Positive announcements on the local front help fuel Metro Denver’s economic recovery

Local increases in business leader confidence and commercial real estate development announcements add fuel to Metro Denver's economic recovery, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for August 2010.

The most recent University of Colorado Leeds Business Confidence Index suggests Colorado business leaders are increasingly confident about the state's economic outlook, and their optimism about hiring and capital investment brought some much-needed good news to labor markets.

However, weakness in several key indicators nationally has undermined confidence in other states' economic recovery. Slower home sales were expected following the expiration of the homebuyers' tax credits, but the extent of the sluggishness seems to have taken builders, homeowners, and other market players by surprise.

"As the recovery continues, though, it is important to remember that uncertainty and setbacks do not necessarily mean the nation is re-entering recession. These bumps and turns are, unfortunately, part of the recovery process," stated Tom Clark, executive vice president of the Metro Denver EDC.

Second quarter growth in U.S. gross domestic product slowed as anticipated, partly because businesses' inventory restocking is beginning to slow. Weak economic statistics are never encouraging, particularly for the many unemployed workers, small businesses, and budget-burdened governments facing a frustrating road to recovery.

"Metro Denver, on the other hand, had 16 of 18 indicators move in a positive annual direction this month, compared to 15 indicators in last month's report, and only three during this time last year," said Clark.

The average weekly number of unemployment insurance claims filed in Metro Denver declined between May and June. The weekly average count of claims filed through the first six months of the year (2,093) was 21 percent lower than the comparable average for 2009.

Additionally, Metro Denver's office market is continuing to stabilize according to CB Richard Ellis' second quarter MarketView report. Vacancy and lease rates have flattened, and some signs of a rebound - including increased interest by property investors - are beginning to emerge. The report notes, though, that sustained improvements in vacancy and lease rates will depend on stronger job growth and an accompanying increase in demand for space.

Locally, new commercial real estate development is seeing some activity. Denver International Airport officials are working with Spanish architect Santiago Calatrava on the airport's South Terminal Redevelopment Program. The development will link the south end of the airport with a new commuter rail terminal, a plaza, and a 500-room hotel. The proposed plaza will connect rail passengers to the main terminal under a canopy that echoes the airport's signature tent structure, and design plans for a commuter rail bridge over E-470 are also underway. The project is expected to create more than 6,600 jobs.

Spokespeople for dialysis provider DaVita revealed plans for the company's new permanent headquarters in Denver. Company officials finalized a deal for a site near Millennium Bridge at the north end of the 16th Street Mall, and they say a new, $90 million building to be constructed on the site will house several hundred staff plus a training center. DaVita is currently operating from a temporary headquarters on Wewatta Street. 

The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends. Key highlights include:

Labor and Employment 
 

• An increase in Metro Denver’s employment (+5,500 jobs) from May to June was smaller than the gain typically reported for the month. June employment data were skewed following the completion of temporary jobs related to Census 2010, but private sector hiring was nonetheless stagnant. June job totals remained below the level reported in June 2009 for seven of Metro Denver’s 11 industry supersectors. Education and health services, leisure and hospitality, other services, and government all reported increases.
• An increase in Metro Denver’s unemployment rate between May and June was consistent with seasonal trends. Metro Denver unemployment through the first half of 2010 averaged eight percent, the same average reported during the first six months of 2009.

Consumer Sector
 

• Consumer confidence measures bear witness to households under pressure. The Conference Board’s U.S. Consumer Confidence Index dropped in July to the lowest level reported since February, and nearly 46 percent of survey respondents agreed that jobs are “hard to get.” Mountain Region consumers were even more pessimistic in July than their peers nationwide and had a bleaker outlook than they reported at the same time last year.
• Retail sales in Metro Denver have followed the national sales trend with modest gains through the first months of the year. Total sales in the seven-county region rose four percent year-to-date in April, and year-to-date gains matched or exceeded the region-wide increase in each county except Adams County, the City and County of Broomfield, and the City and County of Denver. Retail sales statewide rose 2.6 percent year-to-date in April.
• The May passenger count at Denver International Airport was 4.3 percent higher than the count reported one year earlier. Passenger traffic at the airport has now risen over-the-year for five consecutive months.
• Positive reports on profits for many major companies helped bolster stock markets in July. Investors remain on edge, however, and some analysts suggest better profits are coming from cost-cutting, not stronger revenues. The Bloomberg Colorado Index significantly outpaced the national indexes with a 15.7 percent year-to-date return in July. The Dow Jones Industrial average rose 0.4 percent year-to-date, and returns on the S&P 500 and NASDAQ were negative.  

Residential Real Estate
 

• The total number of Metro Denver June home sales was 3.3 percent lower than the total reported in June 2009, but the number of homes under contract in June was down 31.4 percent over-the-year. While not encouraging, much of this weakness was expected. There are also good reasons – namely low interest rates and high affordability – to expect that some buyers will remain in the market.
• Consistent with the foreclosure trend reported nationwide, the pace of new filings in Metro Denver continues to decline. The total number of new foreclosures filed in Metro Denver during the first six months of 2010 was 10 percent lower than in the first half of 2009. Boulder County was the only one of the seven Metro Denver counties to report a year-to-date increase in foreclosure filings in June. Among the remaining six counties, year-to-date declines in filings ranged from 3.6 percent in Jefferson County to more than 19 percent in the City and County of Denver.
• New home construction activity in Metro Denver has been relatively steady despite the end of the homebuyers’ tax credits. Total residential permits pulled in June was just 0.6 percent lower than the number pulled in May as building activity for detached single-family homes and townhomes and condominiums continued at a measured pace. Apartment construction activity – which has been sluggish since early 2009 – slowed between May and June. Despite ongoing weakness in apartment markets, building permits pulled through the first half of the year in Metro Denver was almost 46 percent higher than the count pulled during the first six months of 2009.  

Commercial Real Estate
 

• CB Richard Ellis’ second quarter MarketView report states that a comparatively smaller level of debt and property distress is helping Metro Denver’s industrial market outperform other property types and industrial markets nationwide. However, lease rates are flat or on the decline in many submarkets as landlords continue to compete for tenants. Industrial construction is still on hold, and brokers expect low lease rates will prevent speculative development for some time.
• Metro Denver’s retail market is beginning to stabilize according to CB Richard Ellis. Retail vacancy rates declined slightly between the first and second quarters, and average lease rates also showed signs of stability. Looking ahead, the report notes that still-difficult financing and uncertainty over consumer demand will keep retail investment and development subdued for a while.
    

*A full report is available to Metro Denver EDC investors.