Boulder’s Apartment Boom

By Eric Karnes

Construction at Pearl and 30th

Some of my Boulder friends have remarked to me about the amount of apartment construction underway in the city. So, what brought about all this development?

Only a few years ago apartment construction in Boulder was quite limited. Land zoned for multi-family use was expensive, and because of that most construction was for condominiums instead of rentals. Several factors combined to change the situation 180 degrees:

The Great Housing Bust scared off many buyers. Home ownership lost its luster for many, especially those stuck in situations with a house worth less than its mortgage.
The apartment market attracted lenders and investors due to low vacancy rates, a lack of new construction and increasing rents. Since developers are opportunists in the true sense of the term they stated developing apartments.
The rise in construction liability lawsuits, often brought by condominium owner associations against developers over perceived or actual construction defects, scared off condo developers and made finding builder’s liability insurance impossible or much too costly.

Boulder is also a magnet for potential renters, including retirees, students and those attracted by the city’s diverse economy and livability. In Boulder and the rest of metro Denver many apartment developers began to concentrate at the upper end of the rent spectrum. They capitalized on providing a wide range of amenities and stressing quality of design and construction intended to attract “lifestyle renters”, those who no longer desire the responsibilities of home ownership but value high quality in their residences.

Much of the new apartment development in metro Denver is located in higher density infill projects convenient to public transit and pedestrian-friendly neighborhoods, reflecting a growing trend by many for a return to the cities. As of the end of the first quarter of 2013 there were 11,795 apartment units under construction in metro Denver, including 901 in Boulder County. And that’s not all: developers have proposed projects containing another 16,882 units, of which 1,797 are in Boulder County and mainly in the City of Boulder.

Can Boulder (or Denver in general) absorb all these units? To put matters into perspective, in a “typical” year metro Denver experiences net demand of about 4,000 to 5,000 apartment units. One would think, therefore, that we’re building into a glut. But, the potential overbuilding comes from a low base, with a metro vacancy rate of only 4.6%, well below the 5% to 7% range most people in the industry consider a market balanced between the interests of apartment owners and renters.

Even so, overbuilding is entirely possible, especially in the higher priced units and by 2014 when many of them will be coming onto the market. The great wheel of the market may turn, but factors such as location and design will also play into which properties are winners and which are losers. I already see some developers buying mediocre sites just to get into the market, and that’s always a sign of a market top or a bubble.

So, how about Boulder? The apartment market here is even tighter than the metro average, with a 3.2% vacancy rate measured at the end of the first quarter in Boulder County as a whole. But, it’s even tighter in some parts of the county. In the City of Boulder (excluding the area around CU) the vacancy rate was only 1.4% and in those CU neighborhoods it was 0.3%. Perhaps, one might think, potential residents can look further afield while accepting longer commutes, but their options are limited; the vacancy rate in Longmont was 2.3% and in Broomfield 4.5%. No wonder developers like Boulder.

So, for at least the next two years Boulderites should expect to see considerable apartment construction underway. As is the tradition in the real estate business, however, developers will overbuild. Perhaps the condo market will rise again once the construction liability issue is resolved by the Colorado legislature. In the meantime, it’s a landlord’s market in Boulder.