2015 Economic Forecast for Metro Denver · residential real estate needs. The unemployment rate in Metro Denver is expected to average about 4 percent in 2015, representing extremely

2015 Economic Forecast for Metro Denver

Including Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties

February 2015

Prepared By:

Development Research Partners

Development Research Partners specializes in economic research and analysis for local and state government and private sector businesses. Founded in 1994, Development Research Partners combines extensive experience in real estate economics and economic development to provide clients with reliable consulting services in four areas of expertise:

Economic and Demographic Research Research in support of business and community activities, ranging from community profiles to evaluating and forecasting economic and market conditions.

Industry Studies

Specialized research projects including industry cluster research, industry trends analysis, and strategic competitive analysis.

Fiscal and Economic Impact Analysis

Comprehensive analysis and analytical tools to evaluate and forecast site‐specific activities and model public‐private sector relationships.

Real Estate Economics

Preparation of strategic market data and analysis for prospective real estate development and public‐private partnerships.

Development Research Partners

Patty Silverstein, President Erica Blake, Research Economist 10184 West Belleview Avenue Suite 100 Littleton, Colorado 80127 www.DevelopmentResearch.net 303.991.0070

TABLE OF CONTENTS

Metro Denver Economic Development Corporation | February 5, 2015

Table of Contents

EXECUTIVE SUMMARY ................................................................................................................................. i

U.S. ECONOMY ............................................................................................................................................ 1

International Economy ................................................................................................................................................ 1 Gross Domestic Product .............................................................................................................................................. 2

Household Spending .......................................................................................................................................................... 2 Business Spending .............................................................................................................................................................. 3

Government Spending ....................................................................................................................................................... 4 Net Exports ......................................................................................................................................................................... 5

Interest Rates .............................................................................................................................................................. 5 Employment & Unemployment ................................................................................................................................... 6 Personal Income.......................................................................................................................................................... 6 Inflation ...................................................................................................................................................................... 7

COLORADO ECONOMY ................................................................................................................................ 8

Employment & Unemployment ................................................................................................................................... 9 Population ................................................................................................................................................................ 11 Income & Spending ................................................................................................................................................... 12 Inflation .................................................................................................................................................................... 12 Colorado Exports ....................................................................................................................................................... 13

METRO DENVER ECONOMY ...................................................................................................................... 14

Population ................................................................................................................................................................ 14

Employment & Unemployment ................................................................................................................................. 16

Industry Overviews ................................................................................................................................................... 17

Natural Resources & Construction ................................................................................................................................... 17 Manufacturing .................................................................................................................................................................. 21 Wholesale & Retail Trade ................................................................................................................................................. 22 Transportation, Warehousing & Utilities ......................................................................................................................... 23 Information ...................................................................................................................................................................... 23

Financial Activities ............................................................................................................................................................ 24 Professional & Business Services ..................................................................................................................................... 24 Education & Health Services ............................................................................................................................................ 25 Leisure & Hospitality ........................................................................................................................................................ 26 Other Services .................................................................................................................................................................. 27

Government ..................................................................................................................................................................... 27 Industry Clusters ....................................................................................................................................................... 28

Residential Real Estate .............................................................................................................................................. 29 Income ...................................................................................................................................................................... 31

DATA APPENDIX ........................................................................................................................................ 32

REFERENCES .............................................................................................................................................. 33

Metro Denver Economic Development Corporation | February 5, 2015 | Page iage i

Executive Summary

U.S. Economy

The United States has started on a new economic growth path. The nation’s employment level in mid‐2014 finally surpassed the pre‐recession peak, representing a 76‐month job recovery. Job gains have been widespread, with preliminary data suggesting that all states posted an average annual increase in employment from 2013 to 2014. Most analysts expect U.S. economic activity to strengthen in 2015 due to rising wages leading to increased consumer spending, improved home sales and new construction activity, and active business hiring. The employment growth rate is expected to increase from 1.9 percent in 2014 to 2 percent in 2015. Gross domestic product will grow at a 3.1 percent pace in 2015, which is faster than the historic average, spurred by enhanced consumer spending and stronger business investment. As GDP and employment expand, the nation’s unemployment rate will drop to 5.5 percent. Rising income and low levels of inflation bode well for the nation’s housing markets, with expected increases in construction activity and home sales.

A big surprise in the latter part of 2014 was the rapid decline in the price of oil, which dropped from a monthly average price of $106 per barrel in June 2014 to $59 per barrel in December 2014. The resulting drop in gasoline prices means that consumers have more money to spend on other goods, which is a plus for the U.S. economy as a whole. In addition to potentially rising interest rates, the greatest risks to U.S. economic growth are global economic conditions and social and political instability in the Middle East and Russia.

Colorado Economy

Colorado maintained its ranking as a top 10 state for employment growth during 2014 and will post a strong 2.7 percent increase in employment in 2015. The employment base is expected to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Despite the strong growth rate at the state level, employment growth has not been consistent across the state’s regions. Employment growth in Metro Denver has been strong and diverse, while Weld County has been the fastest growing region in the state due to the expanding energy sector. On the other hand, the Colorado Springs metropolitan area has experienced a slower growth rate due to its reliance on military spending, and activity remains sluggish on the Western Slope.

As companies continue to increase their staffing levels, Colorado’s unemployment rate will steadily decline to levels below “full‐employment,” indicating an increasingly tight labor market. Personal income growth will accelerate in 2015 to 6.7 percent due to increasing wages, rising housing prices, and increased investment. Declining unemployment and rising personal income bode well for consumer spending in 2015. Retail trade sales increased by about 7.2 percent in 2014 as more confident consumers were encouraged to shop. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns. Colorado’s expanding employment base, high quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state.

Metro Denver Economy

Over 60 percent of employment in Colorado is located in the seven‐county Metro Denver region. Metro Denver job gains accelerated during 2014, finishing out the year stronger‐than‐expected with the addition of 46,200 jobs. An additional 45,000 jobs are expected to be added in 2015, representing a 3 percent growth rate. Metro Denver will experience particularly strong employment growth in the education and healthcare services, professional and business services, and leisure and hospitality supersectors.

Just as Metro Denver historically was known as a magnet for the baby boomers (born between 1946 and 1964), the region is now a choice location for the millennials (born between 1981 and 1997). The millennials are the

Metro Denver Economic Development Corporation | February 5, 2015 | Page iiage i

Executive Summary largest population group in Metro Denver, numbering just over 730,200 in 2015. While the generation X (688,800 population) and baby boomers (681,100 population) dominate the labor force today, the millennials are making their mark on the workplace today and will represent the largest component of the labor force within 10 years.

Demographic shifts related to both the millennial and baby boomer generations are changing the face of Metro Denver, which has implications for future labor force growth patterns, consumer spending patterns, and residential real estate needs. The unemployment rate in Metro Denver is expected to average about 4 percent in 2015, representing extremely tight labor market conditions. As baby boomers retire, deep knowledge of the company’s operations and business history may also leave. Businesses should carefully consider compensation and amenity packages to attract and retain the best and brightest talent, as advance planning now can make for smoother transitions in the future.

With limited supply in the residential real estate market and above average population growth, home prices will continue to rise and construction activity will pick up. The median home price in Metro Denver increased 9.4 percent in 2014 to $306,900 compared to the U.S. median of $207,300, and prices are expected to rise another 6 percent in 2015. Residential building permits rose 5.7 percent between 2013 and 2014 as developers became more confident in the economy and demand continued to rise. An additional 18,800 housing units are anticipated in 2015. Multi‐family construction represents nearly 50 percent of the new units built, significantly higher than the 35 plus‐year average of multi‐family units representing roughly one‐quarter of construction. The high level of multi‐family activity reflects more interest in transit‐oriented development as the FasTracks system nears completion, as well as baby boomers’ desire for more maintenance‐free housing options and millennials’ slow movement into home ownership roles.

A vibrant entrepreneurial community bolsters the expanding Metro Denver economy. Indeed, Forbes ranked Denver as the second‐best city to launch a start‐up business and NerdWallet ranked Denver the fifth‐best city in the U.S. for millennial‐aged entrepreneurs. The solid business fundamentals in Metro Denver ensure that the region will continue to expand in 2015 and beyond.

U.S. ECONOMY

Metro Denver Economic Development Corporation | February 5, 2015 | Page 1 1

U.S. Economy

The United States is finally on a new economic growth path. The nation’s employment level in mid‐2014 finally surpassed the pre‐recession peak, representing a 76‐month job recovery. Job gains have been widespread, with preliminary data suggesting that all states posted an average annual increase in employment from 2013 to 2014. The size of the employment gain has differed widely, ranging from a 0.02 percent increase in Alaska to a 4.7 percent increase in North Dakota. This was the sixth consecutive year that North Dakota has posted the highest employment growth rate of the 50 states.

Most analysts expect U.S. economic activity to strengthen in 2015 due to rising wages leading to increased consumer spending, improved home sales and new construction activity, and active business hiring. One of the greatest surprises in 2014 was how quickly the unemployment rate declined, falling from a 7.4 percent average annual rate in 2013 to 6.2 percent in 2014. Despite the decline, the Federal Reserve continues to be concerned that labor resources are underutilized. On the plus side, household spending is rising, business investment is improving, and inflation remains stable. For all of these reasons, the Federal Open Market Committee (FOMC) ceased its monthly asset purchasing program in October 2014. Nonetheless, the FOMC’s sizable holdings of securities should maintain downward pressure on longer‐term interest rates, support mortgage markets, make broader financial conditions more accommodative, and promote a strong economic recovery. While slightly rising interest rates are anticipated in 2015, rates are still expected to be low by historic standards.

Another big surprise in the latter part of 2014 was the rapid decline in the price of oil. The spot price for West Texas Intermediate crude oil dropped from a monthly average price of $106 per barrel in June 2014 to $59 per barrel in December 2014. The rapid price drop was due to a number of factors including reduced U.S. demand from consumers with more fuel‐efficient vehicles, rising U.S. oil production due to enhanced drilling technologies, and virtually no change in the amount of crude oil produced by OPEC countries. The resulting drop in gasoline prices means that consumers have more money to spend on other goods, which is a plus for the U.S. economy. Nonetheless, the drop in the price of oil may prove challenging for major oil‐producing states including Texas, North Dakota, California, Alaska, and Oklahoma.

In addition to potentially rising interest rates, the greatest risks to U.S. economic growth are global economic conditions and social and political instability in the Middle East and Russia.

International Economy

Global economic conditions remain uneven across countries but economic recovery is strengthening, according to the International Monetary Fund (IMF). The IMF expects the global growth rate to average 3.3 percent in 2014, but strengthen to 3.8 percent in 2015. Economic growth in the advanced economies is expected to strengthen from 1.8 percent in 2014 to 2.3 percent in 2015. Expansion will be led by growth in the United States, the United Kingdom, and Canada. Activity in the Eurozone as a whole is expected to increase from 0.8 percent growth in 2014 to 1.3 percent in 2015, boosted by the relative strength of Germany and Spain. To bolster the Eurozone economies, the European Central Bank (ECB) announced plans in January for their version of quantitative easing, with a sovereign bond purchasing program. The ECB expects to purchase around 60 billion euros per month through the end of 2016, with roughly one‐quarter of the bond purchases likely consisting of German bonds.

