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(To read more on the multifamily market, click here.)

DENVER-Population and job growth are continuing nationally, as well as in Denver, pushing the demand for rental housing, notes a recent Grubb & Ellis take on the metro-area apartment market. The increase in apartments will provide relief to multifamily owners and landlords who in recent years have been forced to provide large concessions, according to the Grubb & Ellis analysis.

“Rising interest rates will push households at the lower end of the income spectrum to rent, or to purchase lower cost condominiums as opposed to single-family housing,” Grubb notes. This will further drive demand for rentals.

Homebuilders already have seen a decline in buyers, a trend that will continue for the next several years, Grubb & Ellis says. “At the same time, interest in high-end and luxury apartments remains robust, especially for central city or resort properties. Age-restricted projects are also increasingly popular.”

The report goes on–with good news for landlords, and bad news for renters. “Apartment rents will rise as concessions dry up and vacancy drops over the next few years, reaching 5% by 2008,” the report states. “A predicted apartment shortage will occur again at this point, given sustained job growth and realistic construction and absorption volumes. Homeowners in most of the metro area will start see significant home appreciation after 2008.”

In regard to investment, institutional investors are especially interested in large or well-located properties. Many institutional investors are increasingly looking at multifamily properties as alternatives to other investments such as offices. However, Grubb & Ellis notes that while individual investors are cautious of the low cap rates for apartments, the rates are unlikely to change. Cap rates will continue to be held down by low rates on Treasuries as well as the large amount of capital in the market, the report notes.

But perhaps more than anything, the market is benefiting from a lack of construction. “Some new construction will likely begin in late 2006 or 2007, spurred by an influx of transit-oriented developments and mixed-use town center project incorporating rental and for-sale products.”

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