The region's commercial real estate market is showing clear signs of improvement, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for April 2011.Data from CoStar Realty Information, Inc. show first quarter direct vacancy rates in the region's office, industrial, flex, and retail markets were equal to or below last year's rates.
"While vacancy has not fallen enough to support higher lease rates—or the significant commercial development that tends to come with them—several public and nonprofit development projects are still moving forward," explained Patty Silverstein, president of Development Research Partners and chief economist for the Metro Denver EDC.
Metro Denver builders recently broke ground on projects including the Denver Police Crime Laboratory, Metropolitan State College of Denver's Hotel and Hospitality Learning Center, and The Children's Hospital's Broomfield Therapy Center. GID Urban Development Group also broke ground on phase two of its luxury apartment project in downtown Denver's Riverfront Park, and the Urban Land Conservancy revealed plans for a transit-oriented development along the West Corridor light rail line.
The nature of the projects moving ahead clearly speaks to the opportunities and challenges of today's real estate market. Public projects underway are in most cases those that were planned and funded before the recession. The deficit challenges now facing governments at all levels will almost certainly mean fewer public projects break ground in the near future. Apartments and other high-density housing are the increasingly favored developments among residential builders, as many are struggling to finance and sell new detached homes and many potential homebuyers remain on the sidelines. The limited number of commercial projects suggests companies still face challenges. Business confidence has clearly improved, but many companies are still treading cautiously amid high commodity costs and political unrest both here and overseas.
On the employment front, Metro Denver employers added 5,200 jobs between January and February. Job growth has not yet returned to levels seen during healthier economic periods over the past decade. Employers added closer to 10,000 jobs in February. Still, job gains are positive news and a variety of industries are reporting growth.
February year-to-date percentage job growth was strongest in education and health services (+3.2 percent) and professional and business services (+2.6 percent). Of the four industry supersectors that reported year-to-date job loss in February, percentage declines were largest in natural resources and construction (-4.8 percent) and information (-4 percent).
All challenges aside, the indicators for commercial real estate vacancy were among 15 Metro Denver indicators that moved in a positive annual direction in this report. (Fourteen indicators moved positively in the previous report.) Twelve of the indicators moved in a positive monthly direction, compared to nine indicators in the previous report.
The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.
Labor and Employment
Results of the Manpower Employment Outlook Survey for the second quarter suggest employers in the Denver-Aurora-Broomfield MSA are growing more optimistic about hiring. Seventeen percent of employers said they planned to add jobs over the next three months, compared to 13 percent of employers who reported hiring plans in the second quarter 2010 survey. The share of employers planning to cut jobs over the next three months (six percent) was smaller than the nine percent share who planned layoffs at the same time last year. Even as hiring expectations improve, though, the area's employers remain cautious, with 77 percent of respondents in the second quarter survey said they would leave staffing levels unchanged or said they were unsure about their hiring plans.
Metro Denver's February unemployment rate (9.5 percent) was slightly higher than the 9.3 percent rate reported one year earlier and was equivalent to the national average for the month. February unemployment rates in the seven Metro Denver counties ranged from 7.5 percent in Boulder and Douglas Counties to 11.3 percent in Adams County.
The weekly average number unemployment insurance claims filed in Metro Denver during the first two months of the year were about nine percent lower than the comparable 2010 average. Likewise, the statewide weekly average number of claims filed was down about nine percent year-to-date in February. Lower claims numbers are a positive development, although the labor force still has considerable recovery ahead. During healthier economic cycles, the weekly average number of claims in Metro Denver and Colorado have approached 1,200 and 2,000, respectively.
Consumer Sector
The Conference Board's U.S. Consumer Confidence Index for March showed the effects of high fuel prices and concern over global unrest. Consumers who participated in the survey gave an improved assessment of current business conditions, but they expressed increasing concern over the limited availability of jobs and the combination of lower incomes and rising prices. All told, the index fell from 72 in February to 63.4 in March.
The Mountain Region Index and the Pacific Index were the only two of nine U.S. regional Consumer Confidence Indexes that increased between February and March. In the Mountain Region, consumers' assessments of the present economy and their expectations for the next six months both improved, and the March index rose to a level of 66.5 from 61.7 in February.