The value of output in the emerging economies is expected to grow from 4.4 percent in 2014 to 5 percent in 2015. GDP growth is expected to increase in most emerging countries in 2015 with the notable exception of China. While the Russian growth rate is significantly below the rate achieved in 2012, improvements in India, Brazil, Mexico, and South Africa are propelling the emerging economies forward.

U.S. ECONOMY


U.S. Economy

Gross Domestic Product

Throughout this publication, (e) is used to represent data that are estimated in the absence of data for all 12 months of 2014. (f) Indicates a forecast figure.

Gross Domestic Product: +2.5 percent in 2014(e); +3.1 percent in 2015(f).

Gross domestic product (GDP)—the total value of goods and services produced in the U.S. economy—is a key gauge of the nation’s economic health. Between 1980 and 2010, annual GDP growth averaged about 2.8 percent; growth above that trend has often meant falling unemployment rates, and below‐trend growth resulted in a stagnant economy.

GDP growth averaged 2.2 percent between 2010 and 2014. Severe weather during the first quarter of 2014 led to the first contraction in GDP since the first quarter of 2011. However, the economy reported a quick and robust recovery in the second and third quarters. The third quarter of 2014 had above average GDP growth, recording a 5 percent growth rate. Advanced estimates suggest that the fourth quarter GDP expanded at a slower rate of 2.6 percent. With personal consumption and business growth slowly improving, annual growth is forecast to be 2.5 percent in 2014 and accelerate to 3.1 percent in 2015.

Reasons for the increase in growth are easiest to recognize when GDP is broken down into its four components: 1) household spending on goods and services; 2) business spending on software, equipment, and real estate; 3) government spending on goods and services; and 4) net exports, or foreign purchases of U.S. goods less our imports.

Household Spending

Household spending contributes near or above two‐thirds of national output and has a long‐term average annual growth rate of 3 percent. Household spending surpassed its long‐term trend, averaging 3.2 percent growth during the third quarter of 2014. Spending should continue to improve as consumers become more confident in the economy and employment opportunities arise. Several factors may also be contributing to improved levels of spending growth:

U.S. ECONOMY


U.S. Economy

Wage growth pressure just starting to develop. Wage growth over the last few years has been slow and irregular as the unemployment rate fell at a moderate pace. Moody’s Analytics reported that many measures show wage growth stuck around 2 percent per year, which is about the same rate as consumer price inflation. An above average unemployment rate establishes greater competition in the labor market, giving job market candidates less latitude for salary negotiation. Until the unemployment rate reaches a steady level below the “natural rate” of unemployment, which differing views place between 4 and 5 percent, companies will continue to hire at lower wages and wage growth is unlikely. As many states are posting unemployment rates below that level, wages are now expected to grow. In addition, over half the states have minimum wage levels above the federal minimum wage level. Higher minimum wage at the state level could allow for increased competition in traditionally lower wage jobs.

Stocks and real estate reported gains but not all households benefited. According to the S&P/Case‐Shiller home price indices, the national home index was up 4.6 percent between October 2013 and 2014. While higher home prices help create a positive wealth effect for many American households, they are also barriers for first‐time home buyers. The National Association of Realtors (NAR) reported that 62 percent of the millennial generation rents an apartment while 20 percent live with their parents, relatives, or friends. The NAR also reported that 97 percent of millennial home buyers financed, compared with 55 percent of the silent generation, and the average down payment of millennials was only five percent. Data from Freddie Mac also show the total home equity cashed out through refinancing during the first three quarters of 2014 ($17.6 billion) was 0.3 percent below the level one year earlier, indicating fewer households are seeking financing through home equity.

The stock market had a volatile year in 2014, but the S&P 500, NASDAQ, and DJIA reported positive annual returns. The stock market volatility was in response to political uncertainty at the national and international level as well as inconsistencies in economic indicators.

Household debt composition is improving. After the housing bubble burst in 2007, total household debt was inconsistently low over the last eight years. However, the second quarter of 2014 reported the highest level of total household debt since the first quarter of 2008. Mortgage debt growth has remained negative since the recession but recorded three quarters of positive debt since the second quarter of 2013, the first quarters of growth since the fourth quarter of 2009. Consumer credit debt is continuing to grow, reaching the highest levels since at least 2006.

Business Spending

Corporate profits (after tax) rose slightly during the first half of 2014, rising over 47 percent since the first half of 2008. While businesses became more productive with smaller workforces in the years following the recession, workforce increases are now occurring. As businesses spend more on labor, company profits will soften.

U.S. ECONOMY


U.S. Economy

Business spending on real estate has steadily increased since the first quarter of 2013, with six consecutive quarters of over‐the‐quarter growth. The growth in structures is attributed to increased investment in manufacturing and power and communication structures. Spending on equipment and software has reached the highest level since the first quarter of 2002. Industrial and transportation equipment reported increased investment, while research and development led the growth in intellectual property products. This indicates that businesses are slowly investing in facilities, but are much more willing to invest in equipment and intellectual property to increase competitiveness and productivity.

Government Spending

According to the Congressional Budget Office (CBO), the federal budget deficit for fiscal year 2014 is forecast to be $506 billion as of August 2014. The projected 2014 level would be 25.1 percent lower than the prior year’s deficit and represent 2.9 percent of GDP. The declining federal deficit as a percentage of GDP will mark the fifth consecutive year in which the deficit has declined as a share of GDP since peaking at 9.8 percent in 2009. However, the CBO stated that given current federal policies, the period of deficit reduction could end. If current policies do not change, the CBO expects the deficit as a share of GDP to increase from 2.9 percent in 2014 to 4 percent near the end of 2024, mostly due to the aging population, rising healthcare costs, expansion of federal subsidies for health insurance, and growing interest payments on federal debt.

The International Monetary Fund’s World Outlook Database reports that the U.S. government gross debt in 2014 was estimated to be over 105 percent of GDP, the seventh highest rate of the world’s advanced economies. In February, Congress agreed to raise the federal debt ceiling without any conditions attached. The new legislation will allow the Treasury Department to borrow normally and raise the borrowing limit until March of 2015 when they would have to reset the borrowing cap, which is currently at $17.2 trillion.

The 2012 Census of Government: Finance—Surveys of State and Local Governments reported that total expenditures by state and local governments increased 18.2 percent between 2007 and 2012 to $3.2 trillion. Census Bureau spokespersons stated that state and local government revenues continue to be impacted by capital market fluctuations, particularly employee retirement revenues. Tax revenues rose 8.2 percent during the period and accounted for 53.4 percent of total state and local general revenues in 2012. Expenditures rose significantly in many areas such as education (+12.3 percent), public welfare (+26.2 percent), insurance trust

U.S. ECONOMY


U.S. Economy

(+62 percent), unemployment compensation (+230 percent), and hospitals (+30.2 percent). Colorado was one of four states where unemployment compensation quintupled (+430.6 percent) from $290.6 million to $1.5 billion between 2007 and 2012.

Net Exports

Demand for U.S. exports grew during 2014, rising 2.9 through November compared with the same period in 2013. Imports were also 3.3 percent higher during the same period. Imports and exports rose to their highest levels since the availability of data in 1992. Major U.S. exports include transportation equipment, computers, and oil products. The ongoing domestic energy boom has helped reduce dependence on foreign oil, which eased pressure on the trade deficit.

The nation’s largest trading partners are Canada, Mexico, China, Japan, and Germany. With Japan in a recession, China’s economy slowing down, and the collapse of the Russian currency, investment in the U.S. dollar has increased, leading to an appreciation of the dollar during the third quarter. Continued investment and sustained strength in the dollar could weaken export growth in the coming months.

Interest Rates

Prime rate: 3.25 percent in 2014; 3.35 percent in 2015(f).

The Federal Reserve has kept its target federal funds rate within a record low range of zero to 0.25 percent since December 2008. The October 2014 meeting of the Federal Open Market Committee (FOMC) led to the announcement that it will end its purchases of mortgage‐backed securities and longer‐term Treasury securities and reinvest payments of its holdings into securities. The committee stated that in order to support continued progress toward maximum employment and price stability, it would maintain the zero to 0.25 percent target range for the federal funds rate until maximum employment and 2 percent inflation are achieved.

Assuming inflation remains below the Federal Reserve target rate of 2 percent, the Fed will likely maintain low interest rates. The FOMC stated that if there is faster progress toward the target inflation rate than what the committee currently expects interest rates would rise sooner than currently anticipated. However, if progress towards the target rate were slower than expected, the increase in interest rates would be later than expected. Analysts have predicted the prime rate will increase to 3.4 percent by the end of 2015.

U.S. ECONOMY


U.S. Economy

Employment & Unemployment

Employment: +1.9 percent in 2014(e); +2.0 percent in 2015(f).

Unemployment: 6.2 percent in 2014(e); 5.5 percent in 2015(f).

The U.S. employment situation improved significantly in 2014, averaging just over 1.9 percent growth for the year. The non‐seasonally adjusted employment level in December was 1.8 million jobs above the pre‐recession peak of 139.4 million jobs in November 2007. The lengthy nature of the recession and recovery has discouraged job seekers who have been unemployed for months. In 2014, unemployed individuals over the age of 16 remained jobless for an average of 8 months, which is one month less than the prior year but four months more than before the Great Recession. The labor force participation rate fell to 62.7 percent in December, while the U.S. unemployment rate fell to 5.4 percent in December.

The White House Council of Economic Advisors stated that 2014 was an economic milestone for the United States. The council reported that America’s businesses added jobs at the fastest rate since the 1990s. It was also reported that the drop in the unemployment rate was the largest decline in 30 years.

According to the most recent Manpower Employment Outlook Survey for the first quarter of 2015, hiring will be unchanged compared with the fourth quarter of 2014 as the number of companies expecting to hire held at 19 percent. Compared with the year‐ago level, the first quarter number was 2 percentage points higher in 2015 than 2014. Further, the percentage of companies planning to hold employment steady remained at 73 percent in the first quarters of 2014 and 2015. Only 6 percent of companies expect to reduce their workforce, lower than the 7 percent rate reported one year prior.

Personal Income

Income growth: +4.1 percent in 2014(e); +5.2 percent in 2015(f).

Personal income has several components: earnings from work, asset‐based income, and government social insurance (transfer) payments. Slack in the labor market has not pushed wages as high as hoped, leaving wage‐based income growth slow. The stock market experienced a volatile year in 2014, hitting record highs, but not all households experienced the wealth effect of well‐performing stocks. The payroll tax increase in 2013 also decreased personal income gains.

