Denver, the capital and most populous city of the state of Colorado, is situated in the high plains at the eastern edge of the Rocky Mountains. Denver offers a diverse economy supported by the government, hospitality, banking, telecommunications, high-tech, and retail sectors, among others, which has allowed it to perform at above the country’s averages for several years. Following the last recession, from 2013 to 2015, occupancy for Denver hotels increased and appeared to peak in the mid-70s, followed by a modest decline experienced in 2016 in which occupancy dropped into the low 70s, attributed primarily to the strong supply increase of nearly 3,000 new hotel rooms since 2013. Average rate has increased every year since the recession, resulting in a roughly $35 increase between 2010 and 2016, generating a RevPAR of approximately $94 by year-end 2016. The entrance of new, high-rated supply and the overall strong economy contributed to this latest trend, in which RevPAR increased at 16.1% in 2014 and 7.6% in 2015, before only increasing by 2.8% in 2016 given the entrance of new supply. Overall, the Denver market has enjoyed robust growth fueled by development in several areas of the MSA and Downtown, as well as an influx of new residents and numerous companies’ relocation to the region.
The information technology (IT), software-development, and telecommunications sectors are predominant in Denver. Major firms in the market area include CIBER, Cisco Systems, MapQuest, Oracle, Sun Microsystems, IBM Dish Network Corporation, and Level 3 Communications. The government sector is well represented by the State Capitol, City and County offices, and State and Federal courthouses located in Downtown Denver. These government entities, as well as area law firms and government-related contractors, generate significant demand for area hotels. Downtown Denver is home to a satellite location of the U.S. Patent and Trademark Office, which opened in 2014; Colorado is expected to realize a $440-million economic impact by 2019. The healthcare sector, medical technology industry, and education sector are important economic drivers. The Fitzsimons Innovation Campus and the adjacent Anschutz Medical Campus in Aurora serve as a major regional hub for healthcare and biotechnology. The $5.2-billion complex includes the University of Colorado Hospital, Children’s Hospital Colorado, and the Veteran’s Administration Hospital (under construction). The 2015 opening of the $17-million Gates Biomanufacturing Facility at the University of Colorado Anschutz Medical Campus, which is one of only five such facilities in the U.S., was a major boon to the healthcare sector. The University of Colorado at Denver, the University of Denver, Metropolitan State College, and Regis University support the market by providing an educated workforce.
Additions to supply have been a factor in the overall performance of the market. From 2012 through 2016, supply increased by over 3,700 new rooms among 23 new hotels. In 2016 alone, ten new hotels opened (1,295 new rooms) in the market. This increase in supply is expected to continue with approximately another 5,000 rooms coming online between 2017 and 2019, including the 1,501-unit Gaylord Rockies. With supply entering the market at an accelerated pace, the slowing of RevPAR growth, and a modest increase in capitalization rates, Denver hotel values are forecast to decline moderately over the next two years. Average rate growth in the market is expected to continue, despite the new supply additions, and will help values recover by 2019.
Transaction activity in Denver slowed slightly in 2016 and during the first quarter of 2017. The sale of the Hyatt Regency Denver Tech Center hotel in September 2016, for $213,000 per room, represented the top single-asset sale last year, followed by the Westin Westminster in early 2017, at $190,000 per room. While investor interest continues to be strong, some market participants are waiting to witness the anticipated market recovery from high levels of new supply in 2019 before putting their assets on the market. Denver continues to be viewed as one of the nation's emerging and diverse cities, ensuring that hotel investors will continue to pursue assets in this market for their portfolio. While overall growth is slowing, the outlook remains positive for Denver given its diverse, deep economy; continued ability to capture companies’ relocations; and numerous developments underway.