UNIVERSITY OF COLORADO BOULDER LEEDS SCHOOL OF

IN THIS ISSUE PAGE 1 Colorado: Learn, Live, Grow PAGE 2 Colorado Will Continue PAGE 4 CEOs Discuss State’s Workforce PAGE 6 New Employment Issues PAGE 8 Making Sense of Commodities A publication of the Business Research Division Prices Volume 82, Number 1, 2016 PAGE 10 Colorado Real Estate

Forum Keynote Address Colorado: Learn, Live, Grow, and Embrace Community

Jackson Rueter to do business. In 2009, DaVita announced audience of around 900. He detailed four it was moving its headquarters from El keys to successful talent strategy for the Colorado is in the midst of record Segundo, California, to Denver because of state: be a differentiated place to learn, be state in-migration and an economic boom. the state’s economic potential, as well as a differentiated place to live, be a differenti- Cultivating and attracting the right people is Denver’s central location and high quality of ated place to grow, and embrace community essential to effective talent management and life. In his keynote address at the 51st annual capitalism. strategy. This will help the state to continue Colorado Business Economic Outlook to grow its highly educated workforce and Forum, Thiry highlighted the importance Place to Learn remain an economic leader. of talent strategy in Colorado and its role Thiry began his discussion of Kent Thiry, chairman and CEO of going forward. “The good thing about tal- in Colorado by saying, “Education is every- DaVita HealthCare Partners, believes that ent strategy is that all you have to do is be one’s issue,” noting that the future of the Colorado’s vibrant economy is a great place better than the other guy,” said Thiry to an nation will be determined in the classroom. Thiry continued that education provides an excellent return on investment in terms of both economic and citizenship returns. Delivering the right education to the right people at the right time is critical to a qual- ity education, but education must also be pursued by students. America’s higher education system is “the envy of the world” and is a source of competitive advantage for the United States. However, there are ways in which higher education in the United States can improve. To begin, Thiry stated that conventional four-year undergraduate programs are not for every student and can lead to unfulfilling

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Kent Thiry, chairman and CEO of DaVita HealthCare Partners Summary of Forecast Colorado Employment Will Continue to Expand in 2016 but at a Slower Pace From the Editor The following observations summarize the The goods-producing sectors will increase their thoughts of the Colorado Business Economic employment base in 2016. As highlighted at the 51st annual Outlook committee members as of early December Agriculture—Gross farm revenue will decrease Colorado Business Economic for 2016. faster than expenses in 2016, leaving farmers with Outlook Forum held on December Job growth peaked in Colorado in 2014, with the lowest net farm income since 1997 under the 7 in Denver, employment growth is 78,900 additional jobs in the state, resulting in the auspices of commodity price declines. best year of employment growth since 2000 in both Construction—Household formation continues expected in both goods-producing absolute and percentage change (3.3%). Employ- to exceed the growth in housing units in Colorado, and services-providing sectors in ment growth continued in 2015, albeit at a slightly adding fuel to the construction industry and to home 2016. The half-day event featured slower pace—73,700 jobs, 3% growth. The forecast prices. Coupled with growth in nonresidential and an employment forecast for 13 for 2016 includes 64,400 jobs, or 2.6% growth, infrastructure construction, Colorado is poised to industry sectors and a keynote as the state faces labor force and infrastructure record the second highest of Construction on address by Kent Thiry, chairman constraints. the books in nominal (not inflation-adjusted) terms, Beginning in 2012, Colorado has recorded increasing 10% year-over-year. Industry employment and CEO of DaVita HealthCare employment growth not seen since the tech boom is forecasted to increase 5.8% in 2016, leaving the Partners. Three industry breakout years leading up to the 2001 . industry 2.9% below peak levels recorded in 2007. sessions and a CEO panel Continuing a long-term trend, Colorado will Manufacturing—Following a decade of decline, discussion rounded out the add more services jobs in 2015 and 2016 than employment is expected to increase for the sixth- afternoon. goods-producing jobs. However, the pace of growth consecutive year in 2016, growing 1.6% compared in goods-producing industries has collectively out- to 2.7% growth in 2015. A decrease in exports is Summaries of the day’s paced services post-recession, growing more than cited as a drag on industry growth. Most industry proceedings are featured in this 23% from 2010 through 2015 compared to 13% for growth will come in durable goods. issue of the CBR. For additional services. details, visit colorado.edu/ business/brd. COLORADO EMPLOYMENT CHANGE FORECAST Please contact me at 2015–2016 303-492-1147 with questions or comments. Richard L. Wobbekind