U.S. ECONOMY


U.S. Economy

Personal income growth is expected to accelerate in 2015 as wage growth resumes, leading to a 5.2 percent increase, up from the 4.1 percent increase in 2014.

Inflation

Consumer Price Index: +1.7 percent in 2014; +2.0 percent in 2015(f).

As noted above, the Federal Reserve target inflation rate is 2 percent in the medium‐term, and the 2014 average was 1.7 percent. As the Federal Reserve has pledged to keep interest rates low until unemployment eases, inflation will rise by 2 percent in 2015.

New technologies and exploration are increasing the production of crude oil. The U.S. Federal Energy Information Administration reported that U.S. crude oil production averaged 9 million barrels per day in November of 2014 and that crude oil production will increase to 9.3 million barrels a day in 2015. The agency stated that the increased production would push down the average gasoline price to $2.60 per gallon, a decline of 77 cents compared with the 2014 price. As this economic forecast report was released, the U.S. price of gasoline is averaging closer to $2.00 per gallon. Depending on 2014 market conditions, oil production may slow in response to low prices. Falling gas prices should reduce the pace of energy inflation growth, slowing annual price growth and keeping overall inflation at the Federal Reserve’s long‐term objective.

Food price inflation is expected to be normal to slightly lower than average in 2015 compared with 2014. According to a forecast of consumer prices by the Economic Research Service at the U.S. Department of Agriculture, food prices may increase 2 to 3 percent. However, the USDA stated that with significant drought conditions in California, Texas, and Oklahoma there is potential for long lasting effects on prices for fruit, vegetables, dairy, eggs, and beef.

National Economy Summary

The United States has started on its new economic growth path, with employment growth occurring in all 50 states in 2014. The employment growth rate is expected to increase from 1.9 percent in 2014 to 2 percent in 2015. Gross domestic product will grow at a 3.1 percent pace in 2015, which is faster than the historic average, spurred by enhanced consumer spending and stronger business investment. As GDP and employment expand, the nation’s unemployment rate will drop to 5.5 percent. Rising income and low levels of inflation bode well for the nation’s housing markets, with expected increases in construction activity and home sales.

COLORADO ECONOMY


Colorado Economy

Colorado is expected to maintain its ranking as a top 10 state for employment growth during 2014, although final state employment data for the year will not be released until March. Colorado ranked 40th of the 50 states in job growth in 2010, a year when most states were continuing to shed jobs. The state soared to the third position in 2013, with the addition of about 68,000 jobs. Employers in Colorado continued to add jobs at a faster pace than the national average in 2014. Preliminary numbers suggest state employment growth of 3 percent in 2014, which is higher than the national growth rate of 1.9 percent. The employment base will continue to expand to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. Historically, Colorado has amplified national employment trends, with peaks rising above national levels and troughs declining below. However, Colorado growth trends have begun to converge with the nation as its economy

matures.

This convergence will not stop the state from performing above average, with employment and income growth expected to outpace the nation. Colorado’s growing labor market is supported by a diverse industry base and dynamic business climate. Colorado’s expanding employment base, high quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state. Colorado’s economy is expected to report positive trends through 2015 across many economic indicators.

The state has several unique advantages. The expanding entrepreneurial community, increasing start‐up activity, and highly educated workforce make Colorado an attractive location for business. In 2014, the state ranked:

…first on Business Insider’s list of the nation’s top economies for its low unemployment, high non‐farm payroll jobs, high GDP growth, and a greatly diversified economy.

…third highest employment growth rate, based on Quarterly Census of Employment and Wages data from the U.S. Bureau of Labor Statistics.

…fifth best state for business by Forbes. Colorado was noted for its labor supply and growth prospects.

…fifth best state for entrepreneurship activity by the Ewing Marion Kauffman Foundation, with 380 entrepreneurs per 100,000 adults.

…sixth in the 2014 State New Economy Index by the Information and Innovation Foundation due to the state’s dynamic economy and second most highly educated workforce.

…eighth on Ewing Marion Kauffman Foundation’s most small business friendly states list. High‐ranking states have effective government training and networking programs, friendly local government regulations, and effortless employee hiring.

…ninth by the U.S. Bureau of Economic Analysis for the fastest growth in gross domestic product in 2013.

These favorable rankings suggest the state will continue to grow solidly and attract attention as a highly desirable place to live and work.

COLORADO ECONOMY


Colorado Economy


Note: Annual benchmark revisions to the employment and unemployment data series can significantly alter historic trends. As 2014 job data will be revised in March 2015, the exact revisions are not yet known. The following forecast is based on expected revisions to the data.



Colorado employment increased an estimated 3 percent in 2014, the highest growth for the state since 2000. Estimates show the state gained 70,700 jobs in 2014 compared with 2013, and it is expected to gain another 66,200 jobs during 2015. Data from the U.S. Department of Labor’s Current Employment Statistics show that statewide employment surpassed its pre‐recession peak in April 2013. Indeed, Colorado was one of only about 13 states to have reached full recovery by that time.

Colorado’s strongest performing supersector was natural resources and construction, reporting a 7.2 percent increase between November 2013 and 2014. The natural resources and construction supersector added 11,700 jobs during the same period. The leisure and hospitality supersector and the manufacturing sector also reported strong growth over the year, increasing 4.6 percent and 4.3 percent, respectively. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Ten of the eleven supersectors in Colorado are expected to have employment growth, with the information supersector reporting no change in employment levels.

Despite the strong employment growth rate at the state level, employment growth has not been consistent across the state’s regions. Employment growth in Metro Denver has been strong and diverse, while the Greeley Metropolitan Statistical Area (MSA), which consists of all of Weld County, has been the fastest growing region in the state due to the expanding energy sector. On the other hand, the Colorado Springs MSA (El Paso County) has experienced a slower growth rate due to its reliance on military spending. Employment growth also remains sluggish on the Western Slope, as indicated by the 0.5 percent growth rate posted in the Grand Junction MSA through November 2014.

An additional key facet of Colorado’s employment base is the state’s level of entrepreneurial activity. Sole proprietors are

COLORADO ECONOMY


Colorado Economy

not counted in the nonfarm employment numbers for the state, and these individuals represent a tremendous force in the state. In 2013, Colorado had over 837,000 sole proprietors, earning nearly $25.7 billion in income. Colorado has the fourth‐highest concentration of sole proprietors of the 50 states. Many of these individuals can start or operate their business anywhere in the country, so the fact that they choose Colorado is a testament to the state’s innovative environment, support for business startups, and attractive quality of life.

The Manpower Employment Outlook Survey for Colorado showed a healthy employment outlook compared with the nation between the first quarters of 2014 and 2015. Hiring expectations rose significantly during the first quarter of 2015 compared with the prior year, rising 6 percentage points. The percent of companies planning to lay off workers rose 1 percentage point during the period. The percent of companies planning to lay off employees and increase employment levels were both lower than the fourth quarter 2014.

Since the third quarter of 2014, nearly one‐quarter of Colorado employers surveyed planned to increase staffing levels. This shows that Colorado employers are optimistic about their business future. However, over two‐third of employers have reported they plan to maintain staffing levels, signaling employers are still cautious of economic conditions. Nonetheless, the percentage of employers maintaining the status quo in Colorado is less than the national average.

As companies continue to increase their staffing levels, Colorado’s unemployment rate will steadily decline to levels below “full‐employment,” indicating an increasingly tight labor market. The state’s unemployment rate will remain below the national average. Further, the state tied with Hawaii and New Hampshire for the seventh lowest rate of the 50 states as of December 2014.

Unemployment varies considerably throughout the state, with the Pueblo, Colorado Springs, and Grand Junction metropolitan areas experiencing rates that are 1 to 2 percentage points higher than Metro Denver and Northern Colorado. In Colorado, peak unemployment was reached in March 2010 when 9.6 percent of the civilian labor force was unemployed (261,000 people). In contrast, 116,000 fewer people throughout the state were looking for work in 2014.

While Colorado’s unemployment rate dropped significantly in 2014, there was still an imbalance in the employment market. Not all employed individuals are paired with the job for which they are most qualified. The underemployment rate, referred to as U‐6 unemployment, tracks individuals who are marginally attached to the labor force. This includes individuals who work part‐time and would prefer a full‐time position or individuals who are not employed but who would join the labor force under better circumstances.

1Q 4Q 3Q 2Q 1Q

2015 2014 2014 2014 2014

% Hiring 23% 24% 26% 19% 17%

% Laying Off 6% 7% 7% 4% 5%

% No Change 68% 68% 64% 75% 76%

% Unsure 3% 1% 3% 2% 2%

U.S.

% Hiring 19% 19% 22% 19% 17%

% Laying Off 6% 7% 4% 4% 7%

% No Change 73% 72% 71% 71% 73%

% Unsure 2% 2% 3% 3% 3%Source: Manpower Inc.

Colorado

Colorado Employment Outlook Survey

COLORADO ECONOMY


Colorado Economy

In 2013, Colorado’s underemployment rate was 12.5 percent, nearly 3 percentage points below the peak level of 15.4 percent in 2010. High underemployment rates during recessionary periods are expected trends, as individuals who were laid off settle for jobs they would not ordinarily take during economic expansions. Indeed, the underemployment rate tends to be roughly double the unemployment rate. At the pre‐recession peak in 2007, Colorado unemployment was at 3.8 percent and the underemployment rate was at 7.3 percent, a difference of 3.5 percentage points. This shows that even during times of economic prosperity, there is a large portion of the labor force that is underemployed. Of the 50 states, Colorado had the 22nd lowest underemployment rate in 2013. North Dakota, South Dakota, and Nebraska were the states with the lowest underemployment rates, which can be attributed to their strong energy sectors.

Population

Population: 5.35 million in 2014(e) (+1.6 percent); 5.44 million in 2015(f) (+1.7 percent).

According to data from the Colorado State Demography Office, the state’s population growth rate averaged 1.5 percent per year between 2004 and 2013. The population growth rate was estimated to be 1.6 percent in 2014 and may accelerate slightly to 1.7 percent in 2015. Looking further in the future, total population is expected to increase an average of 1.7 percent per year through 2020.

Demographers expect net migration—or the inflow of residents minus the outflow—will be the major contributing factor to Colorado’s population growth throughout the decade, representing about 63 percent of the state’s population increase in 2015. By 2020, net migration’s share is projected to increase to over 65 percent.

Colorado is experiencing two major demographic shifts in the state’s population. First, in 2014, the largest generational group residing in the state became the millennials (born 1981‐1997), surpassing the baby boomers (born 1946‐1964). Second, Colorado’s share of the population 65 years and older is increasing rapidly. Among the 50 states, Colorado ranked as having the fourth lowest share of those 65+ (10 percent) in 2010. By 2025, this percentage will increase to 17 percent of the population. This means that the over 65 population will double from 2010 to 2025, with the population increasing from 555,000 to 1.1 million.

