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Posted: February 01, 2014

2014 Colorado Economic Oulook

Housing market, jobs outlook are keys to expected ‘decent’ year

Tucker Hart Adams


COMMERCIAL
Most of the forecasters expect the value of nonresidential building contracts to come in at about the same level as 2013. Binnings is the optimist here, forecasting a 20 percent increase. Patty Silverstein, of Denver Research Partners, looks for an increase in downtown Denver office and industrial space in the I-70/I-225 corridor but declines in other parts of the city.

Real estate developer Dennis Carruth points out that the commercial market is far more dependent on job growth than the financing rate. He does not see much impact at all of a 100-150 basis-point increase in mortgage rates:

“Job growth since 2012 has not come close to that required to fill job losses experienced 2008 to 2010. For example, our newer class B buildings in southwest Denver achieved full service lease rates in the $24-$27/RSF range prior to 2008; today those same rates are $19-22/RSF and are being required not only by new replacement tenants, but also to renew existing leases. The impact of low lease rates, accompanied by high costs for real estate commissions and contemporary tenant improvements, makes one wonder when, or if, commercial (particularly job-dependent office) real estate will become sufficiently viable to support new construction anytime soon.”

20 percent: Anticipated increase in nonresidential building contracts for the new year, according to the most optimistic forecast

BASIC INDUSTRY
The four sectors that underlie the state economy are agriculture, energy, manufacturing and tourism. These sectors bring new dollars into the state, and with a big multiplier effect, create jobs.

Agriculture:  According to the Department of Agriculture, only 13.2 percent of Colorado’s population lives in rural areas, where per capita income is lower and the poverty rate is higher. Employment has been flat, with unemployment slightly below the urban level. Almost half of all farms are less than 100 acres, with only 10 percent larger than 2,000 acres. Half of total farm receipts are from Weld County, one of the largest agricultural counties in the country.
Ron Carleton, Colorado deputy commissioner of agriculture, recently told the Denver Business Economists that he expects farm income to decline in 2013, due to a combination of declining corn prices and drought.

Energy:  Even at the peak of the energy boom 30 years ago, the mining industry (including oil and gas) accounted for less than 4 percent of Colorado’s jobs. Last year it was 1.3 percent. Nevertheless, it still provides almost 4 percent of the state’s GDP. With the exception of 2008, jobs have grown steadily since 2000.

Gary Horvath believes the extractive industries are likely to decline in 2014:
“Despite the governor’s pro-fracking stance, Colorado has positioned itself as not friendly to the extractive industries. Other states, such as North Dakota, are more receptive to drilling, and companies will follow the path of least resistance. Although the drop in gas prices is a relief to the consumer, demand and prices are not favorable to growth in the industry.”

Tourism:  Expanding national and local economies, along with an improving employment climate, is important to the tourism industry. Travel is a discretionary expense for individuals and businesses alike, and is one of the first budget items cut when times are tough.

As the economy recovered from the Great Recession, total direct travel spending in Colorado rose to $16.7 billion in 2012, up 5.7 percent over 2011. The number of travelers set a record – more than 60 million. Business travel rebounded but remained below peaks recorded in 2000 and 2001. It is unlikely to return to those levels as companies have discovered cost-effective alternatives.

Tourism was negatively impacted by the fires and floods during the last year. Peggy Campbell, president and CEO of Visit Estes Park, is hopeful for 2014:
“Since tourism is the basis of the Estes Park economy, the September flood and subsequent road closures into Estes Park had a devastating effect. Thankfully, highways are opening quicker than expected, so with sufficient destination marketing and messaging funding, we expect 2014 to start out slow but our summer business to get back on track.”

Manufacturing:  Manufacturing provides 5.7 percent of the state’s jobs. It is particularly important in Pueblo, where 7.2 percent of employment is in that sector. CSU-Pueblo economist Kevin Duncan points out that small manufacturers there are adding jobs, 25 at Pueblo Dubworks and 50 at Rocla Concrete tile. The Vestas plant there is also expected to benefit from a contract for 200 wind towers in Texas.

WRAP UP:  2014 will be a decent, although fairly unremarkable, year for Colorado’s economy. Inflation and interest rates will remain low, the housing market will continue to improve and jobs will be a bit easier to find. Commercial real estate faces hurdles, as do agriculture and the oil and gas industry.
The most important factor affecting the outlook for 2014 is jobs. Despite high unemployment, many positions go unfilled. We need skilled craftsmen to work in construction and the oil fields and Ph.D. scientists and engineers to push the boundaries of technology. The days of high-paying jobs for high school dropouts are over. Those jobs have moved to other parts of the world. Our high schools, community colleges and universities must not fail to do their job.

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Tucker Hart Adams, president of the Adams Group, monitored and analyzed the Colorado economy for 30 years. She can be reached via her website, coloradoeconomy.com.

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