Metro Denver retail sales through the first 10 months of the year were 6.8 percent higher than sales for the same months in 2010, and sales statewide were up 5.8 percent year-to-date. Nationwide retail sales were up 6.3 percent year-to-date in October. October year-to-date sales gains in the seven Metro Denver counties ranged from 4.5 percent in Jefferson County to 8.4 percent in Adams County.
The average Metro Denver hotel occupancy rate in February (58.4 percent) was higher than last year's rate, but occupancy remained slightly below the 60 percent rates commonly reported in February before the recession. Still, rising occupancy has given area hotels slightly more pricing power: the Metro Denver average room rate through the first two months of the year was 3.2 percent higher than the comparable average for 2010.
January was the third-consecutive month in which passenger traffic at Denver International Airport exceeded last year's level by four percent or more.
Residential Real Estate
February existing home sales activity in Metro Denver was relatively consistent with seasonal norms. The number of closed home sales increased between January and February, as did the number of homes placed under contract. Compared to February 2010 levels, however, the numbers of closed sales and contracts fell 8.5 percent and 16.3 percent, respectively. Housing analysts note that home sales are bound to be slower than they were now that the homebuyers' tax credits have expired, and they say current sales trends represent the "new normal" many expected in the wake of the housing crisis.
Data on foreclosure filings in Metro Denver show filing activity slowed noticeably in February. The total number of new foreclosure filings reported by Metro Denver's public trustees fell 19.6 percent year-to-date in February, and filings declined on a year-to-date basis in each of the seven counties except the City and County of Broomfield. Local housing experts say the positive trend does not necessarily suggest the foreclosure crisis is ending, however. New filings seem to be stabilizing at still-high numbers, they say, and while many cases of "bad" real estate loans have been resolved, lost income and home equity are still forcing homeowners to foreclose.
Metro Denver municipalities issued 42 percent fewer residential building permits in February than they did one year earlier. On a year-to-date basis in February, the number of permits issued for detached single-family homes was down 30.2 percent, the count issued for townhomes and condominiums was down 27.6 percent, and the number of apartment permits was down almost 63 percent.
Commercial Real Estate
Data from CoStar Realty Information, Inc. show Metro Denver's direct office market vacancy rate rose one-tenth of a percentage point between the fourth quarter of 2010 and the first quarter of 2011. The small increase left the first quarter rate (13.3 percent) essentially equal to the rate reported one year earlier. More stable vacancy rates have helped slow the precipitous decline in lease rates reported during and after the recession. The first quarter direct average lease rate for Metro Denver office property ($19.89 per square foot) was unchanged from the fourth quarter 2010 rate and was down 1.4 percent from the last year's rate.
CoStar data show Metro Denver's direct industrial market vacancy rate rose to 5.9 percent in the first quarter from 5.7 percent in the fourth quarter of 2010. Even so, the first quarter vacancy rate was noticeably below the previous year's rate (6.4 percent) and the highest rate reported during the recession (seven percent in mid-2009). Industrial lease rates have not returned to pre-recession levels, but they do appear to be stabilizing: the first quarter direct rate ($4.70 per square foot) was up slightly from the fourth quarter rate and was 1.1 percent below the last year's rate.
Like Metro Denver's other commercial markets, the flex market appears to be steadying. CoStar data shows the first quarter direct vacancy rate for flex property in Metro Denver (14 percent) was slightly below the fourth quarter 2010 rate and was also lower than last year's rate (14.2 percent). As in other markets, vacancy rates have not improved enough to support higher lease rates. The first quarter direct average lease rate for Metro Denver flex property ($9.26 per square foot) was 3.7 percent lower than last year's rate.
Metro Denver's retail market - while far from fully recovered- is showing signs of improvement. CoStar data shows the direct retail vacancy rate in the first quarter (7.3 percent) was below the fourth quarter 2010 rate and noticeably below last year's rate (8 percent). Some of the decline in vacancy, however, has come at the cost of lower lease rates: the first quarter direct average rate ($14.71 per square foot) was down 9.3 percent from the last year's average rate.