COLORADO ECONOMY


Colorado Economy

Income and Spending

Personal Income: +5.7 percent in 2014(e); +6.7 percent in 2015(f).

Retail Trade Sales: +7.2 percent in 2014(e); +6.0 percent in 2015(f).

Personal income growth in Colorado during 2014 was supported by improving economic conditions throughout the state. Declining unemployment, rising housing prices, and increased investment contributed to Colorado’s strong personal income gains through the year. As the employment situation continues to improve with unemployment reaching the lowest levels since the mid‐2000s, personal income should continue to increase as wages begin to rise. However, over the next few years there will be a structural shift in the labor force with the millennial generation becoming the dominant demographic in the labor force and the remaining baby boomer generation entering retirement. This demographic shift could lead to lower average wages as the millennial generation gains more work experience.

In 2014, personal income increased 5.7 percent and growth will accelerate in 2015 to 6.7 percent.

Retail trade sales in Colorado increased in 2014 as unemployment declined and more confident consumers were encouraged to shop. As of December 2014, Consumer confidence in the Mountain Region was nearly 16 percent higher than in 2013. Coupled with personal income growth, retail trade sales will rise as the state economy continues to expand. In 2014, retail trade sales grew 7.2 percent. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns.

Inflation

Denver‐Boulder‐Greeley CPI: +2.8 percent in 2014(e); +2.5 percent in 2015(f).

Changes in the Denver‐Boulder‐Greeley Consumer Price Index (CPI), which are generally used to measure inflation or deflation, have often magnified changes in the national CPI. However, local inflation trends during and after the recent recession followed a slightly different course. The decline and subsequent increase in the Denver‐Boulder‐Greeley CPI in 2009 and 2010 differed from national averages by a few tenths of a percentage point.

The Denver‐Boulder‐Greeley area reported prices that increased at a faster pace than the

COLORADO ECONOMY


Colorado Economy

U.S. in 2011, 2013, and 2014, which is a trend that is expected to continue in 2015. Inflation in the Denver‐Boulder‐Greeley area is expected to decline to 2.5 percent in 2015, due to lower gasoline prices and moderating home prices.

CPI data for the Denver‐Boulder‐Greeley area suggests a few categories are driving the price increases that are faster than the national average. Through the first half of 2014, housing costs rose 5 percent over‐the‐year and transportation was up 2.3 percent. During the same period, housing costs in the U.S. were up 2.6 percent and transportation was up 0.3 percent. Additionally, energy costs rose 3.9 percent in the Denver‐Boulder‐Greeley index, while energy costs declined by 1.6 percent in the U.S.

Colorado Exports

Colorado exports declined slightly through 2014. Through the first nine months of 2014, Colorado exports fell 2.6 percent compared with the same period in 2013 and could reach an annual total of $8.4 billion. This decline follows a 4.7 percent increase in 2013 and an 11.3 percent increase in 2012. With this recent decrease, Colorado slipped below the top 25 percent of U.S. states in export dollars for 2014, when both goods and services exported are considered.

According to the U.S. Census Bureau, Colorado’s top three trade partners were Canada, Mexico, and China, accounting for 41.5 percent of total Colorado export activity. With the outlook for China’s growth expected to temper in the medium‐term, Colorado exports to China may slow as well. However, global demand for goods should rise as the global economy picks up, pointing to overall trade growth for the state. Major Colorado exports include beef, engines, medical equipment, and computers. The 2014 year‐to‐date decline in overall exports is attributed to a 21 percent decline in engine exports.

Colorado Economy Summary

Colorado maintained its ranking as a top 10 state for employment growth during 2014 and will post a strong 2.7 percent increase in employment in 2015. The employment base is expected to reach 2.5 million workers in 2015, representing the addition of over 66,000 jobs. The natural resources and construction, leisure and hospitality, and professional and business services supersectors are expected to lead the state in employment growth through 2015. Despite the strong growth rate at the state level, employment growth has not been consistent across the state’s regions.

As companies continue to increase their staffing levels, Colorado’s unemployment rate will steadily decline to levels below “full‐employment,” indicating an increasingly tight labor market. Personal income growth will accelerate in 2015 to 6.7 percent due to increasing wages, rising housing prices, and increased investment. Declining unemployment and rising personal income bode well for consumer spending in 2015. Retail trade sales increased by about 7.2 percent in 2014 as more confident consumers were encouraged to shop. A slightly slower 6 percent growth rate is expected in 2015 due to lower gasoline sales and more frugal spending patterns. Colorado’s expanding employment base, high quality of life, and increasing presence in the global business community continue to attract individuals and businesses to the state.

METRO DENVER ECONOMY



The seven‐county Metro Denver region consists of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties. There are two metropolitan statistical areas (MSAs) located wholly or partly within the Metro Denver region: the Boulder MSA (Boulder County) and the Denver‐Aurora‐Lakewood MSA.1

Metro Denver reported significant expansionary trends in 2014 and similar trends are expected for 2015. Compared with the national average, employment growth in Metro Denver was 1.3 percentage points higher at 3.2 percent and included gains in each supersector except information. The expanding Metro Denver economy is bolstered by a vibrant entrepreneurial community, an active start‐up market, and strong population growth. Metro Denver received several accolades in 2014, including:

Washington Post ranked the Denver‐Aurora‐Lakewood MSA first for attracting college‐educated workers.

NerdWallet ranked the Denver‐Aurora‐Lakewood MSA ninth for science, technology, engineering, and mathematics graduates.

Forbes ranked Denver as the second‐best city to launch a start‐up business.

NerdWallet ranked Denver the fifth‐best city in the U.S. for millennial‐aged entrepreneurs.

Forbes ranked Denver the sixth‐fastest growing city for population and economic growth.

CBRE Global Research ranked Denver 11th for high‐tech job growth.

Metro Denver will experience particularly strong employment growth in the education and healthcare services, professional and business services, and leisure and hospitality supersectors. With limited supply in the residential real estate market and above average population growth, home prices will continue to rise and construction activity will pick up. Altogether, Metro Denver will continue to experience above‐average growth in 2015.

Population

Population: 3.00 million in 2014(e) (+1.7 percent); 3.05 million in 2015(f) (+1.7 percent).

The seven‐county Metro Denver area is now home to 3 million people. Metro Denver’s population growth averaged 1.7 percent per year between 2008 and 2013, maintaining a stable growth rate through most of the recent recession and recovery due to strong positive net migration. Forecasters with the Colorado State Demography Office expect the region’s population growth rate will hold steady at 1.7 percent in 2014 and 2015 and average 1.6 percent growth through 2020. Population growth at this pace would be significantly faster than the projected U.S. growth rate of 0.8 percent in 2015.

The state demographer expects population growth between 2014 and 2015 will be

1 The Denver‐Aurora‐Lakewood MSA includes Adams, Arapahoe, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson, and Park Counties.




fastest in the City and County of Broomfield (+2.7 percent), the City and County of Denver (+2.1 percent), and Adams (+2.0 percent) and Douglas Counties (+1.8 percent). Growth will also be relatively rapid in Weld County (+2.7 percent), which lies northeast of the seven‐county Metro Denver region. Weld County’s growth is a reflection of the recent energy boom, but the area’s growth may not increase as rapidly as companies respond to lower energy prices.

Population growth depends on two components—natural increase and net migration. Natural increase is the difference between births and deaths, and it tends to change only gradually as the population ages. Net migration reflects the number of people moving into the area minus the number leaving, which tends to be more volatile as economic cycles, housing costs, and other less‐predictable factors influence population mobility. Natural increase accounted for approximately 50.7 percent of population growth on average between 2004 and 2014. While birth rates declined significantly during the Great Recession, they are expected to reach prerecession levels over the next 5 years. In 2012 and 2013, net migration in Metro Denver accounted for more than 75 percent of total Colorado migration. Demographic forecasts anticipate that the Metro Denver area will shift towards historical trends in 2015, capturing 55 percent of Colorado’s net migration.

Just as Metro Denver historically was known as a magnet for the baby boomers, the region is now a choice location for the millennials. The millennials are the largest population group in Metro Denver, numbering just over 730,200 in 2015. While the generation X (688,800 population) and baby boomers (681,100 population) dominate the labor force today, the millennials are making their mark on the workplace today and will represent the largest component of the labor force within 10 years. In the population by generation charts, it should be noted that the official name and birth year ranges for the “Next Gen” and “Future Gen” generational groups have not yet been established.

These generational shifts will have large impacts on the business community. As baby boomers retire, deep knowledge of the company’s operations and business history may also leave. Further, given expected tight labor market conditions with the unemployment rate averaging 4 percent in 2015, companies should carefully consider compensation and amenity packages to attract and retain the best and brightest talent. Advance planning now can make for smoother transitions in the future.





Note: Annual benchmark revisions to the employment and unemployment data series can significantly alter historic trends. As 2014 job data will be revised in March 2015, the exact revisions are not yet known. The following forecast is based on expected revisions to the data.

Employment: 1.51 million in 2014(e) (+3.2 percent); 1.56 million in 2015(f) (+3.0 percent).


Several key trends that influence the labor force and employment potential in Metro Denver are emerging with the shifting generational groups.

Millennials are on track to be the most educated generation in history. As companies are faced with the need to replace retiring baby boomers, they will likely find a large contingency of highly educated young workers available to take their place.

According to the American Community Survey, telecommuting rose 79 percent between 2005 and 2012, now representing 2.6 percent of the workforce. Company amenities such as flexible schedules and work locations may be attractive to all workers, but are especially important to millennials given their focus on work‐life balance.

The U.S. now has 17.7 million contingent workers (temporary workers, independent contractors, and freelance workers), a 10 percent increase from 2011 to 2013. While temporary workers generally are counted in the wage and salary employment data, the self‐employed are not. The U.S. Bureau of Economic Analysis counted over 837,000 proprietors in Colorado in 2013, representing 25 percent of Colorado’s total employment and the fourth highest concentration of the 50 states.

One‐half to two‐thirds of the millennials are interested in entrepreneurship, and 27 percent are already self‐employed. Entrepreneurs of all ages are a driving force in company startups, the demand for co‐working space, and innovative methods and approaches to business.

Over 60 percent of employment in Colorado is located in Metro Denver, resulting in the region having a large influence on statewide job levels. Employment in the City and County of Denver accounts for nearly one‐fifth of all Colorado employment (18.9 percent). The City and County of Denver also accounts for nearly one‐third of the employment in the Metro Denver region (30.9 percent). Just over one‐fifth of the region’s employment base is in Arapahoe County (20.7 percent) and 15.1 percent is located in Jefferson County. The employment in the remaining four counties represents slightly more than one‐third of the Metro Denver total (33.2 percent).




