August 2013 Economic Update

Downtown Denver Economic Update August 2013

Downtown Denver Partnership, Inc.

Research Department Research Department • 511 16th Street, Suite 200, Denver, CO 80202 • 303-534-6161 • www.DowntownDenver.com

Executive Summary Various economic indicators continue to show healthy growth for Downtown Denver’s economy. Employment and retail sales in Downtown Denver increased over-the-year, and development projects continued to thrive in and around Downtown Denver. However, residential real estate activity slowed and commercial real estate indicators are mixed.

Employment increased 2.4% over-the-year in Downtown Denver and 3.0% in the Business Improvement District (BID), according to the latest employment data from the fourth quarter 2012. In both areas almost 96%of this increase was driven by the largest industry sector: professional and business services.

Retail sales tax collections in Downtown Denver increased 1.4% over the year in the first quarter of 2013. The largest tax collections industry sector, restaurants, reported an increase of 4.6%, however, the second-largest tax collections industry, hotel and other accommodation services, declined by 5.8%. The closing of a large taxpayer in the information producers/distributors category contributed to a 40% decrease in the category in both Downtown Denver and the BID. Tax collections in the BID decreased 2.7% in the first quarter, despite increases in various sectors, including restaurants, the largest category.

Residential real estate activity slowed slightly in Downtown and the BID during the first quarter, however, activity increased in the City Center neighborhoods. Total home sales and average home prices decreased in both the BID and Downtown Denver, with fewer high-priced homes sold in the first quarter 2013 than in the first quarter 2012. In the larger City Center neighborhood area, total home sales and the average sales price of detached single-family homes increased, but the average sales price of condominiums and townhomes decreased due to the large number of high-priced homes sold in the fourth quarter of 2012. Residential development activity continues in Downtown and City Center neighborhoods, with 44 projects and over 7,000 units planned or under construction as of July 2013.

Commercial real estate indicators showed mixed trends in the second quarter 2013. In the Downtown Denver office market lease rates increased despite a slight uptick in the vacancy rate. While the retail market in Downtown Denver experienced a small increase in vacancy and a small decrease in lease rates, retail spaces located in Downtown Denver command higher lease rates and enjoy lower vacancy rates than the Metro Denver region. The industrial market in Downtown Denver improved in the second quarter, with declining vacancy rates and increasing lease rates.

This report includes the most recent quarterly data available and covers economic conditions in three areas.

The first and smallest area is the Downtown Denver Business Improvement District (BID). The second area – which aligns with the 2007 Downtown Area Plan – is referred to as “Downtown” and includes the BID and several surrounding districts. The home sales section of the report also covers the City Center neighborhoods, which include both Downtown and the BID in addition to other neighborhoods. Please see page 11 for a detailed map of the three areas. Metro Denver in this report refers to the seven-county region comprised of Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, and Jefferson Counties.

1

ECONOMIC UPDATE, AUGUST 2013 Downtown Denver’s economy showed healthy growth in the first quarter of 2013. Employment rose by nearly 2,700 jobs, and the unemployment rate fell over-the-year for the ninth consecutive quarter. While residential real estate slowed during the quarter, lease rates rose in each of the three commercial real estate property types. Residential and non-residential development activity was strong and included several hotels and office buildings planned or under construction. Several thousand residential units were also planned or underway in the area.

Downtown Economic Highlights

♦ Seven Step RPO announced that it has opened an office in Downtown Denver and plans to hire 250 new employees in the Denver market. The company provides recruitment process outsourcing services and chose Denver for reasons including its booming high-tech market, proximity to West Coast clientele, and its large base of highly educated professionals.

♦ Noble Energy predicts its oil production from the Denver-Julesburg Basin will triple and ultimately get 2.1 billion

barrels of oil and natural gas liquids out of the rock formation. Noble expects to spend about $10 billion in Colorado alone over the next five years.

♦ Canada Goose Inc. chose Denver as its U.S. headquarters location. The Toronto-based company makes a line of jackets for outdoor wear. Spokespeople for the company noted Denver’s proximity to the mountains and its host of outdoor-related companies as the reason for the decision.