COLORADO BUSINESS REVIEW 2 Natural Resources and Mining—Colorado ranks seventh in the nation as an energy producer, with abundant oil, natural gas, and coal. Other resources, such as molyb- denum, uranium, and aggregates, lead the state to have the fifth-highest number of industry workers nationally. Total value of production descended from record levels in 2015, mostly due to lower oil and natural gas prices. The industry should see a mod- est increase in value in 2016 on more stable pricing; however, employment will decrease 4.2%.

The outlook for services employment shows growth in every sector in 2016. Education and Health Services—Private education and health care services are expected to add 10,900 jobs in 2015, dem- onstrating resilience both during and after the recession. Most of the growth will be in health care, driven by population growth, accessibility, and demographic shift. Professional and Business Services—This industry will record the most employment Richard Wobbekind, Senior Associate Dean for Academic Programs and Executive Director of the Business growth in 2016, increasing by 15,500 jobs, Research Division as an expanding economy lends demand for core industry services. The industry is build- ing on gains in the Professional, Scientific, and Technical Services subsectors related to economic expansion, but are dampened by • Inflation will continue in check for another Colorado’s high-tech industries and research TABOR revenue limits. year, and interest rates will remain at low institutions; the state records a 33% higher Financial Activities—The Financial levels, even with policy moves. concentration of Professional, Scientific, and Activities Sector will grow in 2016 on the Technical Services Sector employment than foundation of an improving overall economy Colorado the nation. that supports more banking, insurance, • Employment growth will place Colorado Trade, Transportation, and Utilities—TTU and real estate employment. The industry is in the top 10 states in 2016. employment is anticipated to increase by projected to add 2,100 jobs in 2016, mostly • El Niño may cause volatility for agriculture 10,800 in 2016, with retail trade contribut- in banking. production, as well as tourism. ing more than half of industry growth on the Information—The industry turned the • Home prices will continue to creep higher basis of a stronger economy and healthier corner in 2014, with modest growth in in Colorado as inventory is absorbed, consumer. Retail sales are anticipated to rise telecom, broadcasting, and film that barely making housing affordability a detriment 5.6% in 2015. offset losses in the publishing sector. The to some communities in the state. Leisure and Hospitality—Colorado’s industry will record modest gains in both • In terms of population, Colorado is the tourism industry will continue to grow in 2015 and 2016. Industry GDP continues to fifth-fastest growing state in the nation in 2016, building on greater capacity in hotels climb on gains. percentage terms. The state will continue and convention centers, and positive early to attract people from out of state, which signals for skier visits, gaming proceeds, and National and International will contribute to population growth of visits to Colorado public lands. This sector • Weak commodity prices will have reper- 1.7%. expects growth of 9,000 jobs in 2016. cussions on the agriculture and natural • Colorado will sustain a 4% unemploy- Government—Government employment resources industries, but lend a boost to ment rate. will increase modestly in 2016, grow- consumers. With Colorado’s skilled workforce; ing 0.8%, with the greatest gains in local • A partially slowing global economy poses high-tech, diversified economy; relatively (K–12) education, and the weakest growth risks to U.S. and Colorado exports in low cost of doing business; global economic in federal government employment. Local 2016. access; and exceptional quality of life, the government finances show greater stabil- • U.S. GDP growth will likely remain below state is poised for long-term economic ity due to rising property values (property 3% in 2016. growth. taxes) and increased consumption (sales • The reversal of Fed policy may begin and use taxes). State finances have also putting slight upward pressure on interest For more information on each industry sector, visit been increasing with population growth and rates. colorado.edu/business/brd.

