Record-Setting Quarterly Absorption Drives Down Multifamily Vacancy Amid Slowing Construction in Denver

Property performance in the Denver multifamily market strengthened during the second quarter, as the vacancy rate improved and rent growth rebounded. The recent upswing in operating conditions was fueled by slowing completions and a spike in net absorption. Apartments posted net move-ins for roughly 6,000 units during the second quarter, up nearly 15% from the previous peak in the third quarter of last year, while tripling the region’s trailing 10-year average. Between heightened levels of absorption and deliveries slowing by 26% from the first quarter to the second quarter, vacancy posted a notable improvement. Area vacancy declined by 50 basis points during the second quarter to 6.4%. Despite some continued softness in lower-tier properties, large segments of the market are posting tightening conditions. Vacancies for Class A and Class B properties recorded decreases of 60 basis points and 80 basis points, respectively, during the past three months.

Multifamily transaction volume has been light to this point in the year, following strong activity in the second half of 2024. Sales velocity was similar from the first quarter to the second quarter and year-to-date transaction totals are closely tracking the limited levels recorded in the first half of each of the past two years. Transactions in recent months have skewed toward newer property vintages, with more than 80% of sales involving assets built since 2000, and nearly 40% comprised of properties since 2020. In comparison, 20% of 2024 sales involved assets built in the 2020s. Through the first half of 2025, the median sale price was $273,000 per unit, down 2% from 2024. Cap rates declined during the second quarter, averaging 4.75% after holding in the low-5% range since early 2023.

Looking ahead

Property fundamentals are projected to remain stable through the end of the year, with the vacancy rate expected to hold in the mid-6% range and asking rents returning to modest growth. Projects totaling 14,000 units are forecast to come online in 2025, down 34% from last year’s peak. With the pipeline beginning to shrink and renter demand projected to remain elevated, further improvements to vacancy conditions in Class A and Class B properties are likely. Vacancy in top-tier and middle-tier assets have fared well despite rapid additions to local inventory. Once Class C vacancies begin to improve, the overall rate should begin to trend back to long-term average of roughly 5.5%. Rent growth is projected to be modest in 2025, representing an improvement from 2024, when rents declined by 1.5% annually.

Sales velocity in the Denver multifamily investment market is expected to accelerate during the second half, tracking more traditional trends. Transaction volume for the full year will likely remain below historical levels but should be closely aligned to those recorded in 2024. Strong renter demand in recent months and improved Class A vacancy conditions will likely lead to faster lease-ups and increased sales for recently built assets in the coming years. While properties should continue to change hands near Downtown, sales velocity may slow in the coming years. Downtown recorded more activity than any other submarket during the past five years, but areas like Lakewood and Aurora have emerged as the two most active submarkets since the beginning of 2024, a trend likely to persist. Lakewood and Aurora have provided investors with opportunities to acquire both value-add and new builds in recent years.

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