I get asked all the time, what is the next hot neighborhood in Denver? As I'm out showing properties, and being on the constant look out as an investor myself, I'm always searching for the next hot hood for my clients to get into before it takes off. I recently read about the hottest hoods in the May issue of 5280 Magazine. While I agree with them, they aren't exactly groundbreaking or surprising. So I thought I would dig a little deeper and give you my personal opinion on some neighborhoods that I expect big things from in the next five years. Each week I will highlight a new neighborhood and hopefully give you a few more options to think about.
I surprise most people when I tell them that I believe downtown is going to be one of Denver's next hot hoods. When most people think of downtown living, they think of high end luxury lofts. And while there certainly are those in downtown Denver, there are a lot of middle of the road condos as well that have huge upside potential.
Downtown boomed in the early 2000's and crashed in the late 2000's. But very quietly, it has made a strong resurgence and I expect it to see some of the highest appreciation levels in all of Denver in the next ten years. My justification for this has to do all with supply.
As you may have noticed, the rental market is insane right now with unprecedented vacancy rates around 1%. Because of this, every vacant piece of land in Downtown Denver is being used to build apartments, many of which are leased before they are built. With more and more people moving to Denver, and more and more demand to be Downtown, there is going to inevitably be a point in the next few years that these renters get fed up with the high rents and want to buy downtown instead.
The problem is is that there simply won't be the supply to meet the demand since all the lots that could be used to build new condos for resale are tied up as rentals. When this demand appears, there is no reason that the average price per square foot for a Downtown condo explodes from its current $300 a square foot.
And while Downtown as a whole will do well, I expect the most convenient pockets will do the best. Buildings that are close to the new Union Station, in Riverfront Park, or LODO will all demand the highest price, as they do now. Keep in mind that condo living Downtown is all about convenience and being able to leave your car parked 5 days a week is worth paying an extra $100,000 to many Downtown buyers.
We are also seeing a surge of second home and out of town buyers looking downtown. Many empty nesters who have lived in the suburbs their whole lives are deciding to move into the heart of the action. In the past year, I've sold 3 units in the Spire to empty nesters who are willing to pay top dollar to be in the heart of the theatre district, blocks to fine dining and have the mountain views they have always dreamed of.
When you combine all these factors, the potential for home prices in downtown to keep climbing sharply are readily apparent and it all goes back to supply and demand. Demand for downtown living will only increase as more and more buyers move back to the city and get tired of paying exorbitant rents. And since there are no new condos being built, the supply will not be increasing to match the demand leaving a major shortage of condos to choose from. And as we can see from how the rest of the Denver market is right now, a shortage in supply means 20% plus appreciation and homes selling in hours, not days or months.
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