COLORADO BUSINESS REVIEW 3 Colorado CEOs Discuss State’s Workforce

Justin Lau culture that promotes giving back to the community are a few of the methods DaVita employs to retain Colorado’s robust job growth and thriving and recruit talent. For Rhinehart, the retainment economy grabbed national headlines in 2015. In focus of Johns Manville’s business is on employees the CEO panel, five business leaders shared their nearing retirement age. The big issue she is tackling insights on the Colorado economy and how the is how to retain and transfer knowledge as employ- they represent are positioning their ees retire. She suggested a step-down retirement to best recruit and retain workforce tal- system so employees can slowly step away from ent. The businesses are in vastly different sectors: the job instead of leaving it all at once. In addition, products manufacturing, health care, telecommu- Rhinehart emphasized the importance of keeping nications, and financial services.Ellen Balaguer, women in the workplace as diversity is an ongoing a retired senior executive with Accenture, led issue. the discussion. Panelists included Mary Rhine- Erickson and McDonald said their companies hart, chairman and CEO of Johns Manville; Joe are focusing on recruiting millennials now for future Mello, COO of DaVita HealthCare Partners; Matt development. Zayo Group attracts mil- Erickson, president of physical infrastructure of lennials by positioning their offices near city centers Zayo Group; and Brian McDonald, SVP of client and offering lenient family leave policies and the service and support at Charles Schwab. option to work from home. In the financial services Balaguer led the session with a brief overview sector, the average age of a financial advisor is 57 of the job market and education’s impact on the and a large percentage of them are white males. labor force. By 2020, 74% of jobs in Colorado Going forward, McDonald emphasized that all will require post-secondary education; this is the companies really need to “reframe the way we think third-highest percentage in the nation. For the about our workforce.” Charles Schwab’s efforts in high school graduating class of 2020, only 23% hiring millennials will help increase the company’s are projected to attain post-secondary education. ethnic and gender diversity. This suggests that the state will be in a large talent The panel concluded with a discussion of busi- deficit by 2020 if it continues on its current course. ness and government collaboration. All panelists Balaguer believes that Colorado must “significantly acknowledged that it is vital for their businesses to increase our overall talent” to accommodate continue to foster and grow relationships with local future needs. In addition, the focus of employment communities and government. For Charles Schwab, should be on embracing diversity. In Colorado, this has meant collaborating with other major 16% of the current workforce is Hispanic, but investment services firms and the state to create more important, 31% of the upcoming high school the Colorado Investment Services Coalition (CISC). graduating class is Hispanic. It is imperative that The consortium focuses on talent attraction and Colorado’s employment base evolve into an development within the investment industry through increasingly diverse workforce. concerted partnerships with area colleges and The discussion transitioned to the Colorado universities. A notable partnership was created in economy. Rhinehart believes that an emerging 2015 when Charles Schwab entered into a five-year problem is the affordability of housing, especially commitment with the Leeds School of Business at for millennials since they often prefer living close the University of Colorado Boulder to develop and to city centers. Also, Rhinehart commented that invest in a certified financial planner (CFP) program. Colorado needs to develop more skilled labor. For Development of the program began that fall. her, construction labor will play an even more sig- Justin Lau is a Research Assistant with the Business Research nificant role in supporting the growth of Colorado Division and may be contacted at [email protected]. in the future. When panelists were asked about recruit- ment and retainment, two underlying themes were present in all responses: culture and diversity. For Mello, recruitment success lies in retention. Companies with high retention rates are attractive to employees. Giving employees the opportunity to grow within the company, considering family needs in the employment equation, and creating a

COLORADO BUSINESS REVIEW 4 CEO panel: Ellen Balaguer, retired senior executive, Accenture; Joe Mello, COO of DaVita HealthCare Partners; Mary Rhinehart, chairman and CEO of Johns Manville; Brian McDonald, SVP of client service and support, Charles Schwab; and Matt Erickson, president of physical infrastructure of Zayo Group

