Consumers in the Mountain Region optimistic going into the holiday season
Consumer activity picked up in Metro Denver with increased retail sales and higher consumer confidence as we enter the holiday shopping season. While national consumer confidence slipped during November, the Mountain Region index showed a healthy increase and remains well above the national average, according to data released by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for December 2013.
According to Wells Fargo Securities, holiday sales throughout the United States are expected to be higher in 2013 compared with 2012 sales, but growth may be tempered as consumers still have concerns about the economy and government policies.
"Despite a politically tumultuous October for the federal government, employment in Metro Denver remained robust and grew 0.4 percent between September and October," said Patty Silverstein, chief economist for the Metro Denver EDC and president of Development Research Partners. Silverstein noted that monthly employment was up by 5,400 jobs in October after a slight dip between August and September of 2,100 jobs.
Steady employment growth through the first 10 months of the year in Metro Denver, coupled with an unemployment rate below the national average, may help boost holiday sales in the region. An announcement by Lockheed Martin could create 350 jobs in Metro Denver and help boost the region's aerospace industry cluster.
Retail sales and employment were just two of the 17 Metro Denver indicators that moved in a positive annual direction in this report, up from the 16 reported in the previous month. Fourteen of the indicators moved in a positive monthly direction, compared with nine 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
In October, four supersectors reported monthly declines: information (-0.6 percent), other services (-0.5 percent), wholesale and retail trade (-0.3 percent), and transportation, warehousing, and utilities (-0.2 percent). The government supersector reported employment growth of 1 percent during the period, the highest growth of the supersectors. This was driven by a 1.8 percent increase in state government employment and 1 percent increase in local government employment, while federal government employment fell 0.3 percent.
Compared with data from last year, Metro Denver employment was up 2.5 percent in October. Nine of the 11 supersectors reported increases during the period, with only information (-1.8 percent) and other services (-0.4 percent) showing declines. Natural resources and construction reported the largest percent increase in employment over-the-year, as employment increased 6.4 percent or 5,200 jobs added. Professional and business services, the largest sector by employment, reported the second highest increase of 5.2 percent and the largest number of jobs added (13,400) between October 2012 and October 2013.
Colorado employment grew slightly between September and October, increasing 0.1 percent. The state also reported over-the-year growth of 1.9 percent in October. Employment throughout the nation grew by 0.7 percent in October compared with one month prior and 1.7 percent above October 2012.
Metro Denver's unemployment rate declined in October to 5.9 percent, the lowest rate since December 2008. It was 0.4 percentage points below the September rate and 1.1 percentage points lower than the rate last year. Each of the seven counties also reported lower rates over-the-month and compared with October 2012. The largest monthly decline was reported in the City and County of Denver (-0.4 percentage points) and the largest over-the-year decline was in Adams County (-1.7 percentage points). The smallest decrease between September and October was in Boulder County (-0.1 percentage points), and the county also reported the smallest decline compared with data from last year (-0.7 percentage points). However, the unemployment rate in Boulder County was the lowest in the Metro Denver area during October at 4.9 percent.
Colorado had an unemployment rate of 6.2 percent in October, which was 0.3 percentage points below the September rate and 1.2 percentage points lower than October 2012. The U.S. rate of 7 percent was unchanged between September and October but fell 0.5 percentage points over-the-year.
The number of weekly first-time unemployment insurance claims fell slightly in Metro Denver during October. The 1.1 percent monthly decline came after a 4.3 percent increase between August and September. Claims were down 7.7 percent over-the-year for the region. Throughout Colorado, claims were up 7.2 percent over-the-month in October. The increase may reflect a seasonal trend in the state. Claims were down 6 percent compared with data from the previous year.
Consumer confidence in the United States fell during November as consumers expressed concern that the job market would weaken in coming months. The Conference Board's Consumer Confidence Index fell 2.8 percent to 70.4 between October and November and was 1.7 percent below rate last year.
