February 2008
Despite a volatile stock market, continued weakness in the housing sector, and a slightly weaker labor market, Colorado is weathering the economic impacts better than its neighboring states, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for February 2008.
The nation’s current economic troubles largely started in the housing sector. As a result, the impacts vary significantly across regions with different housing characteristics and industry bases. The hard-hit U.S. western region includes Colorado, but the state has so far fared better than many of its neighboring states. Metro Denver’s existing homes market, for example, ended 2007 on a fairly flat note. Roughly 49,800 home sales closed throughout the year, marking a one percent decline from sales closed in 2006. A forward-looking measure, the count of homes under contract, was also flat in 2007 and fell fewer than 100 contracts shy of the prior year’s count.
“Overall, the data suggest that sales in Metro Denver’s existing homes market has maintained considerable momentum despite the ongoing downturn," stated Patty Silverstein, chief economist for the Metro Denver EDC. "The stability of the local housing market will make for a milder correction in 2008."
Conversely, Metro Denver’s commercial real estate market had a strong year in 2007, and real estate analysts expect further investment in 2008. A diverse and stable industry base keeps Metro Denver’s office market attractive, but some of the cost advantages that buyers and tenants have enjoyed in the past may be shrinking. A fourth quarter report by CB Richard Ellis notes that asking rates in Metro Denver rose 10 percent in 2007, pushing the average lease rate past $20 per square foot. Economic uncertainty weakened fourth quarter office market activity, but the report suggests Metro Denver’s office market is still poised to see a healthy 2008.
A changing economy is driving industrial tenants in different directions, according to a recent Grubb & Ellis report. As a result, there are varying levels of activity in Metro Denver’s industrial market. Leasing activity in distribution, for example, has tapered as wholesale businesses expect declining consumer sales. At the same time, the strength of life sciences and aerospace companies is helping keep demand for R&D and flex space relatively strong.
Disparate trends are surfacing at the industry level. The nation’s aviation industry, for example, could see a slower year as households spend less on travel and airlines work to offset rising oil prices. In Metro Denver, however, newly-expanded service from DIA, record passenger growth, and infrastructure improvement plans should help keep aviation employment stable.
The region’s two MSAs reported varying job growth rates for 2007, with both posting slower employment gains as the year ended. The Denver-Aurora MSA reported 1.6 percent job growth for the year, while job gains in the Boulder-Longmont MSA posted a 2.6 percent growth rate. Statewide job growth through December reached two percent, easily exceeding the nation’s 1.3 percent employment gain for the year.
According to Silverstein, as the national economy softens in 2008, Metro Denver’s economy will follow suit but will have a subtler slowdown. Silverstein forecasted that 21,800 jobs will be added in Metro Denver during 2008, a 1.6 percent growth rate.
Recent economic data for Metro Denver show that only five of 18 indicators moved in a positive direction for the month, down from eight positive changes recorded last month. Ten of the 18 indicators had positive annual trend changes, down from 13 in the prior month’s release. The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends.
*A full report is available to Metro Denver EDC investors.