Company Overviews

Johns Manville Zayo Group • Johns Manville, a Berkshire Hathaway • Zayo Group is a global provider of company, is a global building and bandwidth infrastructure services. specialty products manufacturing • Headquartered in Boulder, the com- company. pany went public in 2014, raising • Since 1988, Johns Manville’s global $287.8 million in its IPO. headquarters has been located in downtown Denver. It employs 7,000 Charles Schwab people globally. • A financial services provider, Charles Schwab manages $2.55 trillion in DaVita HealthCare Partners client assets, including 1.5 million • DaVita HealthCare Partners pro- corporate retirement plan participants. vides variety of health care services • The firm plans to consolidate jobs to patient populations in the United around the state at its Lone Tree States and globally. campus, which will ultimately employ • The Fortune 500 health care company, approximately 4,000 workers. which is headquartered in Denver, currently employs about 1,700 people. A planned expansion, with ground breaking scheduled for July, will add space for another 1,200.

COLORADO BUSINESS REVIEW 5 Forum Breakout Session New Employment Issues in a High-Employment Market

Heberto Limas-Villers becoming more diverse, prompting KPMG to find talent from nontraditional backgrounds. This is what Opinions expressed by panelists reflect the led the company to locate the first KPMG Ignition most current market information available as of Center in Denver, reflecting the city’s livability and early December. . As the company grows, Trebino Colorado’s rate has been noted it is having difficulties attracting and retaining decreasing since 2010, to an estimated low of 3.6% talent. In response, KPMG has developed special- for November 2015 according to the Colorado ized career paths for employees, ranging from high- Department of Labor and Employment. The labor tech to health care. market continues to be very strong in the state; the Moving to manufacturing, Carlson spoke about Colorado Business Economic Outlook Committee the growth the craft beer industry is experiencing estimates around 65,100 jobs will be created in in Colorado. The industry has grown to more than 2016. Panelists in this breakout session, moderated 6,000 workers and contributed $1.15 billion to Col- by Joe M. Barela, regional workforce director with orado’s economy in 2014. As the industry expands, Arapahoe/Douglas Works!, talked about the ways so does the demand for a wide range of jobs, from low unemployment can hamper recruitment. chemists to accountants and lawyers. Breweries are Speakers were: Marc Butler, founder and CEO of also increasingly interested in developing innova- JR Butler Inc.; John Carlson, executive director tive packaging. Recently, Colorado State University of the Colorado Brewers Guild; Noel Ginsburg, developed a food science program to meet that chairman and CEO of Intertech Plastics; and Lou demand. Colorado’s craft brewers expect to keep Trebino, managing director of KPMG in Denver. The growing across the state. session first centered on how the strong economy Ginsburg discussed Intertech’s problems acquir- affects recruitment and retainment of good talent. ing good talent in Colorado. In his experience, the Then the panelists discussed their strategies for main reason for this is that traditional areas of sup- recruiting and retaining local talent. ply—from trade schools to apprenticeships—no The session began with Barela pointing out that longer exist. During the recession, more than the number of job postings has increased. Every 600,000 manufacturing jobs went unfilled nation- company that lists a job on the labor market must ally, while at the same time there were thousands post that job, on average, nine times to fill it. As the of unemployed people. To help connect workers economy has recovered, Barela has seen the job to jobs, the Colorado Advanced Manufacturing postings increase while hiring has remained flat, Alliance created BASIC, Business and Schools in indicating that while there is demand for employees, Collaboration, to develop a new pipeline for busi- there is increasingly a lack of supply. Colorado, and ness. Intertech has developed apprenticeships so the Denver MSA, specifically, saw unemployment students and teachers can see these employment rates dip below 4% in 2015 as the region returned opportunities in manufacturing and drive interest in to full employment. the field. What Ginsburg learned from the experi- Barela also pointed out the role of the “gig ence building the program is that the industry is not economy,” which consists of people employed for taking charge. It is failing to do its part in training part-time work, usually on contract, in contrast to a talent. He described a lack of a formalized system full-time job. While the number of jobs that consti- for ushering individuals into manufacturing careers. tute part of the gig economy has increased, the per- This also costs businesses as they lose contracts centage of those jobs has declined to around 8% of because they do not have a domestic workforce the total workforce. While there is an entrepreneurial with the necessary skills. During a recent visit to trend in Colorado, the workforce participation rate Switzerland, Ginsburg found that the country has an has increased at a faster rate than the gig economy. apprenticeship program that teaches young adults Trebino spoke further on this as he noted that about trades. The apprentices learn skills that can there are many more changes occurring in the be used in industry and earn good wages in the workforce, particularly changes in workforce demo- meantime. A delegation from the Business Experi- graphics, than what he has seen in the past few ential Learning Commission will visit Switzerland in years. KPMG’s clientele and C-suite executives are

