less of a priority coupled with the amount of student debt, the benefits of the mobility of apartments has taken to the current leasing generation.”