♦ Recent notable rankings for Denver and area businesses: • The latest Fortune 500 list included 10 Colorado companies, up from nine on last year’s list. DaVita HealthCare Partners (311st) was the only Downtown Denver company on the list with revenues of nearly $8.5 billion last year.

• Forbes magazine ranked Denver ninth on its list of the best big cities for jobs. The ranking considered 66 MSAs with more than 450,000 jobs and looked at factors such as growth trends, economic momentum, and employment data from November 2011 through January 2013. The San Francisco area ranked first.

• Denver is the third-best city for college graduates, according to NerdWallet. Rankings were based on criteria including cost of living, demographics, and social scene. According to the study, Denver boasts the most bars per capita, has a low cost of living, a moderate unemployment rate, and easy access to the mountains and nature. The top-ranked city was Boston, followed by Seattle.

• HispanicBusiness magazine released its annual ranking of the 500 largest Hispanic-owned companies in the U.S. Eight Metro Denver businesses made the list. Venoco Inc. was 23rd with revenue of $357 million and was the only Downtown Denver business to be ranked on the list.

• CareerBuilder ranked Denver as the sixth best city for college graduates looking for a job. The ranking was determined by the amount of job listings for entry-level positions in March compared with year-ago listings.

Entry-level positions were defined as jobs that required two years of experience or less and required a twoor four-year college degree or equivalent. Denver listings increased 25 percent over-the-year, 7 percentage points below the 32 percent increase that the first place city, Phoenix, reported.

• According to a report by Jones Lang LaSalle, Denver is one of the top six cities for new energy jobs. The other five cities consisted of Calgary, Dallas, Houston, Philadelphia, and Pittsburgh. The report, Energy

2

Outlook, reported that up to 75 percent of the 3.5 million jobs that are expected be created in the energy sector through 2035 will be in the top six cities. The growth is prompting energy companies to lease space in Denver at a rapid pace, and competition for space is driving up lease rates. In Denver’s Central Business District, energy tenants paid an average of 9.7 percent more than the asking lease rate for office space.

• A report by Glassdoor shows Denver finished last for how satisfied employees are working in the city. Denver scored the lowest of the 50 largest metro areas with a score of 3.0 in overall satisfaction. The highest score was in San Jose, CA (3.4). Other factors considered included salary and benefits, and how satisfied senior managers were.

• A study by the Trust for Public Land ranked Denver 17th out of the nation’s 50 largest cities for its park system. The rankings were based on three factors: the percentage of residents living within a 10-minute walk of a park, the city’s median park size and percentage of total city area dedicated to parks, and the combined number of playgrounds per 10,000 city residents and per capita parks spending. Denver also ranked 15th for playgrounds with 2.47 playgrounds per 10,000 residents and 13th in per capita spending for parks at $131.33 per resident.

• Rigzone ranked Denver as the third best city in the world for oil and gas industry careers. The ranking was determined by a survey of nearly 8,000 oil and gas professionals and took into account the state of the industry and amenities available during non-working hours. Denver was the only U.S. city in the top ten and was ranked behind Dubai, United Arab Emirates (1st) and Calgary, Alberta (2nd).

• According to a Gallup survey, the Denver-Aurora metropolitan area ranked second for the percent of residents that felt safe walking the streets. Denver-Aurora tied with Raleigh-Cary, NC and was behind Minneapolis-St. Paul, MN. The survey results showed 78 percent of those polled in the Denver-Aurora area feel safe, while Minneapolis-St. Paul showed slightly more (80 percent). The data was collected continuously throughout 2012 for the 50 largest metropolitan areas.

• According to a report from CardHub.com, Denver is the best U.S. city for small business employees. The ranking, based on 10 different metrics, considered data including hours worked and average wages for new employees. Boston, Minneapolis, Seattle, and San Francisco comprised the remaining top five cities. The report notes that 97 percent of employers in Colorado are classified as small businesses.

