Submitted by: Martha S. Nachman, Esq./Ballard Spahr LLP
More than 350 members and guests attended NAIOP Colorado’s Annual Economic Forecast program on January 12, 2010, at the Denver Marriott City Center. Charles E. (Chuck) Sullivan, Head of Global Operations of ProLogis, introduced and served as moderator for the panel of three distinguished economists. The panelists provided a wealth of information and analysis regarding the trends and outlook for world and U.S. economies; how Colorado’s economy has been performing and is expected to perform relative to the U.S. economy in 2010; and historic and projected occupancy, rental and cap rates for commercial real estate in the Denver metropolitan area.
Insights regarding the global and U.S. economies were provided by the first speaker, Dr. Michael R. Englund, Principal Director and Chief Economist of Action Economics, LLC, a premier provider of real time commentary and analysis for trading room professionals in the global bond and currency markets. Dr. Englund confirmed that the U.S. real estate collapse did not cause the global recession, but instead was the “canary in the coal mine,” and that the major cause of the recession was global deleveraging. His materials illustrated that the U.S. economy actually followed, rather than led, the world’s industrialized economies downward. Dr. Englund observed that, with the exception of housing, which is following a normal cyclical rebound, the recovery of the U.S. economy overall has been, and likely will continue to be, “anemic” unless there is a significant increase in investment by businesses. In his final remarks, Dr. Englund noted that the U.S. government’s stimulus programs have created massive federal deficits, and, therefore, are a “mixed blessing” for the U.S. economy. In his summation, Dr. Englund predicted rising yields on U.S. Treasuries and that delays in raising rates will cause steeper increases.
Patricia Silverstein, Chief Consulting Economist for the Metro Denver Economic Development Corporation and President of Development Research Partners, a real estate analysis and economic development research company, discussed how Colorado has been faring in the national recession, trends in the state’s unemployment and personal income rates, and in housing, retail sales and business activity levels. In 2009, Colorado’s population continued to grow, but unemployment rates increased substantially, with the seven county Denver area alone losing 55,000 jobs. Consumer confidence and personal income declined, and, not surprisingly, the level of housing and retail sales also fell. Ms. Silverstein anticipates that in 2010, Colorado should experience a slight recovery in personal income growth rates and retail sales levels and a very modest increase in new jobs in the educational, health and financial services sectors. State and local governments will continue to face major challenges due to lower sales and property tax revenues. Ms. Silverstein concluded that, despite the damaging effects of the recession on employment, personal income, and state and local tax revenues, improvements in the Colorado and Denver area economies, led by increasing stability in employment and the residential real estate market, should become more apparent by mid 2010.
Dr. Glenn Mueller, a Professor at Denver University’s Burns School of Real Estate and Construction Management, shared his research and views regarding different sectors of the U.S. and Denver area commercial real estate markets. He predicted occupancy and rental rates in Denver office properties will remain negative in 2010 and 2011, but become positive in the following two years. Dr. Mueller also expects that, because Denver area industrial properties experienced only modest declines in occupancy rates, rental rates will improve first in this sector as levels of inventory and exporting and importing activities increase. Dr. Mueller expects the absorption of excess retail space to be slow, and rents not to increase in this category in the Denver area until 2013 and 2014. He observed real estate is a “delayed mirror of the economy,” and that following gradual improvements in the economy and employment rates in 2010, the recovery phase in real estate will occur in 2011 and 2012. He noted commercial properties in the U.S. are priced well below comparable properties in other countries, and that significant buying opportunities exist for cash buyers of, and there are large amounts of capital poised to buy, U.S. commercial properties. In response to a question from the audience, Dr. Mueller remarked that he expects population growth and inflation to cause price increases over a longer term.
ProLogis was the primary sponsor of the program and additional sponsorship was provided by Prime West Companies and First American Title Insurance Company. Wayne E. Barrett of Prologis, James P. Creighton of Revest, Inc., and Martha S. Nachman of Ballard Spahr LLP, were the program organizers.