COLORADO BUSINESS REVIEW 6 January to learn about this program and determine The panel was concerned about not only about the how it might be implemented in Colorado. acquisition of new talent, but the aging of their work- Butler commented about the shortage of avail- ers as well. The best strategy in the short term might able workers in the construction industry. Many be to acquire workers from other companies, but construction workers left the industry during the this is not efficient and sustainable in the long term. recession to work in other fields. This has put pres- Another issue the panel discussed is that many sure on the sector to look for talent in other areas, employees do not have the diverse set of skills that often at workers who may have difficult backgrounds allow them to succeed, specifically writing and criti- and family situations. These individuals may not be cal thinking skills. In general, the business commu- “work ready,” lacking life skills, from basic finance nity needs to address these workforce issues now to to conflict resolution. In response, Butler created take advantage of the current strong economy and the Elite Team, a program that teaches job skills prepare for the loss of employees who will be leaving and life skills, including leadership training, basic the workforce in the coming decades. finance, and etiquette to develop good character. The program is relatively small but is very successful, Heberto Limas-Villers is a Student Research Assistant with the providing strong leaders for the field. Business Research Division. He may be contacted at heli8827@ Overall, finding employees in a full employment colorado.edu. market is what Butler describes as “a forced march.”

COLORADO EMPLOYMENT GROWTH JOBS ADDED

COLORADO BUSINESS REVIEW 7 Forum Breakout Session Making Sense of Commodities Prices

