December 2007
Despite the national mortgage crisis driving negative trends in foreclosures, home prices, and building permits, Metro Denver retail sales and Rocky Mountain consumer confidence levels are strong, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for December 2007.
Consumer spending accounts for almost 70 percent of total economic activity, so the usual emphasis on holiday consumer spending is gaining even more attention due to tenuous market conditions. Total retail sales were up nine percent through the eight months ending in August, with the strongest year-to-date gains recorded in Adams (+13.7 percent), Boulder (+12.4 percent), and Broomfield (+12 percent) Counties. Statewide, retail sales were up 9.2 percent through August, more than $7.7 billion ahead of sales from the first eight months of last year.
The Conference Board's Consumer Confidence Index for the Mountain region rebounded from a revised 119.9 in September to 141.8 in October, the highest rating since March of this year. Only two of the remaining eight U.S. regions - the West South Central and Pacific areas - had consumer confidence increases in October. Nationwide, consumer confidence continued to decline.
Along with consumer confidence and spending, Colorado’s competitive edge is also strong. According to Alera Consulting Corporation's State Knowledge Economy Index, Colorado is better positioned to support a knowledge-based economy than many other U.S. states. Colorado ranked fifth overall in the 2007 index, which measures each state's public education system, human capital, and capacity for research and development and innovation. In essence, Colorado’s high rank suggests the state is an attractive location for knowledge-intensive jobs.
"Metro Denver residents' high confidence level perhaps indicates we've seen the worst of our economic challenges behind us," stated Tom Clark, executive vice president of the Metro Denver EDC. "However, this optimism is not as strongly shared by Metro Denver business leaders and we have yet to weather the holiday shopping season."
The Colorado Business Leaders Confidence Index® (BLCI), which measures the expectations of Colorado business leaders for the upcoming quarter, moved into negative territory, however, falling from 55.6 to 47.9 in the fourth quarter. Index values below 50 indicate expectations for decreases.
On a positive note, Metro Denver's real estate market missed the widespread run-up in home sales and prices, so area homeowners and homebuyers may also see a residential recovery sooner than in other regions. Metro Denver existing home sales increased three percent in October, partially reversing a significant slowdown in the prior month. The number of single-family homes sold increased three percent between September and October, and the number of condominium sales increased 2.7 percent.
Metro Denver's industrial real estate market remains resolute. The latest data from CoStar Realty Information, Inc., report Metro Denver’s direct vacancy rate declined to 5.8 percent, the lowest vacancy rate posted since fourth quarter 2001. Average lease rates have risen slightly in a tightening market, and third quarter’s rate was $5.02.
Recent economic data for Metro Denver show seven of 18 indicators moved in a positive direction for the month, down from eight positive changes recorded last month. Twelve of the 18 indicators had positive annual trends changes, the same number of positive changes recorded last month.
The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.
Key points from this month's report include:
Labor and Employment
- October marked another month of flat employment growth in Colorado and Metro Denver. The Metro Denver economy added 1,900 jobs between September and October, bringing the region’s total employment growth to 1.7 percent through the first 10 months of this year.
- A typical seasonal shift brought unemployment in the seven-county Metro Denver area down from 3.8 percent in September to 3.5 percent in October. On a year-to-date basis, Metro Denver unemployment hit a low 3.8 percent despite slower job growth in recent months. Among the Metro Denver counties, October unemployment rates ranged from 2.9 percent in Boulder County to 3.8 percent in both Denver and Adams Counties. Colorado’s unemployment rate was 3.4 percent in October, with the U.S. rate at 4.4 percent.
- Metro Denver first time unemployment insurance claims followed a typical seasonal pattern and ticked up between September and October. On a year-to-date basis, the number of claims filed in Metro Denver was up 0.8 percent over the same period last year, while the number of claims filed statewide was down 0.3 percent through October.
Consumer Sector
- Occupancy rates in Metro Denver hotels followed a typical seasonal pattern with a slight decline between September and October. Through the first 10 months of the year, Metro Denver occupancy rates were 2 percent ahead of occupancy through the same period in 2006. Average room rates posted a larger year-to-date increase, with rates through October almost 11 percent ahead of rates from the same period last year.
- A typical seasonal shift also reduced DIA passenger traffic between August and September, but the September passenger count was nonetheless a record for the month. Through the nine months ending in September, total passenger traffic was up 4.6 percent over the same period last year as the airport remained on a record-setting track for the year.
- Wall Street ended the month with measurable pullbacks. The Bloomberg Colorado Index was 450.4 at the end of November, down 6 percent from October.
Residential Real Estate
- The national median existing home price hit $207,800 in October, down 5 percent from October 2006. NAR analysts emphasize, however, that high-priced home markets were hard-hit when summer’s mortgage fallout reduced the availability of jumbo – or greater than $417,000 – home loans. The result, they say, is a downward distortion in the national median home price.
- Data users should note that different home price measures use different methodologies. Data mechanics aside, the variety of price trends being reported also speaks to local variations in the real estate market. The most recent S&P/Case-Shiller Home Price Indexes show a variety of local trends, but most are negative. The Denver Index posted a 0.9 percent decline in September, more than reversing the prior month’s 0.3 percent gain.
