MAINTAINING MOMENTUM 2019 Economic Forecast for Metro Denver

MAINTAINING MOMENTUM? ? 2019 Economic Forecast for Metro Denver January 10, 2019 noun mo·men·tum mō-ˈmen-təm , mə- 1 b : the strength or force that allows something to continue or to grow stronger or faster as time passes - Merriam-Webster, Learners. Dictionary. com Prepared by: In Partnership with:

U. S. GDP Increased Faster than Expected in 2018; Slowdown in 2019 Recent Quarterly Data: 1 q 2018=+2. 2%; 2 q 2018=4. 2%; 3 q 2018=3. 4% (seasonally adjusted at annual rates) 5% 4, 1% 3, 8% 4% 3, 5% 2, 9% 3% 2, 9% 2, 6% 1, 9% 1, 7% 2% 2, 9% 2, 5% 2, 2% 1, 6% 1, 8% 2, 2% 2, 0% 1, 6% 1, 0% 1% f e 19 20 18 17 20 16 20 15 20 14 20 13 20 11 12 20 20 -1% 20 10 20 09 20 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 20 00 0% 08 -0, 1% -2% -3% -2, 5% Source: U. S. Bureau of Economic Analysis, Chained 2012 Dollars. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Business Momentum

Employment Growth Varies Across the Country Alaska & Vermont Employment Lower in 2018 than 2017 Source: U. S. Bureau of Labor Statistics.

Metro Denver Employment Slowing, But Still Positive U. S. Employment = 149 million +2. 4 M in 2018 +1. 6 M in 2019 Colorado Employment = 2. 7 million +68, 000 in 2018 +50, 000 in 2019 Metro Denver Employment = 1. 7 million+43, 000 in 2018+31, 000 in 2019 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% U. S. Colorado f 19 20 e 18 20 17 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 20 00 -5% Metro Denver Source: U. S. Bureau of Labor Statistics, Current Employment Statistics. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Labor Force Continues to Expand, Unemployment Rises Unemployment Rates 10% 9% 72% 8% 70% 7% 68% 6% 66% 5% 64% 4% 62% 3% 60% 2% 58% 1% 56% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 74% U. S. Colorado 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 e 2019 f Labor Force Participation Rates (seasonally adjusted) U. S. Colorado Metro Denver Source: U. S. Bureau of Labor Statistics, Local Area Unemployment Statistics. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Employment Growth Varies Across the State Nonfarm Job Growth Rates by Metro Area, YTD Sep 2018 U. S. 1, 6% 2, 8% Colorado 4, 8% Greeley 3, 6% Colorado Springs Fort Collins 3, 1% Denver 2, 8% 2, 3% Grand Junction Boulder 2, 0% 0, 3% Pueblo -2% -1% 0% 1% 2% 3% 4% 5% 6% Source: U. S. Bureau of Labor Statistics, Current Employment Statistics.

Metro Denver Employment Growth by Supersector Largest: 306, 700 workers Professional & Business Services Wholesale & Retail Trade # Jobs 2018 e = 1. 69 M 2019 f = 1. 72 M Government Education & Health Services Leisure & Hospitality Financial Activities 2019 f Natural Resources & Construction 2018 e Manufacturing Other Services Transp. , Warehousing & Utilities Information Smallest: 58, 600 workers -1% 0% 1% 2% 3% 4% 5% 6% Source: Colorado Department of Labor & Employment. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Proprietors Are Another Significant Component Of Employment Proprietors Employment 25. 6% of Colorado’s Total Employment (US avg = 22. 6%) 1 000 938 022 950 000 901 450 900 000 850 000 800 000 958 940 769 255 776 688 2007 2008 797 046 796 991 2009 2010 820 325 825 924 2011 2012 848 671 872 197 750 000 700 000 650 000 600 000 550 000 500 000 2013 2014 2015 2016 2017 Source: U. S. Bureau of Economic Analysis.

Key Metro Denver and Northern Colorado Industry Clusters • Aerospace • Aviation • Beverage Production • Bioscience • Medical Devices & Diagnostics • Pharmaceuticals & Biotechnology • Broadcasting & Telecommunications • Energy • Fossil Energy • Cleantech • Financial Services • Banking & Finance • Investments • Insurance • Healthcare & Wellness • IT/Software

Metro Denver and Northern Colorado Industry Clusters, 2016 -2017 Full reports at www. metrodenver. org Source: Development Research Partners.

8 14% 7 12% 6 10% 5 8% 4 6% 3 4% 2 2% 1 0% 0 Millions of Square Feet (MSF) 16% 4 Q 2018 Total Space= 191. 5 MSF 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 f 9 00 18% 20 Vacancy Rate Office Market Still Healthy, but Showing Signs of Change Direct Vacancy Rate Sublet Vacancy Rate Completed Sq. Ft. Source: Co. Star Group, Inc. 2019 f=DRP Forecast. Lease Rate = $26. 62 YOY Change = 0% Under Construction = 4. 1 MSF 2018 Completions = 3. 8 MSF

Record Level of Industrial Space Completed in 2018 7 8% 6 5 6% 5% 4 4% 3 3% 2 2% 1 1% 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 20 17 20 18 20 19 f 20 20 01 0 00 0% 20 Vacancy Rate 7% Millions of Square Feet (MSF) 9% 4 Q 2018 Total Space= 220. 4 MSF Direct Vacancy Rate Sublet Vacancy Rate Completed Sq. Ft. Source: Co. Star Group, Inc. 2019 f=DRP Forecast. Lease Rate = $8. 05 NNN YOY Change = +3. 9% Under Construction = 4. 6 MSF 2018 Completions = 5. 75 MSF