Jackson Rueter prices. With food spending growing in the Colorado also holds the only pure natural country (5% in 2015), China is expected nahcolite (commonly known as sodium Opinions expressed by panelists reflect to aid in the rebound of some commodity bicarbonate, or baking soda) deposit in the the most current market information avail- prices. Corn and wheat prices have declined nation. Gypsum for wallboards and lime- able as of early December. over the last year and are anticipated to do stone for concrete are two other Colorado The commodities sector in Colorado can so in 2016, and supply will contract. The mining products, and prices are expected to be broken into three categories: agriculture, beef supply, which has been low in recent rise as the housing boom continues. metals, and natural gas and oil. The state years, is forecast to increase in 2016. Cur- Colorado coal is also known as “com- experienced an oil and gas boom coming rently, the large milk supply is expected to pliance coal” due to its low sulfur content. out of the recession, though with the crash contract, which will cause a price increase This “clean coal” produces roughly 60% of of oil prices in 2014, the industry is begin- in 2016 and greater price volatility. energy in Colorado, and coal is currently the ning to shrink. The story for natural gas and Stuart Sanderson with the Colorado fastest-growing energy source worldwide. In oil production is much the same. Production Mining Association highlighted how the 2016, coal production is expected to continue reached a record high in 2014 and will likely mining of metals and coal in Colorado are declining as the price of natural gas remains remain stagnant or fall in 2016 with the price a boon for the economy. In 2015, mining low and Front Range power plants switch to decline. Agricultural commodities have fallen contributed an estimated $8.8 billion to natural gas. The Clean Power Plan will also in the last year; however, a rebound in some Colorado’s GDP while supporting 73,450 have a negative impact on coal production as prices is expected in 2016. A number of jobs. Colorado is currently the top molyb- it mandates the reduction of greenhouse gas recent economic developments have been denum producer in the United States, emissions from power plants nationwide. affecting the price of commodities, mainly the 4th-ranked producer of gold and the Michael Orlando, with Economic Advi- the rising strength of the dollar and China’s 10th-ranked producer of coal. Molybdenum sors Inc. and University of Colorado Denver, changing demand. is used in a variety of ways, including alloy noted that natural gas and oil are heavily Agricultural commodities are varied steels, solar panels, and flat panel displays. influenced by technology, policy, demand, in terms of price decline in the past year Demand for molybdenum is decreasing, and the pricing strategy of the Organiza- as they tend to be more insulated from most notably in China. As a result, the tion of the Petroleum Exporting Countries economic fluctuations.Dan Kowalski of Henderson Mine announced in October (OPEC). The supply of natural gas is growing CoBank gave an overview of agricultural 2015 that it will reduce production by 45% as technology improves. With the low price commodities in 2016, including lower price in 2016. Both the Climax and Henderson of natural gas and tighter of emis- volatility than in recent years. There has been mines are expected to continue operations sions, natural gas is experiencing increased a shift from a demand-driven market to a in 2016. demand as coal-fired power plants are being supply-driven one as supply grows. Overall, Gold in Colorado is produced almost replaced. the trend is a slight decline in the price of exclusively by the Cripple Creek and Victor The shale oil boom stagnated in 2015 agricultural commodities. Going forward, Gold Mine near Victor, Colorado. New- as production plateaued and jobs were cut the predicted rise in interest rates and the mont Mining, based in Greenwood Village, due to consistently low prices. The WTI Spot strength of dollar will impact agricultural Colorado, announced in June that it will buy Price sank to $40.40 per barrel for the week commodity prices, though not as much as is the Cripple Creek and Victor Mine for $820 of December 4, 2015, the lowest since the widely believed. China also heavily influences million from AngloGold Ashanti Ltd. start of 2010. OPEC, led by Saudi Arabia, has increased production to just under 32 million barrels per day in an effort to retain global market share by squeezing out higher- cost competitors. Growth in global demand for oil has slowed in line with moderation in China and other developing countries. As a result, U.S. oil inventories are expected to expand into early 2016 as well, further staving off potential price increases. Oil prices are expected to remain low in the short and medium term, but 2016 is forecast to see oil prices bottom out and then slowly rebound.

Jackson Rueter is a Student Research Assistant with the Business Research Division. He may be contacted at Herefords. Photo courtesy of Bridget Shafer. [email protected].

COLORADO BUSINESS REVIEW 8 Learn, Live, Grow continued from page 1

careers for some who are thrust into higher educa- tion unnecessarily. He added that reallocating exist- ing resources within higher education to develop and promote areas like computer science are key to meeting future labor demands. Vocational schools also play an important role in higher education by creating highly skilled labor that can lead to a high quality of life and middle class income, in addition to providing better services in the economy. K–12 education is crucial to maintaining and developing a highly educated workforce. There are three keys to effectively develop K–12 education over the next 10 years: transparency, accountability, and choice. Thiry notes that to achieve transparency and accountability, creating comparable metrics is essential. The quality of teachers and teacher train- ing needs to increase as well. While some suggest that charter schools are the answer to advancing K–12 education, Thiry emphasized the importance of the traditional school system to wholly serve students. University programs for K–12 teachers further student development in the classroom and provide additional training to teachers. Teachers who go through these programs often have more A CU undergraduate student teaches growth opportunities, are more engaged, work more a science course as part of the STEP 1 cohesively in teams, and are more aware of district Keeping and implementing business-friendly policies School of Education program. Photo by Glenn Asakawa/University of priorities. will attract businesses that bring educated and tal- Colorado. Early childhood education has the potential ented employees with them. Growth in the Colorado for the greatest return of any level of education higher education system and the state’s higher in the state. Establishing a more comprehensive education institutions’ ability to attract top talent is early childhood education program is important for also appealing to companies looking to conduct families where both new parents must work, so that business in a place where they have access to top children are exposed to discourse, reading, and university students. other activities at an early age. High-quality educa- Government effectiveness is central to main- tion is achieved through an engaged community. taining a business-friendly environment as well. Thiry emphasized the importance of streamlining Place to Live the routine aspects of government to cultivate an According to Thiry, Colorado needs to maintain effective government and more efficient govern- its affordable, livable downtown areas. To continue ment programs. He then went on to advocate for to attract educated talent, Colorado’s affordabil- politicians to accept compromises, saying that ity must remain high in urban areas because that “…a principled compromise is not a compromise is where young people want to live. Embracing of principles” in reference to the difficulty of passing diversity and inclusion is also key as the United legislation through Congress. Thiry also mentioned States becomes more diverse demographically, so the balance of power between the state and federal that high-level talent will immigrate to Colorado. level, noting that federal funding often comes with Maintaining the quality of life within the state will also stipulations and requirements for states when the encourage other talent to move here while retaining funds are distributed. existing human . Community Capitalism Place to Grow Engaging Colorado’s talent in the community Strong growth and a positive business climate through both civic engagement and community in Colorado need to be maintained going forward continued on back page as more people and businesses move to the state.