• The Denver-Aurora-Broomfield MSA was ranked as the seventh-best area for working women by NerdWallet, a personal finance and credit card information service. Rankings were calculated on highest pay, smallest gender gap in salaries, prevalence of women in the highest-paying industries, and population growth from 2010 to 2012. Women in the Denver-Aurora-Broomfield MSA earn a median annual income of $42,260 and make 80.5 percent of what a man does.

• LedgerLink, an online site for accounting jobs, ranked Denver as the eighth-best city for accountants. Based on factors including average salaries, commute times, the number of accounting jobs, and the unemployment rate, the ranking put New York City as the top city followed by Houston. The report found that the average salary for accountants/auditors in Denver is $69,830 and the average travel to work time is 24 minutes.

• The U.S. Census Bureau report, Commuter Adjusted Daytime Population: 2006-2010, showed Denver’s daytime population increased by 27 percent due to commuters during the period. The report showed an

3

increase of 156,130 in Denver’s population during daytime hours. Denver ranked fourth for the percent increase in its daytime population, tying with Seattle. Washington DC ranked first with a 79 percent population influx of workers coming into the city.

• Data from the U.S. Census Bureau shows that Denver was the 11th-ranked city in terms of the number of new residents added to the population between July 1, 2011 and July 1, 2012. During the period, Denver added 14,890 residents. New York City ranked first on the list, with an influx of 67,058 residents.

• The American College of Sports Medicine ranked the Denver-Aurora-Broomfield MSA fifth on its American Fitness Index. The 68.1 score out of 100 was up from 65.6 last year. The index rated 50 cities on factors including preventative health behaviors, chronic disease levels, access to health care, and community resources and policies that support physical activity. Minneapolis-St. Paul ranked first with a score of 78.2.

Employment Activity

♦ Employment in Metro Denver grew 2.8 percent in the first quarter of 2013 compared with the year-ago level. The addition of 38,000 jobs during the period was driven by large increases in professional and business services (9,900 jobs), education and health services (7,100 jobs), wholesale and retail trade (6,700 jobs), and natural resources and construction (4,000 jobs). The only sector to report a decline over-the-year was the information sector, which lost 1,100 jobs or 2.2 percent.

Colorado employment grew slightly less than Metro Denver, increasing 2.7 percent or 61,800 jobs, between the first quarters of 2012 and 2013. The U.S. showed slower growth of 1.6 percent. (Sources: Colorado Department of Labor and Employment, Labor Market Information, Current Employment Statistics (CES); U.S. Bureau of Labor Statistics.)

♦ Covered employment1 in Downtown Denver increased 2.4 percent (2,689 jobs) between the fourth quarters of

2011 and 2012. Nearly 96 percent of the increase was driven by the area’s largest industry, professional and business services, which added 2,572 jobs or rose 7.7 percent. The leisure and hospitality sector, the second-largest category by employment, reported an addition of 642 jobs, the second-highest increase in jobs of the 11 categories. The largest percent increase of the categories occurred in the other services category, where employment rose 9.5 percent over-the-year. Three categories – information (-15.3 percent), education and health services (-7.4 percent), and financial services (-0.7 percent) – reported lower employment during the fourth quarter of 2012 compared with one year prior.

The BID area employment gain was 3 percent in the fourth quarter compared with year-ago data. As a subset of Downtown, employment trends in the BID were similar. A total of 2,897 jobs were added in the BID area during the period, with more than 96 percent of the increase attributed to a rise in professional and business services employment. This sector, the largest in the BID, added 2,786 jobs or rose 9.1 percent. The largest percent gain was in the other services category, which reported employment was 13.9 percent higher over-the-year. Similar to Downtown, the BID area showed employment declines in three industries: information (-15.4 percent), education and health services (-4.2 percent), and financial services (-0.1 percent). (Sources: Colorado Department of Labor and Employment, Quarterly Census of Employment and Wages (QCEW); Development Research Partners.)

1 Jobs covered by unemployment insurance as reported in the QCEW. These positions represent the vast majority of total employment, although the self-employed, some agricultural workers, some domestic workers, and several other categories of workers are excluded. This data series lags the CES series by about six months and is available for the nation, states, MSAs, and counties.

