November 2008
Indicators suggest Metro Denver’s economy will perform below potential in the near term, but local trends – including commercial real estate and local company growth – will nonetheless remain stronger than national averages according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for November 2008.
As businesses and households continue to absorb the impacts of the global financial crisis, the U.S. economy will likely contract in the fourth quarter of 2008 and the first quarter of 2009. More stable housing and financial markets should help improve business and consumer confidence later in 2009.
"In short, many new government policies designed to stabilize real estate and credit conditions simply need time to work," stated Tom Clark, executive vice president of the Metro Denver EDC. "And the future of business, both nationally and locally, hedge on today’s election results."
Metro Denver’s commercial real estate market remains strong. Emerging Trends in Real Estate 2009, an annual report by the Urban Land Institute and PricewaterhouseCoopers, names the Denver market among ten cities with the best commercial real estate investment potential. While the report expects a significant national downturn in commercial real estate next year, it suggests that Denver’s diverse industry base, relatively stable housing market, and steady population growth will help offset national weakness.
The third quarter office market report by CB Richard Ellis predicts challenges ahead but suggests that strong economic factors in Metro Denver will help the region outperform other regions nationwide. While an increasing amount of sublet and shadow space could ultimately yield negative absorption in the coming quarters, comparatively low occupancy costs will make Metro Denver an attractive investment and relocation option even as activity slows nationwide.
CB Richard Ellis views a strong economy and diverse industry base as key assets for Metro Denver's industrial market. Overall, the report expects continued attention from national and international companies as well as organic growth from local businesses to help Metro Denver’s industrial market outperform markets in other regions.
Additionally, a third quarter report by Grubb & Ellis expects transportation development, a thriving energy industry, and global investment interest to keep Metro Denver fundamentals strong in the future.
While local companies are subject to national trends, many are still outperforming their peers nationwide and are attracting investor interest. According to Dow Jones VentureSource, venture capital funding for Colorado companies increased more than 200 percent between the second and third quarters. The gain brought year-to-date venture capital funding to $638.6 million and placed Colorado companies on track to meet or surpass the $1 billion in funding collected when the tech boom peaked in 2001. Renewable energy companies attracted most of the state’s venture capital funding in the third quarter, with Fort Collins-based AVA Solar reporting the second-largest funding deal in the nation. Analysts also note that increased venture capital activity in Colorado is currently following a counter-cyclical trend, as venture capital investments nationwide declined one percent between the second and third quarters.
Advance estimates from the U.S. Bureau of Economic Analysis suggest that the real value of goods and services produced in the U.S. economy (GDP) declined by 0.3 percent between the second and third quarter of 2008. A significant drop in household spending was the primary driver of the overall decline, and business spending on equipment and software also fell. On the positive side, an increase in government spending helped offset the weakness in domestic consumption, and net exports also increased. The impacts of a weaker global economy on foreign demand for U.S. goods and services is increasingly apparent, though, as export gains slowed noticeably in the third quarter.
In the meantime, local economic indicators are likely to be volatile. Three of 18 indicators for Metro Denver moved in a positive direction for the month, compared to five positive indicators in the prior release. Longer-term trends were only slightly weaker, as four of the 18 indicators moved in a positive annual direction compared to five indicators in the last report.
The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.