Q2 2022
High Demand for Housing Proves Fruitful for Investors
During the first three quarters of 2021, apartment construction, investment and leasing across the United States reached a record high. In the first quarter of 2022, investors spent $63 billion on multifamily investments across the nation, the highest level on record and a 56% increase over the first quarter of 2021. Over the past 12 months, multifamily investments contributed to 37% of capital flowing into all property types at $374 billion, ahead of the 21% for office properties and 20% in industrial.

It comes as no surprise that apartment investments remain strong as the U.S. unemployment rate remains low at 3.6% as of April 2022, which is just above the lowest level in a half-century. Job growth has remained consistent in the face of the worst inflation in four decades with employers adding at a minimum of 400,000 jobs for 12 consecutive months. However, with the Fed’s recent hike in interest rates, consumer’s purchasing power is decreasing, forcing potential first time home buyers to remain in the rental market.

In Fort Collins, there are currently 30 buyers for every home, making the market highly competitive and purchasing homes unattainable for many. The lack of supply of homes for sale doesn’t help the situation; in the first quarter of 2022, 25% fewer homes were available to purchase as compared to the same period in 2021. Across the region, high prices, low inventory coupled with rising interest rates and inflation, make multifamily an even more promising investment. Approximately 695,100 more renters leased apartments in the past 12 months than vacated units, a 77% increase over the previous record set in 2000. In Q1 2022, net absorption was 96,500 units, the highest since 2000.

Of the four major assets classes, apartments have been viewed as one of the strongest going forward, behind industrial, in terms of total return. New construction totaled 66,400 units for Q1 2022, which pushed the 12-month total to 292,500, the highest level since 1987. Despite the high level of new construction, vacancy fell over the past 12 months to 2.3% while rents increased 15.5%. The Denver area is benefiting from an influx of new residents from higher-cost West Coast regions, and demand for urban apartments is rebounding from severe declines seen during the onset of the pandemic in 2020. Denver saw rents increase 12.8% in the past 12 months, as the vacancy rate stayed consistent at 6.4%. Multifamily sales rose 149% from the prior year to $10.7 billion.

Fort Collins/Loveland/
Larimer County

In the Fort Collins/Loveland market, over the past 12 months, there has been a 3% increase in inventory, with 26,495 units in the submarket, up from 25,718 in Q2 2021. Net absorption is down almost 20% from the same period in 2021, at 892 units; however, Q1 2022 saw net absorption of 1,109 units. Occupancy rates remain strong at 95.68%, which is above the five-year average of 93.66%. The current vacancy rate is sitting at 4.3% or 1,144 units, Q3 2021 saw the lowest vacancy rate in the last 10 years at 3.5%, whereas Q2 2019 saw the highest vacancy rate at 10%.

Year over year rent growth increased by 9.5% in Q2 2022, with an average market rent of $1,537 per unit, the highest rent seen in the past decade. Over the next five years, the year over year rent growth is anticipated to slow, however, it’s predicted that the remainder of 2022 will see YOY rent growth remain in the high teens. The market sale price per unit is up 6.1% from the same period in 2021 at $240,000 per unit, cap rates remain stable at 4.5%. Sales volume over the past year have been $561 million, down from $622 million in Q2 2021. 2021 had the highest sales volume of multifamily investments seen in the past 20 years.

Larimer County’s unemployment rate as of April 2022 was 2.6%, down from 3.1% in March. While Colorado has recovered a good portion of its jobs since March 2020, not all recovery is spread evenly. The Fort Collins metropolitan statistical area, which includes Loveland, recovered fewer jobs than the state-wide average, but is still above the nationwide average with 103% of jobs recovered. The April median single family home sales price in Fort Collins was $620,500, up from $511,450 in April 2021, where the Loveland/Berthoud area saw 176 homes sell at a median price of $596,500, up from $435,000 in April of 2021.

Sources: CoStar, BizWest
Greeley/Weld County

In the Greeley/Weld market, the current vacancy rate is 7.3%, down from 7.5% in Q2 2021, with 1,293 units vacant. 12-month net absorption is down 4.5% from the prior period, with 675 units. The occupancy rate has declined to 92.73% down from 93.21% in May of 2021, occupancy rates reached a 10-year low in Q4 2021 at 89.92%. The inventory of available units has increased 4.1% from Q2 2021, with an inventory of 17,790 units. There are currently only 689 units under construction, a 2% decrease from the same period in 2021.

Annual rent growth increased by 8.6% in Q2 2022, with an average market rent of $1,364 per unit, like Larimer County, the highest rent seen in the past 10-years. Market sale prices are up 14.9% from Q2 2021, at $203,000 per unit. Total sales volume in the past 12 months was $228 million, with 4.9 months to sale and a -10.1% sale to asking price differential. Q1 2022 saw the highest YOY sales volume ever recorded at $218 million. Cap rates are at an all-time low sitting at 4.81%, down from 4.95% one year ago.

Sources: CoStar, BizWest
Emerging Trend in Multifamily Investing - Single-Family Rental Homes

Traditionally, the single-family home industry has been dominated by mom-and-pop investors with fewer than 10 homes in their portfolios, but this trend is shifting. Single-family rental investments rose significantly since the beginning of 2021, with home builders teaming up with single-family rental companies and some major deals being backed by pension funds. Investors have been focused on building entire neighborhoods of homes to rent, known as “build-to-rent”, an initiative that’s expected to benefit from soaring mortgage rates. Fundamentals for apartments and single-family rentals remain strong with strong wage and job growth, high household formation and migration trends, contributing to the continued demand.

Source: CoStar News
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CoStar Market Reports - Larimer and Weld County
Q2 2022
This quarterly publication is authored by Jamie Globelnik