4th Quarter 2008 Commercial Real Estate Commentary

With all the economic uncertainty in the air and the media on a non-stop quest to feed the recession monster we thought it appropriate to provide our own commentary on the current commercial real estate market.
Yesterday the Rocky Mountain News released an article discussing the decline in across the board Colorado commercial real estate transactions in 2008 and the forecast for 2009 (see below). It is certainly clear that we are in the midst of a correction, there were flaws in the residential capital markets and people would argue some of those same flaws were evident in the way commercial money was loaned. We have, within our firm, experienced a flattening of commercial activity (vacant land, vacant buildings specifically) over the past 6 months. We are seeing relatively brisk lease activity, deals are taking longer to close as many tenants and investors are surveying the market a bit longer to see what’s around the corner. As lending markets have tightened we have seen a rise in companies either downsizing or looking to lease when they may have previously considered buying. We have also experienced solid activity in the investment market as those looking at income properties seek solid cap rates in the 7-8 range. All this to say, we are confident that Colorado and specifically the Southern Denver, Castle Rock, and Colorado Springs markets are in a stronger position than many other areas thanks in part to a couple of key fundamentals:

Jobs: Statewide the jobless rate rose to 5.3% in October – the US rate is 6.7% (Perspective: in 1933 Unemployment was 24.9%!)
The unemployment rate in Denver-Aurora has risen a mere .6% since October 2007 from 5.2%-5.8%

Income: As of late 2007 Douglas County is still the 6th wealthiest county (household income) in the nation nearly $93K annually, making it a desirable place for retailers and other types businesses to locate
2007: Average US Household income $50,233 – Average Colorado Household income $55,212

We attended the Annual Southeast Business Partnership Luncheon today and thought it would be helpful to highlight a few points from the keynote speaker Daniel Ritchie: http://sebp.org/

· The Colorado Aeronautics and the Defense industries will continue to experience solid growth in 2009, with the presence and expansion of companies like Lockheed Martin, Raytheon, and CH2MHILL
· Colorado and Douglas County housing will remain flat in 2009 with some gains possibly at the end of the year
· Technology companies are seeing an increase in sales as businesses seek to operate more efficiently and increase performance through enhanced IT solutions….this trend will continue in 2009

See the article below that was in the Rocky Mountain News yesterday.

http://www.rockymountainnews.com/news/2008/dec/04/drop-forecast-for-denver-commercial-property/

Please feel free to call me at any time to discuss.

Sincerely,

Matt Call
matt.call@edgecommercialproperties.com