Metro Denver job gains accelerated during 2014, finishing out the year stronger‐than‐expected with the addition of 46,200 jobs. Employment increased 3.2 percent from 2013 to 2014, and is expected to increase 3 percent between 2014 and 2015. Monthly job gains in 2014 averaged 3,900 jobs, slightly lower than the monthly gains reported during 2013.

Results of the most recent Manpower Employment Outlook Survey for the Denver‐Aurora‐Lakewood MSA show a more positive outlook for the first quarter of 2015. Hiring prospects grew by 2 percentage points in the first quarter of 2015 compared with the prior year, but fell 1 percentage point from the prior quarter. Through 2014, Metro Denver reported stronger hiring prospects compared with the national average, signaling a more positive outlook in the local business environment.

Job growth in 2014 pushed down the unemployment rate in Metro Denver to 3.6 percent in October, the lowest rate since October 2007. While unemployment increased slightly since October, the rate remains near historic lows. As the area continues to attract new companies, draw in talented workers, and promote entrepreneurship, Metro Denver will experience better‐than‐average job growth and a lower unemployment rate than the U.S. and Colorado.

Industry Overviews

Metro Denver’s largest industry supersectors are professional and business services, government, and wholesale and retail trade. The three supersectors that added the most jobs in 2014 were professional and business services (+10,600 jobs), education and health services (+8,900 jobs), and government (+6,600 jobs).

Natural Resources & Construction


Natural Resources & Mining: Metro Denver’s urban geography makes for a relatively small concentration of natural resources

1Q 4Q 3Q 2Q 1Q

2015 2014 2014 2014 2014

% Hiring 20% 21% 26% 20% 18%% Laying Off 6% 8% 8% 5% 3%% No Change 72% 70% 64% 72% 78%% Unsure 2% 1% 2% 3% 1%

U.S.

% Hiring 19% 19% 22% 19% 17%% Laying Off 6% 7% 4% 4% 7%% No Change 73% 72% 71% 71% 73%% Unsure 2% 2% 3% 3% 3%

Metro Denver Employment Outlook SurveyDenver‐Aurora‐

Lakewood MSA

Source: Manpower Inc.




employment, just 1 percent of total industry employment. The region is home to corporate, regional, and satellite offices for several energy and mining companies. The majority of Metro Denver’s natural resources employment is concentrated in oil and gas extraction companies and support industries.

Oil production rose in Colorado through most of 2014, as it did in other U.S. oil producing states, due to improved drilling technologies. According to the U.S. Energy Information Administration, Colorado supplies about one out of every 50 barrels of U.S. oil output. Fossil fuel employment in Metro Denver is concentrated in the City and County of Denver and Adams County, with 69 percent and 14.2 percent of total employment, respectively. The remaining five counties represent the remaining 16.8 percent of employment. Colorado has only two operating oil refineries; both are located in Commerce City.

While oil production is a leader in the natural resources supersector, mining also has a significant presence in the state. There is considerable estimated recoverable coal reserves throughout Colorado, with the state’s coal burned in nearly a dozen states for electric power generation. There are also four small ethanol plants in the state; the MillerCoors Ethanol Plant is located in Golden. The ethanol produced at the MillerCoors plant is derived from brewing residuals.

National oil prices, as measured by the spot price of a gallon of West Texas Intermediate Crude (WTI), fell 44 percent between June and December to $59 per barrel, and prices continued the downward trend in January. While it is unclear at what price Colorado oil producers break even, national data from IHS suggests that value may be between $50 and $69 per barrel depending on the shale play. As a result, some Colorado oil companies are limiting exploration and production until prices increase. Generally declining oil prices are good for the nation as a whole as consumers have more money for alternative purchases and business expenses decline. However, the country’s primary oil‐producing states may be negatively affected due to lower employment and reduced oil industry multiplier impacts. The key questions for Colorado are how low the price will go and how long prices stay low. The decline in the price of oil is a major reason for the slower expected employment growth rate in 2015.

Construction (Residential): Metro Denver’s housing market tightened during 2014, with declining inventory and rising home prices. The inventory of for‐sale homes on the market hit some of the lowest levels on record during 2014, over 45 percent lower than the prior year. The low housing inventory pushed up the median home price significantly, rising 10 percent between the third quarter of 2013 and 2014 in the Denver‐Aurora‐Lakewood MSA and 7.1 percent in the Boulder MSA. Population data also show that since 2010 the number of households rose at a steady pace, following household formation declines in 2008 and 2009. This indicates that demand for new residential construction is on the rise with the increase in household formation.

After reaching the lowest level of new home construction in 2009 (4,288 units) in records going back to 1980, residential construction is once again on the rise. Residential construction more than doubled from 2011 to 2012, although the increase represented a shift from activity that was still near record low levels. After a 13.5 percent increase in new homes in 2013, residential building permits rose 5.7 percent in 2014. Construction




company employers reported that the lack of available skilled labor has restricted new construction activity. While the Metro Denver residential construction sector is projected to grow at a slower pace in 2015, demand for skilled labor and new homes remains high. With low mortgage rates, rising employment, and increased wage pressure, demand will stay strong as consumers become more confident.

The number of permits for single‐family attached units was up 7.3 percent between 2013 and 2014. Metro‐wide apartment rental rates reached an average of $1,169 during the fourth quarter, a 12.2 percent increase over‐the‐year and the highest level since the data series started in 1981. Record high rental rates typically push renters to purchase condominiums and townhomes, providing first‐time homeowners a lower monthly house payment. However, limited new single‐family attached construction means it is difficult for potential buyers to find units in their desired price range.

Multi‐family permits decreased 3.2 percent in 2014 and will contract an additional 2.5 percent in 2015. Nonetheless, multi‐family construction represents nearly 50 percent of the new units built, significantly higher than the 35 plus‐year average of multi‐family units representing roughly one‐quarter of construction. The high level of multi‐family activity reflects more interest in the transit‐oriented development as the FasTracks system nears completion, as well as consumers that are still leery of home ownership. Apartment construction has been fueled by an apartment vacancy rate averaging just 4.6 percent in 2014.

Single‐family detached permits were up 16.6 percent in 2014 and are expected to increase an additional 13 percent in 2015. Until pent up demand is met and new units become available, new residential construction through 2015 will remain strong and increase 5.2 percent.

Construction (Commercial): All four commercial property types recorded improvements in 2014, reporting record low vacancy rates and record high average lease rates. Construction activity over the last several years was quite slow and allowed for the continued decline in vacancy rates, but current conditions are triggering build‐to‐suit activity and even speculative commercial development for the first time since the 2008 recession.

With strong employment growth and companies expanding, vacancy rates for office space reached new lows. In the fourth quarter of 2014, the vacancy rate fell 1.2 percentage points over‐the‐year to 10 percent. This was the lowest level since the fourth quarter of 2001. The average lease rate rose 3.7 percent to $22.87 per square foot. Newly completed construction in Metro Denver reached 1.16 million square feet, the highest level since the




fourth quarter of 2009. Further, there was 2.85 million square feet of office space under construction during the fourth quarter of 2014, over one million square feet more than the prior year. Some of the year’s most notable completed construction projects included 380,000 square feet at the Charles Schwab Campus, 112,500 square feet at One Union Station, and 123,000 square feet of co‐working space called “Industry.”

The industrial market reported the lowest vacancy rate in more than 14 years. During the fourth quarter of 2014, the vacancy rate fell to 3 percent. The higher demand for space pushed up the average lease rate to $6.10 per square foot in the fourth quarter, which was 20 percent higher than one year ago. Nearly 1.4 million square feet of space was under construction in Metro Denver in the fourth quarter, with 2.6 million square feet of space

completed during 2014. Analysts expect that developers are likely to take advantage of the supply and demand imbalance and construct new buildings spanning 100,000 square feet or less in 2015.

Consumer confidence rose to the highest levels since the beginning of the Great Recession and retail sales in Metro Denver continued to improve. However, the retail market did not promptly respond to the increased consumer demand as the nature of retail activity is changing in response to technological shifts. The fourth quarter vacancy rate fell 0.4 percentage points to 5.6 percent compared with last year at this time. The average

lease rate was up 0.5 percent over‐the‐year to $15.47 per square foot. According to analysts, the Metro Denver retail market is on a long‐term path of stabilization and can expect a restrained expansion trend during 2015. About 590,000 square feet of new space was completed in 2014, with 39 of the 51 buildings completed smaller than 10,000 square feet. An additional 870,000 square feet of retail space was under construction at the end of 2014.

Construction (Infrastructure, Public/Nonprofit): Infrastructure construction in Metro Denver

will remain strong through 2015. Major projects through the Regional Transportation District’s FasTracks program were completed in 2014 and several will be ongoing in 2015. Denver’s Union Station was completed in July and serves as the region’s transportation hub providing passenger rail service for Amtrak, the Ski Train, and future FasTracks commuter rail lines; an expanded regional bus facility for RTD regional and express buses, the

4Q 2014 4Q 2013

Office

Vacancy Rate 10.0% 11.2%

Average Lease Rate $22.87 $22.06

New Construction (YTD, millions sq.ft.) 1.16 0.95

Industrial




Flex




Retail




Metro Denver Commercial Real Estate Fundamentals

Note: Vacancy and lease rates are for direct space only. All lease rates are per

square foot; office lease rate is full service and all other lease rates are triple‐net.

Source: CoStar Realty Information, Inc.




Downtown Circulator, and the 16th Street Mall Shuttle; and light rail service. RTD also broke ground on the North Metro Rail Line (opening 2018) and obtained approval for the Southeast Light Rail extension into Lone Tree. RTD expects to open five new projects in 2016 consisting of the East, Gold, and I‐225 rail lines, a portion of the Northwest rail line, and the U.S. 36 Bus Rapid Transit Corridor.

Another driver of infrastructure construction is the need for water sources throughout Colorado. At the end of 2014, Colorado’s Water Conservation Board released the draft plan of the first‐ever statewide water plan. The plan is designed to address a future water shortage of 500,000 acre‐feet. The Bureau of Reclamation approved the construction of a new reservoir in northern Colorado, called Chimney Hallow Reservoir, which will store as much as 90,000 acre‐feet of water. The Metro Wastewater Reclamation District continues construction on the $415 million water treatment plant in Brighton, which is scheduled to open in 2016. When the plant is completed, it will be ready to treat and clean 24 million gallons of wastewater per day.

Overall, the construction sector will continue to experience further employment growth, creating high demand for labor in 2015.

Manufacturing


The manufacturing sector includes producers of nondurable goods—such as food and beverages, pharmaceuticals, and apparel—and durable goods including machinery, computers and electronics, and furniture. Metro Denver’s manufacturing sector expanded by about 2,500 workers in 2014.

The seven‐county Metro Denver region represents about 61 percent of Colorado’s manufacturing employment. Metro Denver’s largest subsectors in terms of employment are computer and electronic product manufacturing, food manufacturing, and fabricated metal products.

