An easy quality of life at a cheaper price than in large West Coast cities is driving high population growth in Denver and catching the attention of large apartment landlords.

In the past, the city's economy has been tied to the boom-and-bust cycles of the energy industry, but some multifamily investors believe the market is poised for sustained and long-term growth. Their confidence stems in part from local governments' investments in public transportation and efforts to attract technology companies and other white-collar jobs from pricier coastal markets, along with increased cachet from Denver's budding cannabis industry.

The Denver market's population grew by 10.03% over the last five years, ranking it 11th by growth rate out of the 53 U.S. metropolitan areas with more than 1 million residents, according to Claritas data. The area's population is expected to grow by 7.65% over the next five years, to 3.16 million people, outpacing the median projected population growth of 4.16% for metropolitan areas with more than 1 million residents. Apartment rent growth has also outpaced the national average: According to Reis Inc., effective rents in the Denver market grew by 7.6% year over year, the strongest such growth rate in the country.

The top real estate investment trusts investors in the Denver apartments are Camden Property Trust, Apartment Investment and Management Co. and Forest City Realty Trust Inc., but AvalonBay Communities Inc., the largest multifamily REIT by market capitalization, has also dipped its toes into the market. The company, which has traditionally focused on larger coastal markets, still has just one property in the city, purchased in 2017, but is "continuing to look hard" at the new investments and is making purchase offers, AvalonBay's chief investment officer said in an April conference call.

In an interview, Camden's Chairman and CEO, Richard Campo, said Denver's less restrictive land-use and development policies compared to more expensive coastal markets, along with the city's deliberate efforts to attract a balanced and diverse socioeconomic base of residents and businesses, bodes well for long-term growth in the city's multifamily sector.

"I'm not sure you want to be a coastal market," Campo said. "When you look at San Francisco or New York, they have huge problems with affordable housing, there's sort of class-warfare going on there right now, especially in San Francisco, between the tech millionaires and John Q. Public, because rents have almost doubled there in the last five or six years."

From 2018 to 2020, Campo said rental rates in the Denver area are projected to increase by 3% to 4%, a level that he called "kind of a sweet spot" that pleases REIT shareholders without disrupting local housing dynamics.

The market's relatively high yields, compared to the major coastal cities, have also attracted several nontraded REITs, including Blackstone Real Estate Income Trust Inc., which market their shares to retail investors as high-dividend investments.

Stifel analyst John Guinee noted in an interview that U.S. multifamily REITs derive close to 70% of their net operating income from properties located in the country's top 10 metropolitan statistical areas, a group that does not include Denver. Still, he said the market appeals to large public and private apartment owners, along with merchant builders, because it is trending in the direction of those larger markets, with a high level of white-collar employment creating strong demand for living space.

Denver's apartment inventory rose by 3.7% in 2016 and 2.8% in 2017 on a year-over-year basis, compared to growth of 2.1% in each year for the U.S. as a whole, according to Reis data. Despite the relatively high level of new construction in recent years, though, Denver's population growth and job growth could give landlords the ability to raise rents over the long term, Robert W. Baird analyst Drew Babin said in an interview.

Tech companies, startups and other businesses now on the West Coast are attracted to Denver because they see the city working to offer their mostly millennial workforces a lifestyle and urban environment similar to San Francisco but with a cheaper cost of living and more affordable housing options, Babin said. Colorado's growing cannabis industry has also created jobs and attracted millennial residents, Babin said.

Nik MacCarter, a director with Unique Properties, a Denver-based multifamily and commercial broker, described the pace of construction of class A apartment buildings in the city as "incredible," adding, "These new buildings are catering to a new demographic of folks that did not live in the city 10 to 20 years ago."

MacCarter estimated that capitalization rates, a measure of yield, are 200 to 300 basis points higher in Denver than in San Francisco, Los Angeles or New York, in a sign that lower property prices in Denver are enabling buyers to get higher relative returns. Lower cap rates in a market signal that buyers are willing to pay more for slimmer yields.

"For me, working in Denver and being from here, the cap rates on deals seem incredibly low right now," MacCarter said. "But for a guy coming from San Francisco, where he's buying deals at a 1% to 3% cap rate, to be able to buy a deal here at 4% to 5% cap rate, that's a great investment for him."