A method for increasing efficiency of a transcritical heat pump water heater system is provided, as well as the corresponding system. The refrigerant, such as CO2, is compressed to a supercritical point and passed through a gas cooler that is wrapped at least partially around a water storage tank, wherein the refrigerant transfers heat to water stored in the tank. The hot water is discharged from the storage tank proximate to a top of the tank, and cold water is introduced into the tank proximate to a bottom of the tank. The supercritical refrigerant is directed to flow through the gas cooler from a top point to a lowermost point in a flow direction such that the refrigerant exits the gas cooler proximate to the bottom of the tank at a location of the coldest water within the storage tank.