4

Covered Employment Business Units* (4Q12) BID

Industry

Downtown

4Q12

BID 4Q11

Employment % ch

4Q12

Downtown 4Q11 % ch

Private Sector Natural Resources & Construction

321

335

7,940

7,736

2.6%

8,091

7,955

1.7%

23

40

115

147

-21.8%

905

889

1.7%

316

410

3,031

2,757

9.9%

3,725

3,631

2.6%

32

38

1,309

1,254

4.4%

1,384

1,353

2.3%

Information

108

135

3,666

4,333

-15.4%

4,372

5,159 -15.3%

Financial Activities

626

718

11,597

11,613

-0.1%

14,095

14,199

Manufacturing Wholesale & Retail Trade Transp., Warehousing & Utilities

Professional & Business Services

-0.7%

1,643

1,894

33,504

30,718

9.1%

36,074

33,502

7.7%

Education & Health Services

122

172

1,563

1,632

-4.2%

2,672

2,886

-7.4%

Leisure & Hospitality

315

440

13,116

12,741

2.9%

17,479

16,837

3.8%

Other Services

212

264

2,336

2,051

13.9%

2,780

2,540

9.5%

70

95

20,479

20,777

-1.4%

23,444

23,380

0.3%

3,788

4,541

98,656

95,760

3.0% 115,020 112,331

2.4%

Government Total

Note: Data covers only those businesses with an address listed in administrative records. Most, but not all, businesses meet this criterion. As a result, changes in the data series over time are not always due to changes in actual employment – some changes are due to differences in address reporting. *The count of business units is generally larger than the count of individual businesses because some businesses have multiple units.

Sources: Colorado Department of Labor and Employment, QCEW; Development Research Partners.

♦ The City and County of Denver reported an unemployment rate of 8 percent in the first quarter, a 0.3 percentage

point increase compared with the fourth quarter of 2012. The rate was 1.4 percentage points below the year-ago rate and marked the ninth consecutive over-the-year decline for the area.

The City and County of Denver unemployment rate was higher than the Metro Denver rate, which is common for urban centers. Metro Denver’s unemployment rate also increased slightly over-the-quarter, rising 0.1 percentage points to 7.2 percent in the first quarter. The rate was 1.2 percentage points below the year-ago rate, and like the City and County of Denver, was the ninth consecutive over-the-year decline. The Colorado rate of 7.5 percent was 0.1 percentage points above the fourth quarter rate but 1.3 percentage points below the fourth quarter 2011 rate. The U.S. showed the same pattern, increasing 0.6 percentage points to 8.1 percent over-the-quarter and declining 0.5 percentage points compared with one year prior. (Sources: Colorado Department of Labor and Employment, Labor Market Information; U.S. Bureau of Labor Statistics.)

♦ Hiring prospects continued to improve in the Denver-Aurora-Broomfield MSA, according to the third quarter

results of the Manpower Employment Outlook Survey. The percent of companies planning to hire new workers increased 2 percentage points to 23 percent over-the-quarter and 5 percentage points over-the-year. The percent of companies that will reduce their workforces declined by 1 percentage point to 5 percent compared with the second quarter but was unchanged from the year-ago results. Year-to-date results also suggest that more companies are expanding their workforce during the first three quarters of 2013 (22 percent), with a 5 percentage point increase over the 2012 average.

Third quarter survey results for the U.S. suggest hiring will be at the highest point since the fourth quarter of 2008. Companies planning to hire rose 4 percentage points over the second quarter number to 22 percent and

5

1 percentage point above the year-ago result. The percent of companies planning to lay off workers (6 percent) increased slightly over-the-quarter by 1 percentage point, but showed no change compared with the third quarter of 2012. Economists noted that increased hiring demonstrates an improvement in demand for products and services. (Source: Manpower Inc.) Consumer Activity

♌ Retail sales tax in Downtown increased between the first quarters of 2012 and 2013. Taxes collected were 1.4

percent higher during the period, and the largest percent increase among the industries was in the electronics and appliance stores, which showed a tax collection increase of 105.6 percent. However, it should be noted that large swings are common in smaller areas such as Downtown. The largest tax collections industry, restaurants, reported an increase of 4.6 percent over-the-year. Four industries showed lower collections in the first quarter compared with year-ago data: information producers/distributors (-40.1 percent), furniture and home furnishings (-32.2 percent), general merchandise/warehouse stores (-10.8 percent), and hotel and other accommodation services (-5.8 percent). A large taxpayer in the information producers/distributors category closed at the end of 2012, contributing to the large decline in collections during the first quarter of 2013.