COLORADO BUSINESS REVIEW 9 Forum Breakout Session Colorado Real Estate: How Long Will the Boom Last?

positive net absorption, and a 5% year-over-year increase in lease rates as of Q3 2015. Denver made a full recovery to pre-recession levels in 2014; new peaks were set in 2015. Contrary to popular belief, the continued growth of the Denver industrial market has not been solely due to the emergence of marijuana. The marijuana market only makes up 2.6% of the total industrial real estate market, occupying a total of 3.7 million square feet. The true drivers behind the market were the strong fundamentals. Denver’s economic strength, ability to attract a qualified workforce, exposure to the tech industry, and a hot housing market are all reasons why Denver’s industrial real estate market will continue to grow for the foresee- Jeff Handlin with Oread Capital & Development able future. Justin Lau E-commerce serves as the national market’s main driver of growth. Online retailers have utilized Opinions expressed by panelists reflected the an increasing amount of warehouse space in order most current market information available as of to gain geographical advantage for faster delivery early December. times. The emergence of e-commerce has not Nominal house prices in Colorado have been been felt in Denver’s industrial market, but Carner higher than U.S. nominal house prices since 1993. believes that it will only be a matter of time before Today, the gap is wider than ever before. In 2015, e-commerce emerges in Denver, driving up prices Denver and Boulder were among the hottest real for industrial space. estate markets in the nation. This breakout session, In addition, Denver has fared well in the face of organized and moderated by University of Colo- volatile oil prices in 2015 due to its low exposure to rado Real Estate Center Academic Director Tom energy companies. However, Northern Colorado Thibodeau, tackled the question of how long the has experienced the opposite, and its industrial real estate boom will last in the Denver Metro area. market is expected to soften as oil production in the The session examined the industrial, office, single- Denver-Julesburg Basin stalls. According to Carner, family, multifamily, and hotel markets. The outlooks there is no Achilles’ heel to Denver’s market as all were mixed, although the majority of panelists were fundamentals are strong. The greatest risk he per- cautiously optimistic. The main factors expected to ceives is nationwide macroeconomic uncertainties. contribute to growth include rising population, low interest rates, continued job growth, and Denver’s Office ability to attract top talent. The consensus is that Nationally, fundamentals for the office market housing will continue to show strength in 2016, but remain strong due to soaring corporate profits not at the rate seen these past years. and healthy bank balance sheets. In Q3 2015, office asking rents increased 2% year-over-year Industrial nationally while Denver increased 6% year-over- The national industrial real estate market expe- year. Denver is in the seventh inning according to rienced tremendous growth in 2015, and Denver panelist Doug Wulf, who is with Cassidy Turley was no exception. Nationally, business inventories Fuller Real Estate. He implies that the boom is not and the industrial production index were at all-time over but may be a little less exciting going forward. highs while availability rates were at the lowest Although he believes that Denver markets in general point, 9.6%, since 2001. Panelist Tyler Carner, will have tempered growth, he thinks the follow- with CBRE, discussed several strong indicators of ing markets will remain hot: River North Art District health in the Denver market, including a record low (RiNo), Lower Downtown (LoDo), Cherry Creek vacancy rate (4.6%), 22 consecutive quarters of North, South Broadway (SoBo) to the former Gates