The Mountain Region index, which includes Colorado, rose during November to 80.7 percent. Despite the national dip in confidence, the Mountain Region proved to be more robust during the month with an 11.1 percent increase between October and November. Compared with data last year, the index was up 18.5 percent.
Retail sales in Metro Denver were strong during August, showing a 4.6 percent increase over-the-year. Sales rose in five of the seven counties during the period, with Jefferson County recording the highest growth of 9.8 percent. Adams County showed sales were 8.3 percent higher during the period, and Arapahoe County sales increased by 7.2 percent. Boulder County sales were 4.8 percent above August 2012 data, while the City and County of Broomfield reported the smallest increase of 3.7 percent. Douglas County (-3.5 percent) and the City and County of Denver (-1 percent) reported lower sales. Colorado retail sales grew 5.3 percent in August compared with sales last year.
The stock market continued its upward trend during November, reaching new, all-time highs. The NASDAQ reported the highest year-to-date return during November of 34.5 percent after gaining 140.2 points compared with October. The Bloomberg Colorado Index reported a year-to-date return of 28.5 percent, while the S&P 500 increased 26.6 percent. The lowest return of the four indexes, while still significant, was the Dow Jones Industrial Average with a 22.6 percent return through November. Each of the indexes reported impressively higher returns than the same month in 2012.
The occupancy rate throughout Metro Denver hotels was higher in October compared with the same month last year. The occupancy rate rose 0.7 percentage points to 75.1 percent in October but was 5.9 percentage points below the September rate. The average hotel room rate for October ($123.20) was 1.9 percent below the previous year level despite the higher occupancy rate. The room rate was 2.1 percent above last month's rate.
Spokespeople for Denver International Airport (DIA) reported that the passenger total in October fell 0.6 percent compared with October 2012. The year-to-date passenger total was also 1.5 percent below the same period last year. This was the seventh consecutive month of over-the-year passenger declines at DIA.
Residential Real Estate
October marked the third-consecutive monthly decline in Metro Denver existing-home sales. Sales dropped 2.2 percent over-the-month but increased 13 percent over sales in October 2012. The average price of single-family homes was unaffected by the monthly sales decline, as the average price grew 0.2 percent between September and October and was 9.2 percent above the level last year. The average condominium price did respond to the lower sales, declining 1.7 percent on a monthly basis. The price was up 13.9 percent over-the-year. Inventory remained low during October, falling 5.9 percent over-the-month and was less than one-third of the level reported in mid-2006. The tight inventory may be holding back some home purchases, but sales remain elevated and should continue to keep prices high.
Third quarter data for metro area median home prices show the price in the Denver-Aurora MSA was up 0.1 percent over-the-quarter to $286,900. The price also rose 10.2 percent compared with the same quarter in 2012. The Boulder MSA median home price fell between the second and third quarters by 4.7 percent to $410,900. Compared with the level last year, the price increased 7.5 percent. Both the Denver-Aurora and Boulder MSAs reported a higher median home price than the U.S. price of $207,300. The U.S. median price rose 1.9 percent compared with the previous quarter and 12.5 percent over-the-year. Of the 171 MSAs, the Denver-Aurora MSA reported the 52nd-highest increase over-the-year in the third quarter. The Boulder MSA increase was the 79th highest.
Foreclosures throughout Metro Denver continued to decline in October. Foreclosures in the region were 11.9 percent below the September level and 56.6 percent lower than the level last year. The monthly decrease reflected lower filings in four of the seven counties. The largest drop was reported in Boulder County where foreclosures were 46.9 percent below the last month's level. Douglas and Jefferson Counties reported increases in foreclosures during October of 36 percent and 20.8 percent, respectively. The City and County of Broomfield showed foreclosures increased 75 percent on a monthly basis, but this meant that foreclosures increased from four to seven. Compared with October 2012, each of the seven counties reported lower filings. The decreases ranged from 71.7 percent in Boulder County to 36.4 percent in the City and County of Broomfield.