RETAIL SALES TAX COLLECTIONS BY INDUSTRY BID Industry Manufacturing Retail Trade Motor Vehicles & Auto Parts Furniture & Home Furnishings Electronics & Appliance Stores Bldg. Materials/Improvement/Nurseries Food & Beverage Stores Health/Personal Care Stores Service Stations Clothing/Accessory Stores Sporting Goods/Hobby/Book/Music Stores General Merchandise/Warehouse Stores Miscellaneous Stores Information Producers/Distributors Bus. Admin, Support, Waste/Remediation Hotel & Other Accommodation Svcs.

Restaurants Other Services Total Retail Sales Tax Collections Yr/Yr % Ch

1Q13

1Q12

Downtown 1Q13

1Q12

$462,809

$436,086

$547,807

$505,253

$187,029 $5,312 $12,481 $14,978 $85,589 $95,501 $16 $646,671 $119,016 $4,257 $205,128 $393,223 $62,336 $1,249,666 $3,629,910 $3,054

$152,565 $23,849 $7,674 $9,711 $77,784 $98,626 $634,942 $113,208 $5,234 $226,403 $654,550 $41,812 $1,355,217 $3,538,799 $2,252

$337,567 $39,352 $16,792 $19,767 $148,184 $108,457 $5,737 $651,463 $202,788 $7,588 $410,091 $394,765 $79,666 $1,384,848 $4,527,757 $11,596

$238,229 $58,012 $8,169 $14,071 $132,284 $107,669 $5,682 $639,789 $119,484 $8,503 $400,506 $658,885 $63,686 $1,470,594 $4,328,045 $8,668

$7,176,976 -2.7%

$7,378,712

$8,894,225 1.4%

$8,767,529

The BID reported lower tax collections during the first quarter, showing a decline of 2.7 percent over-the-year.

The industry trends largely followed those reported for Downtown – the largest category of collections, restaurants, rose 2.6 percent, and the highest percent increase was in the electronics and appliance stores (62.6

6

percent). Five categories showed a decline over-the-year: furniture and home furnishings (-77.7 percent), information producers/distributors (-39.9 percent), general merchandise/warehouse stores (-18.7 percent), hotel and other accommodation services (-7.8 percent), and health/personal care stores (-3.2 percent). Like Downtown, the closure of a large taxpayer in the information producers/distributors category is most likely driving the large decline in collections. (Source: City and County of Denver, Office of the Controller.)

♦ Metro Denver retail sales – a slightly different, but related measure of consumer activity – rose by 2.6 percent in the first quarter of 2013 compared with the same period in 2012. (Source: Colorado Department of Revenue)

♦ U.S. consumer confidence improved during the second quarter, and the Consumer Confidence Index reached

the highest quarterly average since the first quarter of 2008. The index averaged 74.9 during the second quarter, increasing 19.2 percent compared with the first quarter and 14.7 percent compared with the second quarter of 2012. Economists noted that consumers are considerably more positive about business and labor market conditions compared with the beginning of the year.

The Mountain Region Index, which includes Colorado, also rose during the second quarter. The index reached the highest point since the first quarter of 2008, rising to 83.8. The increase was 47.8 percent above the first quarter and 29.4 percent higher than the second quarter of 2012. (Source: The Conference Board.)

♦ The Downtown hotel market showed a slightly lower occupancy rate during the first quarter. Through March,

year-to-date occupancy was down 2.3 percentage points to 64 percent, compared with the same period in 2012.

