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The Retail, Light Rail Premium: Denver Apartment Market Case Study

The Retail, Light Rail Premium: Denver Apartment Market Case Study

In the apartment industry and other types of real estate, location is paramount. Amenities offered in a given area will almost always trump what apartment developers can feasibly develop within a community. For that reason, developers and prospective apartment owners flock to hot locations intensely analyzing available land or existing communities to determine if the revenue-generating potential is worth their capital investment.

Being within close proximity of popular retail establishment and light rail stations are at the top of list of apartment demand generators. And for good reason – renters want their favorite shops and hangouts to be nearby, and light rail offers affordable and reliable transportation to the most sought-after destinations in a metro. Up to this point, the literature attempting to quantify the premium for being within close range of these amenities has been sparse. The focus of this article is to explain the findings from an econometric model developed for the Denver apartment market using the vast collection of apartment data provided by MPF Research.

Denver overview

Denver presents an interesting case-study; the economy is booming across the metro, it has a vast public transit system as well as several highly attractive retail centers. Additionally, apartment performance has been a national leader for some time, averaging annual rent gains of around 8% and maintaining occupancy levels around 96% over the past three years, even as new completion volumes have been repeatedly breaking records in that period. Public transit is widely used. The metro currently has 47 miles of track and 170 light rail vehicles that recorded more than 26 million unlinked passenger trips in the year-ending January 2015, according to the American Public Transportation Association. And there is much more to come. Denver’s Regional Transportation District is constructing 122 miles of new of commuter rail lines as a part of the FasTracks initiative, the largest transit expansion program in the nation. New rail lines, completing from 2016 to 2018, will span westward to Wheat Ridge, eastward to Denver International Airport and northward to Westminster and Northglenn. At the center of it all is downtown Denver Union Station, which just had nearly $500 million in renovations complete last summer.
Rail Stations - MPF Research - 1

As the binplot of average monthly rents shown below reveals that apartment units do appear to be able to sustain higher rents near large shopping centers and light rail stations.

Rail Stations - MPF Research - 2

The kernel density surface map shown below illustrates that, for the most part, there is a higher concentration of apartment units near large shopping centers and light rail stations.