- Quarterly median home price data also show a variety of trends across U.S. metropolitan areas. According to the newly-released National Association of Realtors (NAR) data series, the national median home price was $220,800 in third quarter, down 2 percent from third quarter 2006. Of the 147 metropolitan areas that reported an over-the-year change in median home price, 93 had increases and 54 reported a decline in median home prices.
- Median home prices in both the Denver-Aurora and Boulder-Longmont MSAs declined between second and third quarter. On a year-to-date basis, median prices in Boulder are up 1.7 percent while the Denver-Aurora median price was down 0.5 percent through third quarter.
- In addition, average single-family home and condominium prices in Metro Denver both declined between September and October. The average sold price of a metro area single-family home slipped from nearly $305,500 in September to just under $289,800 in October. This 5 percent decline exceeded the drop in condominium prices, where the average sold price declined 3 percent over the month to $176,200.
- Metro Denver foreclosures filings increased in October after a lull in September. Public trustees reported approximately 2,450 foreclosure filings for the month, up from just fewer than 2,000 in September. On a year-to-date basis, Metro Denver foreclosures were almost 40 percent ahead of the number reported in the same period last year. Denver, Douglas, and Adams Counties have seen the sharpest increases in defaults.
- Local construction statistics are lagged slightly, but they still draw parallels between the Metro Denver and national markets. Metro Denver new home construction permits were down sharply between August and September, driven by a 26 percent decline in permits for single-family detached homes and a 61 percent drop in permits for condominiums, townhomes, and other types of attached housing. Apartment buildings were the only type of residential property with increased permit activity in Metro Denver, with permits rising 25 percent between August and September.
- The overall vacancy rate in Metro Denver’s apartment rental market has declined to its lowest level since 2001, but rental rates posted a surprise decline. The third quarter vacancy rate of 5.3 percent was down from the prior quarter’s 6.2 percent and noticeably below the 6.7 percent vacancy rate recorded in third quarter 2006.
Commercial Real Estate
- In its third quarter 2007 report, Frederick Ross Company says the Metro Denver office market remains healthy despite signs of credit-related weakness. Leasing velocity in the office market slowed between second and third quarter, but year-to-date absorption remains in line with the company’s forecast for the year. Denver vacancy rates in third quarter were 15.6 percent, down from 18.2 percent in third quarter 2006.
- A third quarter report released by Grubb & Ellis also acknowledges office market impacts from the residential downturn. Third quarter vacancy rates ticked up slightly in the Southeast Suburban market, an area with many mortgage-related businesses. The report puts metro-wide office market absorption at 1.9 million square feet year-to-date, a solid reading that is nonetheless below previous records.
- According to the latest data from CoStar Realty Information, Inc., the vacancy rate in Metro Denver’s office market flattened between second and third quarter. At 11.8 percent, the third quarter direct vacancy rate was essentially the same as second quarter’s 11.7 percent rate.
- The third quarter report by Frederick Ross Company says Metro Denver’s industrial market was only slightly affected by the turmoil in housing. Third quarter industrial vacancy of 6.3 percent represented a seven-year low and a noticeable decline from the 7.6 percent rate posted in third quarter 2006. All sectors of Metro Denver’s warehouse market saw third quarter vacancy rates below 10 percent, and the flex market continued its post-recession recovery increasing 3 percent on vacancy rates from third quarter 2006.
- A third quarter industrial market report by Grubb & Ellis also notes a trend in the renovation of existing properties. The report notes, however, that increasing lease rates have spurred new development, and nearly three million square feet of industrial space is currently under construction.
- The Metro Denver industrial market has seen a strong 2007, says a third quarter report by Fuller Real Estate. The report notes that disrupted financial markets and tighter credit conditions have affected investment, but year-to-date investment sales have nonetheless reached the highest level in 10 years. Metro Denver’s flex market was stable between second and third quarter, according to CoStar. The flex market direct vacancy rate of 12.8 percent was unchanged between second and third quarter, marking a slight slowdown from the gradual gains of prior quarters.
- The third quarter retail report by Frederick Ross Company describes a slower but still healthy market. Third quarter vacancy rates rose to 6.55 percent from the midyear rate of 6.38 percent. Net absorption was approximately 49,800 square feet in third quarter, but absorption would have been negative were it not for several new projects that are more than 90 percent pre-leased.
- Like several other property markets in Metro Denver, the retail and shopping center markets flattened slightly in third quarter. According to CoStar, the direct vacancy rate declined to 6.8 percent from 6.9 percent in second quarter, and the average lease rate was more or less unchanged at $16.69.
- Like several other property markets in Metro Denver, the retail and shopping center markets flattened slightly in third quarter. According to the latest data from CoStar Realty Information, Inc., the direct vacancy rate ticked down to 6.8 percent from 6.9 percent in second quarter, and the average lease rate was more or less unchanged at $16.69.
*A full report is available to Metro Denver EDC investors.