However, the lower occupancy rate did not pull down the average room rate, which rose to $141.00 through the first quarter of 2013, an increase of 2.6 percent over-the-year.

The average occupancy rate at all Metro Denver hotels increased through the first three months of 2013, rising to 61.4 percent from 60.2 percent during the same period in 2012. The improved occupancy rate pushed up the average room rate to $106.16, an increase of 2 percent over the first quarter of 2012. (Source: Colorado Hotel and Lodging Association, Rocky Mountain Lodging Report.)

Residential Real Estate

♦ The for-sale housing market in the BID and Downtown consists almost exclusively of townhomes and condominiums. First quarter home sales in the BID fell over-the-year to 67, a decrease of 15.2 percent. The average sale price of condominiums and townhomes was $518,263 in the first quarter, which was 11.5 percent lower than the same period in 2012. It is important to note that nine properties listed at more than one million dollars were sold during the first quarter of 2012, compared with six properties in the first quarter of 2013.

One of the nine properties sold in 2012 showed a sale price of more than five million dollars, and combined with the larger number of million dollar homes during the period, skewed the first quarter 2012 price upward for all three areas—the BID, Downtown, and the City Center Neighborhoods.

Home sales trends were similar in the Downtown market during the first quarter, with sales and prices lower compared with year-ago data. Condominium and townhome sales were 1 percent lower, declining to 103 homes sold for the first quarter. The average condominium and townhome price during the first quarter ($479,476) also declined 18.2 percent compared with the first quarter of 2012. Like sales in the BID market, the first quarter of 2012 showed more high-priced homes sold, with 11 properties sold for at least one million dollars. The first quarter of 2013 reported seven homes sold over the million-dollar mark.

♦ Condominium and townhome sales in the larger City Center Neighborhoods (CCN) area rose during the first 7

quarter, increasing 20.7 percent compared with the same period in 2012. Skewed by the sale of higher-priced homes in the first quarter of 2012, the increase in sales was not enough to push up prices in the area, and the average price fell 21.2 percent over-the-year to $338,850. Detached single-family home sales improved during the period, with sales 25.9 percent higher during the first three months of 2013. Prices responded positively to the increase in sales, and the average single-family home price rose 7.4 percent to $339,010.

Overall, home sales in the CCN were 21.9 percent higher over-the-year, increasing to 284.

♌ Metro Denver home sales during the first quarter were stronger in both categories, condominium and townhomes and single-family homes, and average prices pushed higher. Total home sales in Metro Denver increased 26.2 percent to 9,625. Condominium and townhome sales were 19 percent higher over-the-year during the first quarter, and the average price rose 6.3 percent to $192,871. Single-family home sales increased even more by 28.4 percent. The average single-family home price rose to $318,944, 11.2 percent higher than the first quarter of 2012. (Sources: Colorado Comps; Development Research Partners.)

EXISTING HOME SALES BID 1Q13

Downtown

1Q12

% Ch

1Q13

City Center Neighborhoods

1Q12

% Ch

1Q13

1Q12

% Ch

Metro Denver 1Q13

1Q12

% Ch

Condominiums/Townhomes Sold During Quarter

67

79

-15.2%

103

104

-1.0%

216

179

20.7%

2,113

1,775

19.0%

Average Sales Price

$518,263

$585,552

-11.5%

$479,476

$586,070

-18.2%

$338,850

$430,251

-21.2%

$192,871

$181,402

6.3%

Ave. Price per Sq. Ft.*

$378

$411

-8.2%

$354

$423

-16.4%

$296

$347

-14.8%

$160

$149

7.0%

Detached Single-Family Homes Sold During Quarter

0

0

-

0

0

-

68

54

25.9%

7,512

5,851

28.4%

Average Sales Price

N/A

N/A

N/A

N/A

N/A

N/A

$339,010

$315,543

7.4%

$318,944

$286,836

11.2%

Ave. Price per Sq. Ft.*

N/A

N/A

N/A

N/A

N/A

N/A

$241

$212

13.8%

$176

$157

11.9%

Total Home Sales

67

79

-15.2%

103

104

-1.0%

284

233

21.9%

9,625

7,626

26.2%

*Excludes homes where total square footage was not reported. Note: Data could include a small number of new home sales. Source: Colorado Comps.

