Investment in Colorado companies reaches seven-year high

National business confidence has widely declined as the U.S. economy struggles to avoid a downturn. Metro Denver’s diverse and dynamic industry base, however, continues to draw interest even as business activity slows nationwide, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for May 2008.

Broomfield-based Range Fuels raised the nation’s largest amount of venture capital ($130 million) in the first quarter of 2008, according to the MoneyTree survey by PricewaterhouseCoopers and the National Venture Capital Association. Aurora-based Taligen Therapeutics and three medical device manufacturers – SomaLogic, Lanx, and IntelliDx – drew a combined $82 million in first quarter investments and helped bring Colorado’s total first quarter capital to $297.7 million. According to the report, first quarter investments in Colorado companies reached the largest amount since 2001.

"Free exchange of ideas among our research universities and national laboratories and the business community breeds company success," stated Patty Silverstein, chief economist for the Metro Denver EDC. "The high-concentration of talent in Colorado makes the state an easy mark for venture capital investment."

Additionally, Colorado ranked eighth in the nation for 2007 NASA contract funding, according to the federal space agency. Colorado contracts totaled $354.6 million last year, and major recipients included Lockheed Martin, Ball Aerospace, and the University of Colorado (CU). Agency spokespeople note that CU receives the nation’s largest amount of NASA university research funding and currently holds more than 300 active grants.

Metro Denver’s commercial real estate markets are also attracting investors, and the first quarter report by CB Richard Ellis ranks the region’s office lease rates third-lowest among the nation’s 15 most competitive markets. The report also notes Metro Denver’s office market began 2008 at a steady pace. The vacancy rate was essentially unchanged at 12.5 percent, but the availability rate increased with a gain in sublease space. Still, average lease rates rose to $20.44 from $20.04 per square foot in the fourth quarter.

However, the CB Richard Ellis report states Metro Denver’s industrial market could weaken through 2008. Vacancy rates declined to 6.4 percent compared to 7.1 percent in first quarter 2007, but vacancy could increase as more businesses postpone new lease commitments until the economy strengthens.

Employment in the Metro Denver region increased by 10,400 jobs between February and March, but year-to-date job growth dipped slightly to 1.9 percent from two percent in the prior month. Ongoing difficulties in credit and mortgage markets contributed to a 2.5 percent year-to-date decline in Metro Denver financial services employment. In manufacturing, the region’s only other supersector to report losses, job counts through March were down one percent from the same months in 2007. Among the remaining nine supersectors, year-to-date job growth ranged from one percent in information to 3.9 percent in education and health services.

Year-to-date job growth rates in the Denver-Aurora and Boulder MSAs measured 1.9 percent and 1.8 percent, respectively. The education and health services industry reported the strongest year-to-date growth of the Denver- Aurora supersectors (+4 percent), while natural resources and construction reported the largest gains (+6.2 percent) in Boulder. Statewide job growth reached two percent year-to-date, and national job gains measured 0.6 percent. Overall, recent employment figures reflect slowing job growth in Metro Denver, Colorado, and the nation.

Colorado had the nation’s third-highest concentration of high-tech workers in 2006, according to the Cyberstates 2008 study by the American Electronics Association (AeA). Colorado maintained a high ranking despite five consecutive years of tech-centered job losses, and the state’s tech workers earned the fifth-highest wages in the nation. AeA analysts say the state’s high-tech job losses are concentrated in telecommunications, where downsizing and consolidation have continued even past the tech-led recession in 2001. Overall, Colorado tech workers represented 83 of every 1,000 private sector laborers in 2006.

Recent indicators also reflect strong fundamentals that keep Metro Denver’s economy in balance. Vacancy rates for the region’s commercial real estate are stable or declining over-the-year, retail sales receipts remain healthy, and Denver International Airport continues to handle large numbers of passengers. Overall, data for 10 of 18 economic indicators showed positive monthly trends, compared to seven positive indicators in the prior release. Six indicators showed positive annual trends in May, compared to seven positive indicators in April.

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

• The Metro Denver unemployment rate was essentially unchanged at 4.7 percent in March, but year-to-date unemployment was higher than the 4.1 percent rate for the first three months of last year. Unemployment rates in the seven Metro Denver counties were stable in March and ranged from a low of four percent in Boulder County to a high of 5.3 percent in Adams County. The Colorado and national average unemployment rates for March were also unchanged at 4.7 percent and 5.2 percent, respectively.
  
  
• Unemployment insurance claims in Metro Denver and Colorado declined in March, although theyear-to-date number of claims has risen considerably over the same months of 2007. In Metro Denver, the average monthly number of claims through March reached 1,447 in a 17.3 percent gain over 2007. Statewide, the year-to-date monthly average is 12.4 percent ahead of the same period last year.

Consumer Sector

• Metro Denver’s per capita personal income increased roughly $2,300 from 2005 to reach $45,350 in 2006. While essentially on par with statewide income growth, the region’s 5.2 percent growth rate fell slightly behind national per capita income growth of 5.6 percent in 2006. Analysts say faster population growth might be dampening income gains in the Metro Denver data because larger percentage changes are more difficult to maintain with a growing demographic base. Still, per capita personal income exceeded the 2006 national average in each of the seven Metro Denver counties except Adams and Broomfield.
  
  
• The U.S. Consumer Confidence Index declined in March to a five-year low. The Expectations subindex – which combines consumer outlooks on business conditions, jobs, and income – also declined to a record 35-year low. The Mountain Region Consumer Confidence Index declined from 102.1 in February to 96.5 in March, but it remains second highest among the nine regional indexes.
  