Employment in several manufacturing subsectors in the Metro Denver region expanded in 2014, in particular durable goods producers. Employment in Metro Denver’s computer and electronic products subsector declined early in 2014, but expanded in the latter part of the year. Residential, commercial, and other nonresidential construction activity influences several manufacturing subsectors including nonmetallic minerals, fabricated metals, wood products, and furniture manufacturing. Robust construction activity will continue to boost employment in these manufacturing subsectors, affecting industries such as cement and concrete, structural metal products, millwork, cabinets, and flooring. Rather than a lack of demand limiting the growth in these industries, employment will more likely be limited by labor supply in 2015 as companies struggle to find qualified workers such as welders and precision craft workers.

The performance of aerospace companies has a large influence on manufacturing activity in Metro Denver. Aerospace companies are represented in the region’s transportation equipment, computer and electronic products, fabricated metals, and machinery manufacturing subsectors. Aerospace employment slightly contracted in Metro Denver over the past five years as companies struggled with defense spending reductions from the Budget Control Act of




2011 and stiff global competition. Without legislative action, the Budget Control Act is expected to continue to affect defense spending into 2016. In addition, consolidation activity among major aerospace companies may place downward pressure on manufacturers in the region.

Nonetheless, durable goods employment will steadily increase through 2015 and represent most of the manufacturing employment growth in Metro Denver. Growth is expected in several subsectors including fabricated metals, nonmetallic minerals, wood products, electrical equipment and appliances, and machinery. Nondurable goods producers such as food products, beverage manufacturers, and chemical products will also expand, albeit at a more muted pace.

Oil and gas development also boosted manufacturing activity in Metro Denver, which significantly influences fabricated metals producers and machinery manufacturers that produce drilling and extraction equipment. Fabricated metals is not only one of the largest subsectors in the region, it has also been one of the fastest growing subsectors in Colorado and Metro Denver. Nontraditional, renewable energy development also supported employment growth in the fabricated metals subsector. Vestas Wind Systems has been a world leader for new wind turbine installations, and at the end of 2014 announced plans to add several hundred workers to its four Colorado factories. Overall, the fabricated metals subsector is expected to continue to grow throughout 2015.

Wholesale & Retail Trade


As consumer spending represents about 70 percent of all economic activity, consumer behavior has a large influence on how well the economy performs. Consumer confidence for the nation and the Mountain Region, which includes Colorado, recently has reached index rates not posted since late 2007. Consumer confidence in the Mountain Region rose significantly in 2014, rising 15.9 percent from December 2013 and 2014.

Retail sales activity increased at a relatively healthy clip in 2010 – 2012 in response to various economic stimulus measures (such as “cash for clunkers”) and pent‐up demand, especially for big‐ticket items. As consumers do not need to purchase these big‐ticket items frequently, retail activity in 2013 rose at a much slower pace than the previous years. Retail sales increased 5.7 percent in 2014, a faster pace than 2013, as low interest rates and falling gasoline prices lead to an income effect, giving consumers additional funds for discretionary spending.

Shifting demographics are influencing consumers spending patterns. The aging baby boomers are decreasing their purchases of goods in favor of more services spending, such as restaurants and healthcare. The millennials are tending to be more frugal, with increased spending on second‐hand and more reusable items, as well as a tendency to take advantage of programs allowing them to share big‐ticket items, such as automobiles. Retail trade sales should increase 5 percent in 2015 as consumer spending stabilizes at a growth rate similar to the 20‐year historic average of 4.7 percent.

As consumers continue to gain confidence in the economy, the employment situation continues to improve, and wage pressure




starts to build, the wholesale and retail trade supersector should experience moderate growth in 2015. The supersector added about 4,700 jobs in 2014, a 2.2 percent growth rate over 2013 employment. The growth rate in 2015 will remain at about 2.2 percent.

Transportation, Warehousing, and Utilities


Employment in transportation, warehousing, and utilities declined as a result of the Great Recession, but recorded strong growth in 2012 and 2013. Jobs in this supersector include aviation, trucking, storage and warehouse facilities, taxis, rail transportation, and utilities companies. Growth will moderate in 2014 and 2015 with 0.8 percent increases in both years.

As the fifth‐busiest airport in the country, Denver International Airport (DIA) reached an all‐time high level of passenger traffic in 2014. Passenger traffic through the first six months of 2014 reached a record 25.9 million passengers, which was 2.1 percent higher than the first six months of 2013. Through November 2014, traffic was up 2.2 percent compared with the same period in 2013. United Airlines extended its lease with DIA through 2035, Southwest airlines plans to expand its Denver operations, and DIA increased its presence in several global markets and celebrated numerous service milestones. The opening of the Westin Hotel at DIA in late 2015 and the commuter rail station from downtown Denver set to open in 2016 should help attract travelers and tourists to the area. Additionally, as Metro Denver’s economy continues on an expansionary path, business travel should rise with increased access to international destinations and meeting space.

Remaining portions of the supersector have experienced small employment growth due to advances in technology and management. For instance, couriers are not needed as frequently with the increasing amounts of information being shared via Internet. Warehousing companies are also holding employment steady as clients increase efficiencies in inventory management and no longer need as many warehousing services. Challenging market conditions will continue to make growth difficult for the supersector.

Information

Employment: ‐1.0 percent in 2014(e); +0.5 percent in 2015(f).

The information sector has faced problems since 2001, recording declining employment each year except for 2007 and 2013. While there was an upturn in information employment in 2013, the sector is expected to contract in 2014 and post a slight increase in 2015. Information is increasingly available free online and through other electronic services. Without the need for traditional publishing jobs, producers of newspapers, periodicals, and books are struggling to stay afloat, resulting in job losses.

On the plus side, software publishing, including operating systems, design and edit software, and mobile device apps, reported strong developments in 2014. Metro Denver is a global hub of innovation and entrepreneurship, attracting technology and information companies and a talented IT workforce. In fact, Forbes ranked Denver the second best city to launch a startup business out of the 50 most populated cities. Some of the major announcements in this sector include:

Signpost announced plans to hire 70 new sales representatives, account managers, and software developers in Denver.

Uber Technologies Inc. will relocate its headquarters to Denver and plans to double its workforce.

SolarWinds will expand their workforce by 60 employees in a new facility.

Pellucid Analytics Inc. relocated to a large facility and plans to expand employment levels from 18 workers to 40 to 50 employees over the next year.




Metro Denver’s governments and local communities use digital technologies to enhance services, maximize efficiency, and expand information technology networks to better service their population and streamline operations. Wireless and wired network upgrades are enhancing speed, reliability, coverage, and performance for residents and businesses. With these advancements, positive trends were reported for the telecommunications and broadcasting industry through 2014. Google plans to build a four‐acre campus in Boulder with enough room for 1,500 employees, Layer3 TV relocated its corporate headquarters from Boston to Denver creating 312 jobs, and Zayo Group opened a new facility and will add 125 employees.

Transition to web‐based communications and the greater availability of data for free will continue to change the landscape of information‐related jobs. While the decline in traditional publishing jobs surpassed the increase in telecommunications and information technology positions in 2014, the sector will post a small increase in 2015.

Financial Activities


The financial activities supersector in Metro Denver has a significant presence as it serves as the major financial center between Los Angeles and Chicago. The region’s locational assets and competitive environment attract several Forbes Global 2000, Fortune 500, and Inc. 500 Fastest Growing companies. The financial activities supersector expanded in 2014, but at a slower pace than the previous two years. The supersector will be bolstered by an expanding economy that will better support banking, insurance, and real estate employment. Changes to the Federal Reserve’s policies may also have an impact on the financial activities market, as companies watch closely for changes to interest rates in the coming months.

Metro Denver is a major national hub for financial institutions. Several announcements in the industry point to sustained growth for the coming years. Major employment announcements included:

Charles Schwab & Co, Inc. will consolidate its 2,200 Metro Denver workers into its newly opened Lone Tree campus and create up to 500 jobs over the next five years.

WorldRemit will open its new national headquarters in Metro Denver and create 218 jobs over the next five years.

FirstBank Holding Company will expand its corporate headquarters facility, more than doubling the size of its Lakewood facility.

Northwestern Mutual will add 85 financial representatives and 135 financial representative interns.

Liberty National Life Insurance Co. opened a new office and will create more than 100 jobs over the next year.

With these announcements, the financial activities supersector could potentially add jobs over the next several years and employment should continue to expand by 2.5 percent in 2015 after a 1.0 percent increase in 2014.

Professional & Business Services


Professional and business services is Metro Denver’s largest supersector by employment, and it contains a diverse group of companies. Some provide expert services including engineering, accounting, legal, and design while others act as consultants, staffing companies, and groundskeepers. The professional and business services supersector is comprised of three subsectors: administrative and waste services (40 percent), management of companies (9 percent), and professional and technical services (51 percent).




The strong growth in professional and business services bodes well for overall economic growth. Many companies will outsource various business services prior to increasing their own staff. Therefore, growth in this supersector tends to precede and accompany overall employment growth. The expected addition of 10,600 jobs in professional and business services in 2014 represents 23 percent of the total employment increase in Metro Denver.

Metro Denver’s high quality of life and strong job growth are magnets for professionals and companies. Denver ranked as the fourth‐best city for business by Forbes and the fifth‐best big city for millennial‐aged entrepreneurs by NerdWallet. Additionally, Simply Hired found Denver to be the third least competitive city to find a job for new college graduates and NerdWallet found the Denver‐Aurora‐Broomfield MSA to be the ninth best place for STEM graduates. These rankings show that Denver has an economy conducive to business development and expansion by providing a well‐educated workforce access to good employment opportunities. The well‐educated workforce and business‐friendly environment should spur growth in the professional and business services supersector. Employment grew 4.0 percent in 2014 and should expand by an additional 4 percent in 2015.

Education & Health Services


The education and health services supersector reported significant growth through 2014 as it has each year since at least 1991. Demand for healthcare services will rise in coming years due to the demographic shift of an aging population and an increase in insured persons due to the Affordable Care Act. However, private education (public education is included in the government sector) will be influenced by two counter‐veiling pressures. Private higher education, ranging from technical schools to four‐year universities, typically runs countercyclical to the economy. Private K‐12 schools experience growth as family income increases.

The education sector—comprised of private education institutions, companies engaged in online learning services, and other educational support—continues to grow. If current trends continue, the millennial generation will make their mark as the best‐educated generation in American history, with Pew Research reporting one‐third of millennials aged 26 to 33 having a four‐year college degree. However, the high educational attainment rate of the generation raises concerns over student loan debt for higher education. According to the National Center for Educational Statistics, the average total cost of tuition, fees, room and board for a full‐time undergraduate student in the 2011/2012 school year at a four‐year private college was $33,716, compared with $16,789 at a public institution with the same criteria. The high cost of education could be causing millennials to be more frugal in their spending and could explain the generation’s slower movement into homeownership.

