Tech Companies and Their Impact on the Denver Real Estate Market
By Renee Cohen
We know that tech companies like Denver for many reasons including the tech-ecosystem, venture capital, business-friendly resources and the collaborative culture, the highly educated and diverse talent pool, our infrastructure and access to public transportation and airports, and the lower cost of living and emphasis on quality of life. With so many companies flocking to Denver and relocating their staff with them, the question is what is the impact of The Great Migration on the real estate market?
Let’s first take a look at United Van Lines Study about migration to Colorado:
One of the major reasons many companies are moving to Denver is the lower cost of living. The cost of living in California, especially in the Bay Area where many tech companies were previously headquartered, is exponentially higher than in Denver. A target purchase price of $1.5M in the Bay Area will afford you a 2-3 bedroom 1-2 bathroom home with approximately 1100-1300 square feet on a small lot, maybe 3500-4500 square feet. Contrast that with a $1.5M purchase price in Denver, specifically in the Denver Tech Center, where you can buy a 4000-5000 square foot home with 4-6 bedrooms and 3-4 bathrooms on an 8000 square foot lot. The buying power in Denver goes much farther than it does in the cities and towns in the Bay Area.
But the current market in Denver is, for lack of a better word, insane. Our historically low inventory and our large buyer pool mean a lack of supply and a huge demand and therefore a very strong sellers’ market. This is evidenced by the high number of showings – as many as 50 or more in two to three days on any given property – and the high number of offers – all over the asking price with many waiving inspection and appraisal contingencies in addition to including some portion of non-refundable earnest money and a 60-day rent-free rent-back as deal sweeteners to the seller in an effort to be the winning offer in the competition.
One intriguing side effect from the insane market is the contrast between the buyers’ perspectives. For a buyer moving locally from one Denver neighborhood to another, the sticker shock and deal sweeteners are often tough to tolerate. These buyers have been watching the Denver market over the past few years and continue to be shocked by the double-digit appreciation rates, the list-to-sale price ratios often averaging more than 100%, and the high sale prices in neighborhoods they’ve previously known to have been much less expensive and much more affordable. However, the California buyer moving to Denver for their job with their tech company is used to high prices and not getting much in the way of space for a home in California. So to come to Denver and find a home with much more space and much more value for the same money is refreshing and, quite frankly, an easy decision for them. They are happy to pay this price, and often with cash, without so much as a second thought.
There are other implications on the Denver market as well. Employees relocating to Denver for their tech jobs add to the buyer demand and fierce competition for the scarce inventory, which we already know is what’s pressuring sale prices higher. For those Denverites not in the market and not looking to move, the higher appreciation rates and sale prices translate into increased equity which is a welcome outcome for them. A not-so-welcome longer-term consequence, on the other hand, relates to property taxes. Higher sale prices mean property taxes will certainly increase at the next assessment and no one wants to see that happen.
So there you have it. The Great Migration of tech companies into Denver has big implications for the Denver market, both short-term and long-term. For more information about tech companies and the Denver real estate market, check out my website ReneeSellsColorado.com.