  
• The Metro Denver hotel occupancy rate increased between February and March, but year-to-date occupancy fell 3.4 percent below the rate from the first three months of 2007. Room rates have risen despite slightly lower occupancy levels, suggesting that area hotels are facing higher costs. Specifically, the average room rate for the first three months of 2008 was 5.2 percent higher than the average for the same months of 2007.
  
  
• Passenger traffic at Denver International Airport increased between January and February, and year-to-date traffic was up 5.2 percent over the same months in 2007. (Note: The month of February was one day longer in 2008 than it was in 2007.)
  
  
• Each of the national stock market indexes increased between March and April despite negative news from the labor market and poor earnings reports. Even with the April rally, year-to-date returns remained negative for each of the indexes and ranged from -9 percent (NASDAQ) to -3.4 percent (Dow Jones Industrial Average). The Bloomberg Colorado Index also posted a negative annual return despite a gain in April.

Residential Real Estate

• U.S. existing home sales declined in March, essentially reversing improvements in February and falling 19.3 percent below the sales pace from March 2007. According to the National Association of Realtors (NAR), sales conditions across U.S. regions remained mixed with recent gains in the Northeast and West paired with losses in the South and Midwest.
  
  
• Metro Denver’s inventory of unsold homes was essentially unchanged between February and March, which could reflect a generally longer wait between contract and closing. According to Metrolist data, both the number of closed home sales and the number of homes under contract increased as the spring selling season began, although the year-to-date sales count remained 11 percent below sales from the first three months of 2007. Increased contract and sales activity is typical for this time of year, but March gains were somewhat weaker than they have been over the past several years.
  
  
• According to the most recent S&P/Case-Shiller Home Price Indices, the nationwide decline in existing, single-family home values steepened in February. With a 5.5 percent price decline over the year, the Denver index ranked among the few cities with more moderate price changes. Only the indices for Seattle, Portland, Dallas, Charlotte, and Boston outperformed the Denver index in February.
  
  
• The count of Metro Denver foreclosures increased in March, but over-the-year growth in foreclosures slowed for the third consecutive month. In other words, Metro Denver foreclosures have recently been rising at a slower pace. On a year-to-date basis, the count of Metro Denver foreclosure starts was up 18.9 percent over the first three months of 2007.
  
  
• The national homebuilder confidence index remained at 20 for the third consecutive month in April. Analysts call the recent trend a “marginal” improvement from December 2007, when the index registered a record low of 18. A reading below 50 indicates more builders view conditions as poor than good.
  
  
• Trends in Metro Denver construction activity are largely consistent with the nationwide weakness. The region’s total number of residential permits ticked up between January and February, but the year-to-date total remained roughly 44 percent below permits from the same months of 2007. Permits for attached single-family homes – or townhomes, condominiums, and duplexes – have declined the most so far this year.

Commercial Real Estate

• A first quarter report by Frederick Ross Company describes Metro Denver’s office market as stable. The region’s first quarter vacancy rate declined as absorption remained steady from fourth quarter, and the median rental rate reached $19.33 per square foot.
  
  
• Data from CoStar Realty Information, Inc. show a steady office market. Metro Denver’s first quarter direct vacancy rate was unchanged at 10.6 percent, and total vacancy including sublease space was also stable at 11.5 percent. Lease rates increased slightly to average $20.66 per square foot in first quarter, and new office construction continued at a brisk pace.
  
  
• A first quarter report by Frederick Ross Company notes that tight credit conditions are affecting industrial investors more than users, and it expects leasing activity to accelerate through subsequent quarters of 2008.
  
  
• Data from CoStar Realty Information, Inc. suggest that Metro Denver’s industrial market lost some of its 2007 improvement as 2008 began. The direct vacancy rate rose from 5.4 percent in fourth quarter to 5.9 percent in first quarter, and total vacancy with sublease space rose from 5.6 percent to 6.2 percent. Overall, first quarter vacancy rates were essentially the same as those from first quarter 2007. Despite the increase in vacancy, first quarter average lease rates were up slightly from fourth quarter and reached $5.11 per square foot.
  
  
• Vacancy rates in Metro Denver’s flex market improved slightly in the first quarter, although average lease rates were largely flat. According to CoStar Realty Information, Inc., the direct vacancy rate tightened from 11.2 percent in fourth quarter to 11 percent in first quarter, and total vacancy with sublease space was essentially unchanged at 12.1 percent. Average lease rates were also unchanged at $9.30 per square foot, and five flex buildings with a combined 260,000 square feet were recently completed. Fifteen buildings with a combined 350,000 square feet remained under construction in first quarter, with Arapahoe, Boulder, Denver, and Jefferson Counties representing fairly even portions of the building activity.
  
  
• According to a first quarter report by CB Richard Ellis, weakness in credit and housing is having the largest impact on the retail market. Vacancy rates ticked up from fourth quarter with negative absorption in first quarter 2008. The report says declining consumer demand will continue to affect retailers even beyond home furnishings and other housing-related categories.
  
  
• A first quarter retail report by Frederick Ross Company observes the retail market in a state of correction. First quarter vacancy rates increased slightly with negative absorption, and median rental rates declined in several submarkets. While flattening consumer demand is affecting retailers of all sizes and product lines, the report notes that some “top tier” stores and certain market areas continue to perform well.
  
  
• Data from CoStar Realty Information, Inc. show Metro Denver’s retail market essentially flat in first quarter. The direct vacancy rate measured 5.6 percent, essentially the same as the 5.7 percent rate from fourth quarter. Average lease rates were also stable at $16.67 per square foot, and new deliveries totaled 12 buildings with a combined 200,000 square feet.
  
  

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