♌ First quarter foreclosure filings in the City and County of Denver (480) were 18.4 percent below filings in the fourth quarter of 2012. Compared with year-ago data, filings were 42.9 percent lower in the first quarter and showed the third consecutive over-the-year decline. The decline in filings led to the lowest quarterly total since the third quarter of 2002.

Filings throughout Metro Denver also declined during the first quarter. Total filings (2,294) were 21.8 percent below the fourth quarter and 44.1 percent below the first quarter of 2012. Filings were at the lowest point since the first quarter of 2003. (Source: Colorado Division of Housing.)

Commercial Real Estate Note: lease rates for industrial, flex, and retail property are triple-net. Office rates are full-service.

♌ The office market in the BID area showed mixed trends during the second quarter of 2013. The vacancy rate

8

increased 1.3 percentage points to 11.8 percent. However, the increased vacancy did not pull down lease rates, and the average least rate for the second quarter increased 8.3 percent to $28.37 per square foot.

The Downtown office market showed similar trends, as the vacancy rate rose 1 percentage point to 11.5 between the second quarters of 2012 and 2013. Despite the higher vacancy, the average lease rate improved during the period. The second quarter average lease rate rose 8.1 percent to $27.91 per square foot.

Data from CoStar Realty Information Inc. for Metro Denver showed the direct office vacancy rate declined slightly in the second quarter to 11.5 percent, down 0.7 percentage points from the year-ago rate. The direct average lease rate responded positively to the decreased vacancy rate, increasing 6.3 percent to $21.39 per square foot over-the-year. (Source: CoStar Realty Information, Inc.)

♌ The industrial market in Downtown improved during the second quarter. The vacancy rate fell 0.3 percentage points over-the-year to 1.6 percent, while the average lease rate rose 20 percent to $12 per square foot. The average lease rate is more than 2.5 times the Metro Denver rate. Consisting of only two industrial buildings, the BID area showed an elevated vacancy rate of 68.1 percent, as one of the buildings is currently vacant.

Industrial market data from CoStar Realty Information Inc. for the second quarter suggest the Metro Denver market is improving for industrial space, as the direct vacancy rate hit the lowest point (5.2 percent) since the third quarter of 2001. The rate declined 1.3 percentage points compared with the second quarter of 2012. The higher demand for space put upward pressure on the direct average lease rate, as it rose 3.5 percent above the year-ago level to $4.76 per square foot.

Commercial Vacancy and Lease Rates (Source: CoStar Realty Information, Inc.)

by Property Type, SECOND Quarter 2013 ♌ Downtown is a highly desirable location for Metro Denver Vacancy Average retailers, reflected in both the lower than average vacancy Rates Lease Rate rate and the higher average lease rate for retail space.

2Q13 2Q12 2Q13 2Q12 Retail space in the BID showed a slightly higher vacancy Office rate for the second quarter, increasing 0.1 percentage BID 11.8% 10.5% $28.37 $26.19 points over-the-year to 5 percent. The average lease rate was 11.6 percent lower in the second quarter, declining to Downtown 11.5% 10.5% $27.91 $25.82 $20.02 per square foot. As a larger area that includes the Metro Denver 11.5% 12.2% $21.39 $20.13 BID, the Downtown market showed a similar trend: the Industrial vacancy rate increased 0.3 percentage points over-theBID* 68.1% 68.1% year to 4 percent, and the average lease rate declined 9 Downtown 1.6% 1.9% $12.00 $10.00 percent to $19.65 per square foot.

