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 when occupancy dropped into the low 70s, attributed primarily to the strong supply increase of nearly 3,000 new hotel rooms since 2013. The downward trend continued into 2017, but at a slower rate of decline because the demand growth quickly absorbed the new supply. Average rate (ADR) has increased every year since the recession, resulting in a roughly $37 increase between 2010 and 2017, generating a RevPAR of approximately $96 by year-end 2017. 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 both 2016 and 2017 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’ relocations to the region.
The greater Denver market benefits from a diverse economic base. Major firms in the market include CIBER, Cisco Systems, MapQuest, Oracle, Sun Microsystems, IBM, Dish Network Corporation, and Level 3 Communications. According to 2017 data, ten Fortune 500 companies are located in the Denver metropolitan area, and two of those are among the largest in the telecommunications industry, making Denver a major center for telecommunications, information technology, and broadcasting. Moreover, financial, banking, and investment institutions are prominent in the greater Denver area; companies such as Western Union, U.S. Bank, and Wells Fargo have a strong presence in the local market. In addition, the healthcare and medical technology industries, as well as the education sector, are well represented in Denver. The Fitzsimons Innovation Campus and the adjacent Anschutz Medical Campus in Aurora serve as a major regional hub for healthcare and biotechnology. The combined $5.2-billion complex totals 578 acres, and at full build-out in an estimated 20 years, it should encompass 18.5 million square feet of education, patient care, research, and medical office space; onsite entities include the University of Colorado Hospital, Children's Hospital Colorado, and a VA Hospital (currently under construction). Moreover, the University of Colorado at Denver, the University of Denver, Metropolitan State College, and Regis University support the market by providing an educated workforce.
A significant amount of new supply has been an important factor in the overall performance of the market. From 2012 through 2017, supply increased by almost 6,400 new rooms among 42 new hotels. In 2016 and 2017 alone, 29 new hotels opened (3,899 new rooms) in the market. This increase in supply is expected to continue, with approximately another 5,500 rooms coming online between 2018 and 2020, including the 1,501-unit Gaylord Rockies. Despite the new supply, the Denver market has proven that demand continues to increase to help absorb the influx of new supply, resulting in positive RevPAR growth. However, in 2018, RevPAR growth is expected to remain at or slightly below the level achieved in 2017. A more modest rate of growth is anticipated in 2019 and 2020, as the market will need to absorb the high levels of new supply.
Transaction activity in Denver slowed slightly in 2017 and during the first quarter of 2018. The sale of the Westin Westminster occurred in early 2017, at $190,000 per room, while the recent sale of the Holiday Inn Express Hotel & Suites Downtown Denver represented the top single-asset sale in 2018, at $269,000 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.