Denver-Boulder, Colorado Employment declines are still evident in the Denver-Boulder area but began to moderate in the first half of 2003. Most local analysts have high hopes for the second half of this year, but it will take a strong recovery during the next 6 months to bring the 2003 average job total up to the level for 2002. Average nonfarm employment for the 12 months ending June 2003 was 1.6 percent below the prior 12-month average. Although some seasonal gains have been observed in recent months the June 2003 total was 20,000 jobs below the June 2002 level. Unemployment rates have stayed close to 6 percent for most of 2003, well above the 2 to 3 percent typical of the recent past. The local telecommunications industry is still reeling from its recent meltdown and faces an uncertain future. Most companies think the worst is over, but there are no clear signs of a resurgence of demand for telecommunications services. Other local high-technology industries are still waiting for an increase in business investment; employers in many area industries are looking to the local biotechnology industry to lead the next economic boom. However this industry is young, the number of employees remains modest, and some analysts speculate that few of the many new drugs under development will ever make it to market. The air transportation sector remains stagnant as United Airlines, the area’s dominant carrier, works out of bankruptcy. The office market and most other commercial real estate sectors continue to struggle. A recent report by the Trammell Crow Company forecasts that the office market would not reach equilibrium until 2008. This does not portend a rapid recovery in the apartment market. A substantial increase in multifamily construction in 2000 and 2001 resulted in the highest levels of residential building activity in the area since the early 1980s. Reports from the Home Builders Association of Metropolitan Denver show that single-family homebuilding peaked in 1999 at more than 20,000 units. Activity declined each succeeding year to 18,000 units in 2002. Through the first 5 months of 2003 permits were down 13 percent compared with last year’s comparable period. After 2 years of 9,000-plus units in 2000 and 2001 apartment construction, as measured by building permits, declined to slightly more than 4,000 units in 2002. Some builders have forged ahead with apartment starts through May 2003, but total starts are at less than half of last year’s level. Despite the significant cutback there are still 4,500 apartment units under construction. Condominium construction has accounted for more than 70 percent of multifamily starts in 2003, a reversal of the proportion typical in the late 1990s. The Denver Board of REALTORS® reports that existing home sales during the first 6 months of 2003 were down 11 percent compared with the same period in 2002. The inventory of existing homes for sale continues to set new records each month. The 26,500 listings in the Denver metropolitan area are 23 percent above the 2002 total at this time. The average price continues to climb, but the 2.9-percent annual increase in the first half of 2003 is a far cry from the double-digit gains of recent years, which peaked at a 15.6-percent increase in 2000. During the first 6 months of 2003 the average existing single-family price in the Denver area was $272,000, and the condominium average was $175,000. Sales activity also declined in the Boulder area, but prices remain in the stratosphere; the average single-family home price in the city of Boulder and nearby mountain areas has climbed to more than $450,000. Sales of new homes have slowed more dramatically. Data compiled by Meyers Group reveal that net sales by production builders through May 2003 were down 18 percent from the first 5 months of 2002. Contract cancellations are increasing and account for more than 20 percent of gross sales in Arapahoe and Douglas Counties. Analysts at the Genesis Group indicate that builders have become more aggressive with concessions. Concessions by builders of single-family detached homes coupled with record-low interest rates have increased the competition for some builders of townhouses targeted to first-time buyers. Many of the homebuyers qualified for a mortgage on a detached home instead and received free upgrades in the process. Speculative building has come to a standstill. Some completed and unsold homes remain for sale, but these are primarily the result of what one analyst at the Genesis Group calls the “unintentional speculative inventory,” homes that builders must now sell after original purchasers backed out of contracts. The apartment vacancy rate has been increasing since the first quarter of 2001. Although the initial movement into the 6- to 7-percent range brought some relief from the moderately tight conditions of the late 1990s, the more recent jump to double digits in the fourth quarter of 2002 reveals a serious oversupply. The 2 years of 9,000-unit production, 2000 and 2001, would have created a moderate surplus under any circumstances, but when this aggressive production was met by a wilting local economy and low interest rates that allowed many renters to purchase homes, the adverse effect of this overproduction became magnified. The Denver Metro Apartment Vacancy and Rent Survey reveals an increase in the vacancy rate of 13 percent as of the first quarter of 2003, which could rise further when the 4,500 units under construction are completed. The market now faces a surplus of 15,000–20,000 existing rental units in addition to those now under construction. Even if absorption returned to normal full market recovery appears to be at least 3 to 4 years away; it could take even longer if job growth does not pick up in the second half of the year. Concessions are widespread and rent reductions have become more commonplace. The average rent dropped to just below $800 in the first quarter of 2003, the first time the average has been less than $800 since the first quarter of 2001. The South Aurora/Arapahoe County, Northglenn/Thornton, Brighton, downtown Denver, and Douglas County (including Castle Rock and Parker) submarkets all face significant surpluses. Updated information from tax credit projects in the metropolitan area indicates that most of the 40- and 50-percent units are fully occupied, but 60-percent units are struggling. Most 60-percent units are offering concessions that place their effective rents at or below the 50-percent level. These discounts will not last forever, but in view of the large number of surplus vacancies and units under construction in the metropolitan area, the situation is certainly not short-term.

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