As the job market becomes more favorable to workers and the competition for employment lessens, demand for additional degrees or advanced education will fall. However, the decline in demand for higher education will be offset by companies that encourage additional certifications, workers entering trades that require specialized education, and increasing demand for private K‐12 schools as families become more financially stable.

Metro Denver is a leading healthcare and wellness hub and receives support from cutting‐edge research and development facilities, unmatched talent, and state‐of‐the‐art amenities. The end of 2014 marked the first full year since the implementation of the Affordable Care Act and the Colorado health insurance landscape rapidly changed as a result, with an estimated 500,000 Coloradans expected to gain insurance. Aside from policy changes, the aging population significantly contributed to the rising demand for healthcare services. Colorado’s 65 and older population is projected to double to 1.1 million by 2025, increasing the demand for hospital and nursing care, medical services, and long‐term and at‐home services. Other contributing factors to growth in the




healthcare services sector include the improving digital healthcare infrastructure and new developments in integrated healthcare.

With the rapidly expanding healthcare sector, construction of new healthcare facilities in the Metro Denver region remained active in 2014 and projects are expected to continue through 2015. Some of the most notable projects included:

Craig Hospital plans a $90 million renovation and expansion project, slated for completion in 2016.

Swedish Medical Center plans a $50 million expansion of its stroke and neuroscience buildings.

Littleton Adventist Hospital plans a $30 million renovation and expansion focused on expanding services to the aging population.

Overall, healthcare employment growth is expected to be strong through 2015 as the area’s facilities adjust to meet the rising demand for services and local companies continue to advance healthcare technology to new levels.

Leisure & Hospitality


The leisure and hospitality supersector includes two subsectors. The arts, entertainment, and recreation subsector includes resorts and ski areas, museums, and other cultural and sports facilities. The other subsector, accommodation and food services, includes hotels, restaurants, caterers, and other related businesses.

Through the beginning of January, snow levels were above average in the Colorado mountains, helping to attract more visitors to mountain ski resorts. Colorado Ski Country USA announced that skier visits for the 2013/2014 ski season reached 21.6 million, up 10 percent compared with the 2012/2013 season. The season’s skier visits total was an all‐time high for Colorado and was more than 8 percent higher than the five‐year average. Company analysts stated that after two consecutive seasons of growth, momentum is in their favor, with the state’s resorts continuing to set the industry standard in terms of snow quality, skier safety, and guest services. An above average year for skiers in the mountains should translate into more associated tourist activity in Metro Denver.

Hotel statistics for Metro Denver recorded improvements in the average occupancy rate through December 2014, averaging 75.8 percent for the year. The 2014 average occupancy rate was 5.0 percentage points higher than the 2013 average. The average room rate in 2014 was $124.37 per night, an increase of 8.1 percent over the 2013 average of $115.09 per night. Metro Denver hotel occupancy rates reported significant improvements in 2014 compared to 2013, with occupancy rates being higher over‐the‐year in every month. Each of the seven submarkets reported higher average occupancy rates in 2014 compared with 2013. All seven submarkets also reported higher average rental rates in 2014 compared with the prior year.

Hotels, restaurants, and other attractions and events in Metro Denver were awarded numerous accolades in 2014. The national and global attention that these




establishments and events receive will continue to pique interest from tourists and locals. Among the awards were hotels recognized by Travel + Leisure as some of the top 100 in the world, Livability ranked Denver the second best city in the nation for beer, and Forbes named Denver the 13th best city for shopping. Events such as the National Western Stock Show, the Cinco de Mayo Festival, the USA Pro Challenge, and the Great American Beer Festival contribute positive economic impacts and attract thousands of tourists to the area.

Overall, employment in the leisure and hospitality supersector increased by 4.0 percent in 2014 and will increase 3.6 percent in 2015.

Other Services


The other services sector is a diverse group of repair and maintenance businesses, beauty salons, grant making organizations, and a variety of other companies. These businesses largely rely on discretionary spending, which has improved with rising consumer confidence and a more favorable job market.

The demand for repair and maintenance has flattened out with the increase in new car purchases, which do not require as much maintenance as older vehicles. Repairs have also declined because businesses in the sector face competition from retail companies that offer the same services. However, the demand for personal services such as hair and skin care is on the rise as the aging population provides a larger customer base for these services.

As the overall economy and household discretionary income increase, other services employment will rise by 1.6 percent in 2015, a slightly higher rate of growth than experienced in 2014.

Government


The government is Metro Denver’s second‐largest supersector by employment, representing almost 15 percent of total nonfarm employment. This sector is comprised of federal (13 percent), state (25 percent), and local workers (62 percent) and includes a variety of services ranging from public safety and community development to national security and public education. Sustained economic growth, increases in tax collections, and decreasing revenue pressures supported 3.1 percent employment growth in Metro Denver’s government supersector in 2014. Employment growth will continue in 2015, increasing 2.2 percent.

Public education services are included in the government supersector, with educational services employment representing 65 percent of state government employment and 53 percent of local government employment. Population growth will increase demand for K‐12 public education and school districts will be able to collect additional property taxes due to rising property values and additional construction activity. However, public higher education may be impacted by the improving economy.

With the Metro Denver unemployment rate expected to average 4 percent in 2015, the labor market should become more accommodating to those individuals who left the labor market at the start of the recession




to advance their education. College enrollment levels rose significantly for certain age groups during the years following the recession in Colorado. Enrollment of students between the ages of 25 and 40 increased 16.4 percent between 2008 and 2009 and 18.2 percent between 2010 and 2011. However, since 2011 there has been a steady decline of individuals in this age group attending college, signaling people are leaving school and reentering the labor market. The demand for public higher educational services may also decline as the millennial population ages out of the college market and into the labor market.

While Metro Denver’s economy began on an expansionary path in mid‐2013, the federal government budget outlooks for both the short‐term and long‐term require consideration and could slow the pace of economic growth. According to the Government Accountability Office’s (GAO) 2014 State and Local Governments Fiscal Outlook, the imbalance between spending and revenue will lead to an unsustainable debt to GDP ratio and hinder the growth potential of the U.S. economy in the future. The 2011 Budget Control Act required federal regulators to reduce spending by $109.3 billion each year from FY 2013 to FY 2021—half from defense programs and half from non‐defense programs. Cuts to defense programs could have a negative impact on Metro Denver companies and employment. Policy changes to large spending programs such as entitlement programs and discretionary spending programs will be essential to reducing the federal deficit. Overall, federal employment will fall in 2014 and 2015 as the challenging political environment and efforts to reduce government spending will likely hinder growth.

State government employment is expected to increase with the expanding economy. Strong employment growth throughout the state leads to rising wages and more optimistic consumers, leading to increases in sales and income taxes. Metro Denver’s state government sector reported job growth every year for a decade, a trend that is expected to continue in 2015.

Metro Denver’s local government employment represents nearly 62 percent of total government employment in the area. Local governments including cities, counties, school districts, and special districts depend heavily on property taxes, sales and use taxes, fees, and intergovernmental sources. With Metro Denver on a strong growth path, fiscal conditions have improved for local governments. The Colorado Division of Property Taxation announced residential and business property values rose quickly over the past two years. The assessed residential property values rose 14.3 percent statewide between June 2012 and 2014. During the same period, assessed commercial property values rose 9.4 percent, farmland values rose 11.1 percent, and industrial property values rose 5.5 percent. Oil and gas property represents about one‐tenth of the overall assessed property tax base and declined 4 percent between June 2012 and 2014.

Industry Clusters

Eight industry clusters form the basis of the region’s economic development strategy and are of critical importance to Metro Denver’s retention and expansion efforts. The region’s highly educated workforce, diversified economy, and innovative business climate will continue to drive economic prosperity in these clusters.

Aerospace: Colorado has the nation’s third‐largest aerospace economy and receives support from four military commands, eight major space contractors, and more than 400 aerospace companies and suppliers.

Aviation: Metro Denver’s diverse system of airports, including Denver International Airport, serve as catalysts to transform the region into one of the nation’s most prosperous and vital economies. These airports support the region’s growing air travel, cargo operations, and international route expansion and retention.

Bioscience: The Fitzsimons Life Science District and the adjacent Anschutz Medical Campus are the center of Colorado’s bioscience community and represents one of the largest bioscience developments in the country.




The region is a world‐class scientific community offering cutting‐edge research and incubator facilities, scientific talent, and services to the region’s base of medical devices, diagnostics, biotechnology, and pharmaceuticals businesses.

Broadcasting & Telecommunications: Metro Denver’s geographic location makes it the largest U.S. region with one‐bounce satellite uplinks, providing businesses real‐time connections to six of seven continents. The region’s growing telecommunications companies represent the nation’s fifth‐highest employment concentration and is consistently recognized for its high density of advanced communication services.

Energy: Metro Denver is uniquely positioned as a leader in the Balanced Energy Economy with abundant fossil fuels and renewable energy resources. The region has a strong energy foundation, including significant fossil fuels activity and cleantech energy development with support from an educated workforce, research universities, federal laboratories, advanced policy initiatives, and industry collaboration.

Financial Services: With an employment base of nearly 95,000 employees, Metro Denver is the major financial center between Los Angeles and Chicago. Downtown Denver’s financial district along 17th Street is known as the “Wall Street of the West.”

Healthcare & Wellness: Metro Denver is a leading healthcare and wellness center for the Rocky Mountain West and its reputation for healthy living and an active lifestyle continually attracts premier businesses and jobs. Employment in the healthcare and wellness cluster has grown every year in the last decade, indicating its resiliency to economic cycles.

Information Technology ‐ Software: The region hosts a vibrant entrepreneurial community and is the epicenter for startup activity. As a global hub of innovation and entrepreneurship, the region attracts technology and information companies, a talented IT workforce, and significant capital investments.

Residential Real Estate

Home sales: 53,719 in 2014 (+0.1 percent); 54,000 in 2015(f) (+0.5 percent).

Metro Denver home sales increased slightly in 2014, increasing 0.1 percent over 2013 home sales. Metro Denver is a top destination for relocation with above‐average employment growth and a high quality of life. With a growing job market pushing households into a healthier financial situation, demand for homes increased significantly. While demand remains high, low inventory and rapidly rising prices challenged home sales during 2014.

Low inventory continued to constrain options for homebuyers, potentially inhibiting further growth. As of December 2014, only 4,355 homes were available for sale, a 45.2 percent decline compared to the same period in 2013. However, mortgage lending rules are becoming less restrictive and may signal increased lending activity. Beginning in 2015, Fannie Mae and Freddie Mac plan to back loans with down payments as low as 3 percent. This would mean Denver homebuyers would need just $9,200 down to purchase the median priced home ($306,900). While current inventories are




constrained, there were over 17,900 residential construction permits issued in Metro Denver in 2014. The Metro Denver residential market will welcome many new units through 2015 and this should alleviate some of the pent up demand for housing, leading to increased sales activity.

