Market Report –Denver – Lakewood Submarket

The Denver-Aurora-Lakewood area Throughout the past decade, much has been written on the growth throughout the Rocky Mountain region and in particular, Denver, CO. As a lifelong Denver resident, I have witnessed firsthand the boom in population, development, culture, and of course real estate prices throughout the Denver Metro Area.

The real estate boom has been impressive – according to the Case-Shiller Index, the Denver-Aurora-Lakewood residential home prices have increased over 130% from 2013 to 2023, well above the national average for annual appreciation.

The median SFR sales price in Denver is ~40% higher than the national average. It has been a remarkable run for both residential and commercial property values alike. Much has also been documented on the further spike in popularity from a population net migration both during and immediately following the pandemic.

Denver benefited from the large city exits with an influx of a well-educated, high earning cohort over the past four years. According to study run by Myelisting as of August 2023, Colorado had the fourth largest net positive tax income migration in the country (adding an estimated $8.6B in net positive inflow). And while residential real estate growth as a year-over-year percentage has moved off its post-pandemic (2022) high, the city still saw residential real estate appreciation in 2023 – mostly stemming from inventory levels well below the historical average.

Despite the positive trends over the previous few years, Denver’s market outlook has experienced the same general malaise as many other blue chip cities during this economic slowdown. Office troubles aside, an asset class to monitor is multi-family - specifically mid to large rise apartments. Recent completions have left developers and lenders cautious about an oversupply of multi-family units in the short-term. Local lenders in particular have scaled back offering terms, and capital markets as a whole remain a challenge.

At Seibel Construction, a Denver based developer and general contracting organization, we pay close attention to these macro-data points. However, we also spend a great deal of time with our boots on the ground – looking at specific neighborhoods and submarkets that are poised for continued growth throughout the next decade. As the Denver-Lakewood- Aurora metro is forecasted to increase in population (albeit at a slower rate of net migration from the 2010’s) throughout the 2020’s, it is imperative to look towards areas of natural expansion when evaluating real estate opportunities. And while the forces of over-supply, city planning department challenges, and a challenging downtown market beg prudence – we still see plenty of opportunity for deals for the right product and right locations.

An area of particular focus is small-scale for-sale housing along the West Colfax / Sloan’s Lake corridor. This area sits on the western border of the city of Denver and eastern border of the city of Lakewood. Neighborhoods such as Villa Park (Denver) and Two Creeks (Lakewood) appear primed for tremendous change over the next few years.

Two factors appear to be driving this change. Firstly, despite concerns of over-supply with larger Class-A apartment units, there remains an inventory and for-sale housing need throughout the market. Existing home sales remain muted and potential buyers are subject to a strong rental market with limited new options available for purchase.

Secondly, the boom over the 2010’s in core north/west neighborhoods such as the Highlands, RiNo, and Berkley have priced out buyers and developers alike. The cost of land and construction provides a high barrier to entry for new infill product. As such, both buyers and developers are forced to look at surrounding urban locations or a push to the suburban locations for attainable deals. While we believe in the suburban appeal for a wide range of buyers, we ultimately believe that the first- and second-time homebuyers in the 25-35 age range still desire housing near urban locations next to retail, cultural, and experiential centers of the city.

Enter the historically overlooked areas of Villa Park and Two Creeks. Located directly south and southwest of the highly desirable Sloan’s Lake submarket, these neighborhoods have an existing home stock dating back to the early 1900’s. Dirt, while more expensive than years prior, is a bargin relative to the surrounding neighborhoods. Navigating municipal planning departments for infill housing, while never a breeze, is actually welcomed by a zoning code that promotes density.

. There are over 1,000 units in the planning queues with the Lakewood planning department throughout the Two Creeks neighborhood presently. Interestingly enough, many developers shied away from Lakewood following the city’s passing of an allocation bill in 2019 meant to curb the amount of new housing units annually. With the shifting political landscape moving towards the concept of affordable housing, CO Governor Jared Polis signed a new bill into effect in 2023 that overrides the allocations limitation (which the latter now sunsets in 2025).

These factors, along with restrictive affordable housing requirements on any new development as part of a bill made effective in 2023 in Denver County, have started to attract developers and small-time investors alike to Lakewood.

The primary driver of upside for these neighborhoods is proximity and price. Situated less than 2 miles south of Sloan’s Lake, residents have access to the largest body of water in Denver, a thriving retail center in Edgewater, are less than 4 miles from Downtown Denver, and have direct proximity to major highways (I-25 & I-70) with direct links to the Rocky Mountains. Both neighborhoods offer multiple RTD light-rail stops located with transit paths that are minutes from Union Station in the Downtown core. With land prices cheaper than the popular nearby neighborhoods, end units typically are priced more affordably, providing an attractive alternative to home buyers.

Overall, the Denver metro market remains an attractive investment opportunity for both buyers and developers. Going just outside of the crown jewel neighborhoods may provide great upside throughout the 2020’s and beyond. The West Colfax / Sloan’s Lake corridor in Denver will be an area we continue to develop in and one to watch over the coming years. Low single-family inventory levels, increased affluent in-migration, proximity to experiential “live-work-play” centers, and proximity to transit sites should continue to fuel the growth of this market.