Real Estate Market Shows Steady Improvement in Colorado and Nationally

Otten Johnson Alert October 2012

Positive news continues to emerge concerning the steadily improving commercial and residential real estate markets. National data shows signs of modest growth, with the Denver and Colorado markets outpacing national trends, fueled by higher job growth than the national average.

Denver a Top 20 "Market to Watch"

At its fall meeting in Denver, the Urban Land Institute (ULI) named Denver one of the top 20 U.S. "Markets to Watch" for overall real estate prospects. ULI cited the Denver area's strong employment base and the fact that Denver’s housing market fared better than other cities during the housing downturn. Recent housing market data support this optimistic view. U.S. Census Bureau data show that permits for single-family construction through August 2012 increased 34% in Colorado over the same period in 2011, and Colorado permits for multi-family housing increased 137% for the same period over 2011.

Nationally, data released by the Commerce Department in October reveal that new home sales in September increased 5.7% over September 2011, which represents the greatest increase since April 2011, the last month homebuyers could take advantage of the now-expired first-time homebuyer tax credit. The Commerce Department noted that demand for housing is being driven by a growing number of households nationally, reversing a trend that saw households consolidating as those challenged by the recession moved in with friends and family. Finally, the foreclosure epidemic appears to be slowing substantially, as data released by Standard & Poor's show that first and second mortgage defaults remain flat -- at the lowest level in four years for first mortgages, and nearly the lowest level in five years for second mortgages.

Third quarter market reports for the Denver metro area show that the office, industrial and retail real estate sectors continue their steady recovery from the recession, with substantial positive net absorption rates and vacancy rates in each sector below 2011 vacancy rates. Colorado's unemployment rate, and the Metro Denver unemployment rate in particular, remain below the national rate. The Metro Denver Economic Development Corporation (MDEDC) reported that in August 2012, Metro Denver experienced its highest job gains since August 2002. Job growth in the region continues to be driven by robust energy and healthcare sectors. Declining vacancy rates and increasing demand are driving lease rates upward, and making speculative new development projects more attractive in Denver's growing real estate market.

Looming Fiscal Cliff Creates Uncertainty

One factor hampering enthusiasm for economic growth is the looming "fiscal cliff" that could occur on January 1, 2013 if Congress and the President cannot agree on a compromise to avoid it. The fiscal cliff is a combination of federal spending cuts and the expiration of the Bush tax cuts, which Congress implemented as a measure of last resort to address federal deficit and debt issues. While many observers do not think that the fiscal cliff will occur as scheduled, the consequences of the fiscal cliff would be dire, and could include substantial negative impacts on GDP growth and unemployment. Real estate analysts project that the fiscal cliff's impact on economic productivity and unemployment would negatively affect commercial real estate in the short term. The office market would be hit particularly hard due to reduced demand for office space by federal agencies subject to budget cuts, as well as by the professional services sector, which would be hit hard by another economic downturn.

Otten Johnson's attorneys have substantial experience counseling clients with their real estate matters. For more information on this Otten Johnson Alert please contact any of the attorneys in the Real Estate practice group (for a listing, click here).