Retail Market Healthy Despite Major Company Closures 6 8% 5 6% 4 5% 3 4% 3% 2 2% 1 1% Direct Vacancy Rate Sublet Vacancy Rate Lease Rate = $19. 12 NNN YOY Change = +5. 2% Under Construction = 1. 0 MSF f 19 20 18 20 17 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 20 07 0 06 0% 20 Vacancy Rate 7% Millions of Square Feet (MSF) 9% 4 Q 2018 Total Space= 169. 3 MSF Completed Sq. Ft. Source: Co. Star Group, Inc. 2019 f=DRP Forecast. 2018 Completions = 1. 6 MSF

New Commercial Real Estate Added in Metro Denver 7, 0 Office Industrial Retail Millions of Square Feet 6, 0 5, 0 4, 0 3, 0 2, 0 1, 0 0, 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 f Source: Co. Star Group, Inc. 2019 f=DRP Forecast.

The Case for Business Momentum… • • • Decreasing Uncertainty Hard to find workers Rising interest rates Rising wages and costs Tariffs on raw materials National debt concerns • • • Increasing Diversity of economic base Confident consumers Technology driving major changes Active commercial real estate market Large infrastructure projects underway

Consumer Momentum

U. S. Population = 327. 2 million (July 1, 2018) U. S. Population increases by 1 person every 12 seconds Source: U. S. Census Bureau.

Metro Denver Annual Change in Population 2018 Population = 3. 2 Million 75 000 Net Migration Natural Increase 65 000 55 000 45 000 35 000 25 000 15 000 -5 000 2005 2010 2015 2020 2025 2030 Source: Colorado Division of Local Government, State Demography Office.

Metro Denver Aging Changes Housing, Spending Needs and Patterns 2010 Population = 2. 8 Million 2020 Population = 3. 3 Million, +17% 60 000 50 000 +61% 40 000 2010 30 000 +14% 2020 20 000 10 000 0 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 Source: Colorado Division of Local Government, State Demography Office.

Metro Denver Aging Changes Housing, Spending Needs and Patterns 2020 Population = 3. 3 Million 2030 Population = 3. 7 Million, +14% 70 000 60 000 2020 50 000 2030 +43% 40 000 +14% 30 000 20 000 10 000 0 0 4 8 12 16 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 Source: Colorado Division of Local Government, State Demography Office.

Consumers Are Confident & Spending 160 0% 60 -5% 40 Retail Trade Growth Rate 80 -10% 20 f 18 20 16 20 14 20 12 20 10 20 08 20 20 20 06 -15% 04 0 02 Broomfield: +4. 9% (June) 5% 100 20 Aurora: +5. 0% (Oct) 120 00 Denver: +5. 2% (Sep) 10% 20 National: +5. 3% (Oct) 140 Consumer Confidence Index Retail Change in Various Markets (YTD) 15% Metro Denver Retail Trade Growth Mountain Region Consumer Confidence Sources: Colorado Department of Revenue; The Conference Board. 2017 e=DRP Estimate; 2018 f=DRP Forecast.

Metro Denver Wages Increasing Faster than Inflation, not Faster than Housing Costs YOY Percentage Change 15% 10% 5% 18 20 17 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 20 00 0% -5% -10% -15% CPI Avg Annual Wage Median Home Price Sources: U. S. Bureau of Labor Statistics; National Association of REALTORS.

Metro Denver #12 and Boulder #7 for Highest Median Home Price, 3 Q 2018 Median Home Prices (in thousands) $700 United States Metro Denver $642 Boulder $600 $500 $472 $400 $300 $274 $200 $100 f 19 20 e 18 20 17 20 16 20 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 03 20 02 20 01 20 20 00 $0 Source: National Association of REALTORS. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Home Sales Slowing due to Lack of Inventory, Rising Prices Metro Denver Existing Home Sales Closed 59 258 60 000 55 000 56 931 56 915 55 987 53 711 54 183 53 106 54 000 50 244 49 789 50 000 47 837 45 210 45 000 42 070 38 818 38 106 40 000 35 000 30 000 25 000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 f Sources: Metrolist (2005 -2010); Denver Metro Association of REALTORS (2011 -2018). 2019 f=DRP Forecast.

Apartment Vacancy and Rental Rates Rising at Moderate Pace Metro Denver Vacancy Rate Metro Denver Rental Rate $1 500 13% $1 400 $1 300 $1 200 9% $1 100 7% $1 000 Monthly Rental Rate Vacancy Rate 11% $900 5% $800 3% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 e $700 Source: Denver Metro Apartment Vacancy & Rent Survey. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

Multi-family 51% of New Construction in 2017, 42% in 2018 (30+ year average = 28%) 30 000 25 000 Metro Denver Building Permits* Multi-Family (5+ units) Single-Family Attached (2 -4 units) Single-Family Detached (1 unit) 20 000 15 000 10 000 5 000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 e 2019 f * The Census Bureau tracks building permits by the number of housing units in the structure. Source: U. S. Census Bureau, Building Permits. 2018 e=DRP Estimate; 2019 f=DRP Forecast.

The Case for Consumer Momentum… • • • Decreasing Uncertainty Rising interest rates Rising inflation rate Housing costs increasing faster than wages Lack of affordable housing • • Increasing Continued job growth Tax Cuts and Jobs Act influence Some tempering in residential markets Wages increasing at a faster pace than prior years

Questions? Development Research Partners 10184 West Belleview Avenue, Suite 100 Littleton, Colorado 80127 (303) 991 -0070 www. Development. Research. net Patricia Silverstein, President Patty@Development. Research. net