Residential construction surged in October to 1,189 permits, increasing 52 percent over the prior month and 88.7 percent compared with October 2012. On a monthly basis, each of the category permits recorded a higher number of permits in October. The largest increase occurred in the multifamily category, where permits rose 64 percent to 451. The single-family attached category had 55.9 percent more permits (173) and single-family detached permits were 42.7 percent higher, with 565 permits reported. Compared with levels last year, multifamily permits were up 509.5 percent, the highest increase of the permit categories. There were 50.4 percent more single-family attached permits over-the-year and 28.1 percent more single-family detached permits.
Commercial Real Estate
Cassidy Turley's third quarter Office Market Snapshot revealed a strong outlook for Metro Denver. The report noted high growth during the quarter, with decreasing vacancy, rising rental rates, and significant investment. Net absorption was positive in the third quarter, totaling 620,000 square feet and bringing the year-to-date total to 1.4 million. Construction remained high for the office market, and the first speculative project since the recession broke ground during the quarter in the downtown submarket.
The office market continued a steady return to pre-recession levels, according to the third quarter MarketView from CBRE. Improvements in vacancy, investment volume, positive absorption, and lease rates helped push office market growth in Metro Denver. Strong employment in key industry sectors and a high volume of smaller users were also key drivers of activity in the market. Construction activity was led by speculative development for the first time since 2008 in the downtown and suburban submarkets, and elevated demand and tight supply pushed construction to over 1.5 million square feet above pre-recession levels.
CoStar's national report for the office market showed a decrease in the vacancy rate and an increase in the average lease rate during the third quarter. The vacancy rate fell to 11.6 percent and the average lease rate for the nation was $21.75 per square foot. The over-the-quarter improvements were accompanied by positive net absorption and higher sales activity, although construction fell slightly during the period.
The Industrial Market Snapshot for the third quarter suggests Metro Denver is poised for strong growth through decreased vacancy rates and an uptick in construction activity. According to Cassidy Turley, over 1.8 million square feet of positive absorption was recorded during the quarter, the highest quarterly total in the past decade. Several speculative construction projects have broken ground in the northeast submarket, and the report expects a significant increase in investment opportunities to hit the market over the next year.
The third quarter MarketView from CBRE reported a similar outlook for the Metro Denver industrial market, showing strong demand for space during the period with historically low vacancy rates. Construction activity was healthy for the region, as several new projects broke ground and speculative development remained prevalent. While investment volume was slow after the recession, it has picked up steadily, and sales activity is moving toward pre-recession levels and is up significantly since the first half of 2013.
The third quarter CoStar national report for the industrial market showed trends in Metro Denver largely reflected trends across the U.S. The national vacancy rate fell to 8.3 percent in the quarter, and rental rates increased to an average of $5.31 per square foot. Net absorption for the U.S. was positive during the quarter and construction activity ticked up slightly over-the-quarter.
The third quarter edition of Cassidy Turley's Retail Market Snapshot reported moderate growth in Metro Denver's retail market. Continued interest in the development of new shopping center and retail sites should help future growth of the market. The vacancy rate fell as the quarter showed positive absorption of more than 509,000 square feet. The report expects the partial government shutdown to negatively affect consumer confidence but reports that there are no signs of a slowdown in the market.
CBRE's third quarter MarketView for the Metro Denver retail market reported gains led by heightened construction activity. National retailers continue to exhibit strong interest in the Denver market and are increasingly interested in locating in the area. Retailers are experiencing challenges in finding high-quality space, and high demand should spur development through the remainder of the year and well into 2014.
The national retail market was largely unchanged during the third quarter. According to CoStar, the national retail market showed a slightly improved vacancy rate of 6.7 percent and average lease rate of $14.54 per square foot. The quarter reported positive net absorption and construction activity ticked upward compared with activity in the second quarter.
*A full report is available to Metro Denver EDC investors.