As the baby boomers age and transfer from single‐family home lifestyles into community living, the demand for senior living facilities increased significantly. According to a report be REIS Inc., the national senior housing vacancy rate was 8.7 percent in the second quarter of 2014. Further, there was a 2013 quarterly average absorption rate of 3,856 units, but only 1,531 units absorbed during the second quarter of 2014. The average lease rate is correlated with the level of care provided. The national average lease rate for an independent‐living unit was $2,803 per month in the second quarter, compared with $7,944 in skilled‐nursing facilities. Supply growth in the senior‐living market has been extremely slow, resulting in higher lease rates and very low vacancy rates.

Home Prices

Home prices in Metro Denver rose significantly in 2014 as housing inventory fell. The median home price in Metro Denver increased 9.4 percent in 2014 to $306,900 compared to the U.S. median of $207,300. The median home price is expected to continue to rise in Metro Denver in 2015 at a rate greater than the national average as limited inventory in Metro Denver continues to drive up prices. The Metro Denver median home price will appreciate 6 percent in 2015 to $325,300, compared with the national increase of 4.4 percent to $216,400.

As the price differential between Metro Denver and the U.S. widens, there is concern that Metro Denver will be viewed as an expensive housing market. However, prices in Metro Denver have been much more stable than other parts of the country, making home ownership in the region attractive.

Foreclosures

Foreclosures in Metro Denver were down 29 percent in 2014 compared with 2013. According to experts, foreclosure activity is moving towards the lowest rate in 20 years. The employment situation has greatly improved in Metro Denver, leaving many people in a better financial situation. Additionally, mortgage‐lending regulations have resulted in fewer risky loans that were behind many of the foreclosures during the crisis. Foreclosures will decline 3 percent in 2015.




Income

Metro Denver is a high‐income area compared to the U.S. According to the American Community Survey, the median household income in the U.S. increased from $51,371 in 2012 to $52,250 in 2013, a 1.7 percent increase. The Metro Denver median household income increased at a slower rate than the U.S., rising 1.2 percent to reach $62,760 in 2013. The Metro Denver median household income was 20 percent higher than the U.S. median. Metro Denver personal income was $52,357 per capita in 2013 compared with the Colorado level of $46,897 per capita. Metro Denver residents received 11.6 percent more income per capita in 2013 than the state average.

Another measure of income comes from the Quarterly Census of Employment and Wages, and shows the average weekly wage for Metro Denver in 2013 ($1,087) remained largely unchanged from 2012 ($1,083). The U.S. average weekly wage increased 1 percent during the same period to $958 in 2013, but was only 88 percent of the Metro Denver weekly wage. The data do not indicate whether the changes are due to increased hours of work versus higher paying jobs. However, they do suggest that wage increases were slower in Metro Denver compared with the nation. With low unemployment in Metro Denver, wage pressure will build up through 2015. Metro Denver wages will likely grow at a quicker pace than the U.S. in 2015 as the region’s unemployment rate remains significantly lower than the nation.

Metro Denver Economy Summary

Metro Denver experienced job growth in each supersector except information in 2014, leading to a gain of over 46,000 jobs across the seven‐county area. This employment growth rate of 3.2 percent was well above the nation and the state. In 2015, job gains will continue to be broad‐based. Two of the three supersectors that added the most jobs in 2014–professional and business services, education and health services, and government–are likely to maintain this position in 2015. The government supersector is likely to be replaced by the leisure and hospitality supersector as the third‐fastest growing segment of the economy. The unemployment rate in Metro Denver is expected to average about 4 percent in 2015, representing extremely tight labor market conditions.

Just as Metro Denver historically was known as a magnet for the baby boomers (born between 1946 and 1964), the region is now a choice location for the millennials (born between 1981 and 1997). The millennials are the largest population group in Metro Denver, numbering just over 730,200 in 2015. While the generation X (688,800 population) and baby boomers (681,100 population) dominate the labor force today, the millennials are making their mark on the workplace today and will represent the largest component of the labor force within 10 years.

Demographic shifts related to both the millennial and baby boomer generations are changing the face of Metro Denver, which has implications for future labor force growth patterns, consumer spending patterns, and residential real estate needs. With limited supply in the residential real estate market and above average population growth, home prices will continue to rise and construction activity will pick up. Multi‐family construction represents nearly 50 percent of the new units built, significantly higher than the 35 plus‐year average of multi‐family units representing roughly one‐quarter of construction. The high level of multi‐family activity reflects more interest in transit‐oriented development as the FasTracks system nears completion, as well as baby boomers’ desire for more maintenance‐free housing options and millennials’ slow movement into home ownership roles.

A vibrant entrepreneurial community bolsters the expanding Metro Denver economy. Indeed, Forbes ranked Denver as the second‐best city to launch a start‐up business and NerdWallet ranked Denver the fifth‐best city in the U.S. for millennial‐aged entrepreneurs. The solid business fundamentals in Metro Denver ensure that the region will continue to expand in 2015 and beyond.

DATA APPENDIX

Metro Denver Economic Development Corporation | February 5, 2015 | Page 32

Data Appendix

'05 '06 '07 '08 '09 '10 "11 "12e "13f2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (e) 2015 (f)

NATIONAL INDICATORS Population (Thousands) 295,753 298,593 301,580 304,375 307,007 309,347 311,722 314,112 316,498 318,857 321,369 Real GDP (Billions) $14,234.2 $14,613.8 $14,873.7 $14,830.4 $14,418.7 $14,783.8 $15,020.6 $15,369.2 $15,710.3 $16,099.3 $16,594.0 Real GDP Growth Rate 3.3% 2.7% 1.8% -0.3% -2.8% 2.5% 1.6% 2.3% 2.2% 2.5% 3.1% Employment Growth Rate 1.7% 1.8% 1.1% -0.6% -4.3% -0.7% 1.2% 1.7% 1.7% 1.9% 2.0% Unemployment Rate 5.1% 4.6% 4.6% 5.8% 9.3% 9.6% 8.9% 8.1% 7.4% 6.2% 5.5% Inflation Rate 3.4% 3.2% 2.8% 3.8% -0.4% 1.6% 3.2% 2.1% 1.5% 1.7% 2.0% Personal Income Growth Rate 5.6% 7.3% 5.4% 3.7% -2.8% 2.8% 6.2% 5.2% 2.0% 4.1% 5.2% Prime Rate 6.2% 8.0% 8.1% 5.1% 3.3% 3.3% 4.0% 3.25% 3.25% 3.25% 3.35%

COLORADO INDICATORS Population (Thousands) 4,662.5 4,745.7 4,821.8 4,901.9 4,976.9 5,049.7 5,117.4 5,188.5 5,264.9 5,350.6 5,439.3 Net Migration 13,779 42,896 35,000 40,469 36,267 36,954 33,745 39,166 45,275 53,339 56,154 Employment Growth Rate 2.1% 2.4% 2.3% 0.8% -4.5% -1.0% 1.6% 2.4% 2.9% 3.0% 2.7% Unemployment Rate 5.1% 4.3% 3.8% 4.8% 8.1% 9.0% 8.5% 7.8% 6.8% 5.3% 4.3% Denver-Boulder-Greeley Inflation Rate 2.1% 3.6% 2.2% 3.9% -0.6% 1.9% 3.7% 1.9% 2.8% 2.8% 2.5% Personal Income Growth Rate 6.7% 7.8% 5.7% 4.7% -2.7% 1.9% 7.5% 6.3% 2.8% 5.7% 6.7% Retail Trade Sales Growth Rate 5.1% 7.6% 7.0% -0.6% -11.3% 5.5% 8.1% 5.9% 4.4% 7.2% 6.0% Housing Permits Growth Rate -1.3% -16.4% -23.2% -35.5% -50.8% 23.9% 16.5% 72.6% 18.1% 12.4% 12.1%

METRO DENVER INDICATORS Population (Thousands) 2,582.2 2,626.2 2,670.0 2,716.8 2,762.2 2,797.9 2,847.2 2,897.8 2,951.8 3,002.6 3,053.8 Net Migration -1,367 18,864 18,704 22,326 21,639 13,892 28,512 31,215 34,603 30,629 30,879 Employment Growth Rate 1.9% 2.0% 2.1% 1.0% -4.3% -0.5% 1.8% 2.9% 3.5% 3.2% 3.0% Non-Agricultural Employment (Thousands) TOTAL 1,350.0 1,377.4 1,407.0 1,420.5 1,359.2 1,352.8 1,377.7 1,417.2 1,466.4 1,512.6 1,557.9 Natural Resources & Construction 96.3 100.3 98.8 97.3 81.4 74.1 73.7 77.5 84.4 89.3 93.8 Manufacturing 91.1 90.8 89.5 87.4 78.5 76.4 78.1 79.8 81.0 83.5 85.6 Wholesale & Retail Trade 208.3 211.2 215.6 215.9 203.5 202.3 205.4 209.9 214.9 219.6 224.4 Transp., Warehousing & Utilities 50.9 50.9 52.3 52.4 49.1 47.3 47.0 48.3 50.4 50.8 51.3 Information 57.1 56.5 56.9 56.0 53.5 52.2 52.1 51.6 52.3 51.7 52.0 Financial Activities 107.1 108.0 107.3 104.9 100.2 98.0 97.8 99.8 103.1 104.2 106.8 Professional & Business Services 220.4 229.5 242.5 247.7 232.3 232.7 241.8 254.1 265.2 275.8 286.8 Educational & Health Services 137.3 141.4 146.9 153.3 157.9 162.6 168.5 174.7 181.7 190.6 198.5 Leisure & Hospitality 137.9 141.9 145.6 147.7 142.7 144.5 149.2 154.3 160.1 166.5 172.5 Other Services 50.2 51.3 52.3 53.7 52.7 52.7 53.6 55.1 56.3 56.8 57.7 Government 193.3 195.8 199.3 204.5 207.5 210.1 210.4 212.2 217.1 223.7 228.6 Unemployment Rate 5.2% 4.3% 3.8% 4.8% 8.2% 8.8% 8.3% 7.6% 6.5% 5.0% 4.0% Retail Trade Sales Growth Rate 3.7% 7.5% 6.5% -0.8% -11.3% 5.2% 6.8% 7.3% 4.8% 5.7% 5.0% New Residential Units 21,312 18,135 14,392 9,557 4,288 5,554 7,199 14,925 16,940 17,902 18,836

CURRENT AND HISTORIC ECONOMIC INDICATORS

Sources: Board of Governors of the Federal Reserve System; Colorado Department of Labor & Employment, Labor Market Information; Colorado Department of Revenue; Colorado Division of Local Government; U.S. Bureau of Labor Statistics; U.S. Bureau of Economic Analysis; U.S. Census Bureau.

REFERENCES


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2015 Economic Forecast for Metro Denver · residential real estate needs. The unemployment rate in Metro Denver is expected to average about 4 percent in 2015, representing extremely