Metro Denver 5.2% 6.5% $4.76 $4.60 As consumer spending grows, the Metro Denver retail Retail market is showing lower vacancy rates and higher averBID 5.0% 4.9% $20.02 $22.64 age lease rates. Second quarter data from CoStar suggest the direct vacancy rate (6.5 percent) is continuing to Downtown 4.0% 3.7% $19.65 $21.60 trend downward, declining 0.5 percentage points below Metro Denver 6.5% 7.0% $15.13 $14.55 the year-ago rate. The average lease rate also improved, Note: Vacancy and average lease rates are for direct space only (subincreasing 4 percent to $15.13 over-the-year. (Source: let space excluded). Retail and industrial lease rates are triple-net. *The BID contains a total of two industrial properties with a comCoStar Realty Information, Inc.) bined 24,800 square feet of space. Only one of the two buildings was occupied, contributing to a higher-than-average vacancy rate.Source: CoStar Realty Information, Inc.

9

Development Activity Several nonresidential projects are either planned or underway in the Downtown Denver, including:

♦ A 140-room Aloft Hotel is planned at 15th and Stout Streets near the Colorado Convention Center in Denver.

The six-story, 69,445-square-foot hotel will be built by MPC Construction.

♦ McWhinney and Grand American Inc. announced plans to redevelop the block between 18th and 19th Streets

and Blake and Wazee Streets in Denver. The block will be developed into a 325,000-square-foot, mixed-use project that will feature office, retail, and multifamily residential space. The development is in the early phases of design and must pass review by the Lower Downtown Design Review Board.

♦ White Lodging Services will begin construction on a 21-story, dual-branded Hyatt Place/Hyatt House in Down-

town Denver. The hotel will be built on the corner of 14th Street and Glenarm Place and is scheduled to open in spring 2015. The property will feature 346 suites and cater to business travelers and extended stay guests.

♦ East West Partners announced a new building in the neighborhood surrounding Union Station. The Triangle

Building will be a 200,000-square-foot project at 1550 Wewatta Street and cost an estimated $85 million. The 10-story building will include ground-level retail, two floors of underground parking, and nine stories of office space. The project is funded by Starwood Capital Group, and construction will begin in October 2013 and end in May 2015.

Healthy multi-family development continued throughout the City Center Neighborhood. As of July 2013, there were 709 new housing units in seven different developments completed during 2012, the largest of which was the 231unit 2020 Lawrence project by Zocalo Community Development. An additional 172 units were completed during 2013 year-to-date in two different developments. Forty-four projects with 7,148 rental and 145 for sale units are either planned or currently under construction. Five of these projects consisted of at least 300 units, with the largResidential Developments est project being 457 units planned at South Lincoln Park Planned or Underway as of 4/2013 on West 10th Avenue and Osage Street. The Central Platte Valley/Denver Union Station and Highland neighborhoods Downtown For-Sale Rental Number of Neighborhoods Units Units Projects had the most projects planned, each reporting 11 projects.

Central Platte Valley/Denver Union Station also had the larg- Auraria est number of units under construction or planned—2,725 Ballpark 863 5 units. Thirty-six projects are currently proposed for the entire Capitol Hill 180 1 City Center Neighborhoods area, which include 940 for sale Central Business District 422 2 units and 1,622 rental units.

Central Platte Valley/ 2,725 11 Recent highlights of the current residential projects include: Denver Union Station

♦ The Platform at Union Station, a 287-unit apartment

Curtis Park/Five Points

complex at the Union Station site, broke ground in May. Golden Triangle The Holland Partner Group is the developer on the proj- Highland ect and will be managing the complex through its diviJefferson Park sion, Holland Residential.

♦ The first residential project broke ground as part of the

La Alma/Lincoln Park Lower Downtown

greater Five Points Redevelopment Plan. The project, called Clarkson Green, will include five single-family row Uptown Total houses and four townhomes. The energy-efficient homes will be built near 24th Ave. and Clarkson Street.

36 88 21 145

148 809 307 597 745 352 7,148

4 3 11 3 2 2 44

Source: Downtown Denver Partnership

10

Business Improvement District (purple), Downtown Denver (purple and yellow), and City Center Neighborhoods (purple, yellow, and blue)

Written in July 2013 by: Development Research Partners, Inc. 10184 West Belleview Ave, Ste.100 • Littleton, CO 80127 303-991-0070 • www.developmentresearch.net