As seen in Colorado Real Estate Journal
The Denver real estate market has long been an attractive target for multifamily investors due to its sustained economic vitality, demographic trends and a consistently strong job market. While the landscape has experienced notable turbulence over the past few years – largely attributed to rising inflation, higher interest rates and shifting buyer sentiment – the outlook for 2025 and 2026 signals a promising resurgence, especially within the midmarket multifamily investment sector. Key trends, including rising rents, robust absorption rates and sustained demand for rental units, are set to shape this revitalization, offering both challenges and opportunities for astute investors.
Population Growth
As of mid-2024, Denver’s rental market continues to show resilience and upward momentum. This growth has been driven by Denver’s robust population expansion, particularly among millennials and Gen Z cohorts, who prefer renting over homeownership. According to U.S. Census data, Denver’s population grew by 1.3% in 2023, surpassing national averages, and this trend is expected to persist into 2025 as the city’s job market continues to thrive.
Notably, the Denver metro area has become a hub for high-growth industries such as technology, healthcare, aerospace, and professional services – sectors that tend to attract a younger, more mobile workforce. These demographic groups, especially those in the early stages of their careers, often favor renting due to its affordability, flexibility and access to urban amenities. This preference has created strong demand for rental housing, bolstering the financial outlook for multifamily investors.
Absorption Rates
Absorption rates, which measure the pace at which newly built rental units are leased, have emerged as a critical indicator of the health of Denver’s multifamily market. After a slowdown in 2023, which saw the market grappling with economic uncertainty and a significant uptick in supply, absorption rates rose in 2024. This rebound is partly attributed to renewed demand following the pandemic-era shifts and the return of strong population growth.
Several factors are driving the absorption of multifamily units. First, Denver’s steady in-migration continues to fuel demand for housing. According to the Colorado State Demography Office, the state saw over 70,000 new residents in 2023, with many coming from high-cost states such as California, Texas and Illinois. These new residents are finding Denver’s cost of living more palatable than their home states while benefiting from the city’s burgeoning job market.
Second, home prices in Denver remain elevated, with the median home price in the Denver-Aurora-Lakewood metropolitan statistical area hovering around $550,000 as of the second quarter. This has priced many would-be buyers out of the housing market, pushing them to remain in rental properties for longer periods than initially anticipated. This shift in buyer behavior has kept vacancy rates low, particularly in the mid-market rental segment, where more affordable options are available. As a result, the absorption of mid-market units is expected to remain strong through 2025, with vacancy rates staying below 4%, according to CoStar’s mid-year market report.
Job Market Resilience and Economic Outlook
One of Denver’s most enduring advantages is its diversified and resilient economy. The city’s job growth is expected to continue outpacing national averages through 2025, with an annual growth rate of approximately 2.5%, according to projections by the Metro Denver Economic Development Corp. Industries such as tech, health care, aerospace and renewable energy are driving this expansion, with Denver becoming a national hub for innovation and sustainability initiatives.
The strength of these sectors, combined with a high quality of life, continues to make Denver a magnet for young professionals seeking career opportunities. This influx of highly skilled workers has fueled in-migration, contributing to the strong demand for rental units, especially in the midmarket space, where affordability and proximity to amenities are key considerations for renters.
Additionally, national macroeconomic trends, such as rising interest rates and tighter mortgage lending standards, have made it increasingly difficult for prospective homebuyers to enter the market. As a result, more individuals are opting to remain in rental housing, further reinforcing demand. For investors, this presents a compelling opportunity to capitalize on the growth of Denver’s rental market, particularly as inflationary pressures push rents higher and the relative attractiveness of income-generating assets like multifamily properties increases.
As we look toward 2025 and beyond, Denver’s multifamily investment space is well-positioned for continued growth. Increasing rents, strong absorption rates, and sustained demand for rental units form the bedrock of a resilient market. While challenges, including rising construction costs and the potential for economic headwinds, remain, the underlying market fundamentals in Denver are strong. Investors who can adeptly navigate this evolving landscape will find ample opportunities to generate robust returns in one of the nation’s most dynamic real estate markets.