COLORADO BUSINESS REVIEW 10 rubber factory, and the Southeast Corridor single-family home is at an all-time high of completions totaled 8,149 apartment homes; of Denver’s Transit Oriented Development. $480,000 in Denver. This a 17% increase from 2015 to 2018 that number is projected Denver is expecting job growth but that is over the past two years when evaluated on to be around 7,000 per year, with roughly anticipated to decrease in the future, driving a rolling 12-month average. Prices overall 3,000 per year from downtown Denver. absorption lower. In addition, physical con- have been driven by increased demand but Among the factors that may hinder future struction and land costs have been increas- another trend is emerging: fixed costs of multifamily real estate in Denver rent growth ing over time. That, along with the limited houses are increasing. The increased costs are a lack of growth in the high-income number of well-located sites, will further of municipal permits and rising water costs bracket (above $75,000) and a worker short- limit new office supply in the future. Even are two factors that have bumped up the age. In 2014, the average annual household with factors limiting future supply, Denver is cost to build a home today. Handlin consid- income in downtown Denver was $91,961. still expecting delivery of 1–2 million square ers this a problem as it is slowly eliminat- feet per year during 2016–2018 that will not ing the entry-level single-family home. The Hotels exceed tenant demand. nearly 3,000 decrease in annual single-family Brett Russell with HVS thinks that One trend that is continuing to evolve building permits highlights that new home Denver hotels will experience similar perfor- in the office market is the rent gap between volume has also been slow to recover. This mance patterns to the national hotel market. Class A and Class B properties. The spread is currently creating a shortage of housing, Nationally, occupancy is expected to stabi- is the highest it has been in recent years, especially in areas in or near city centers. lize in the next three years, and the average suggesting that more tenants are willing to Handlin believes that the current new-home daily rate is expected to increase the next pay more for quality. The emerging rent gap volume and overall supply of new single- two years. Hotel values, occupancy rates, is expected to widen in the upcoming years family homes is simply not there. and revenue per available room are expected as tenants continue to gravitate toward more to decline in the Denver Metro area after vibrant and amenity-rich sites. Similar to the Apartment/Multifamily 2016, similar to the national trend. The num- Denver industrial market, falling oil prices Panelist Scott Johnson with Len- ber of hotel rooms currently in the pipeline is have not significantly impacted the Denver nar Multifamily thinks that the growth of more than 5,600, and this supply, along with office market. This is because only 6% of the multi-family markets will continue but at a future construction, is expected to make Denver economy is linked to energy com- much more moderate pace. Year-on-year hotel values dip slightly. Even with moderate pared to Houston, with 17% of its economy rent growth in Q2 2015 was 9.9%, up from expectations, Denver hotels are still seen linked to energy. 9.5% in the previous quarter. The increase as extremely attractive investments to real in rent is a positive sign of demand, but the estate investment trusts (REITs). Notable Single-Family percentage increase is unprecedented and 2015 hotel purchases by REITs include the Panelist Jeff Handlin, with Oread unsustainable for any housing market. Future acquisition of the $72 million Crowne Plaza Capital & Development, reminds us that the projections show rent growth returning to Denver Downtown and the $86 million boom in residential real estate has really more sustainable levels (3–5%) in the next Curtis Hotel. been a two-sided story. For the landhold- three years. In that time span, occupancy ers and developers, the cycle has been projections are anticipated to remain above Justin Lau is a Research Assistant with the Business healthy. For the homebuilders, the com- 94% even with positive projected net migra- Research Division and may be contacted at justin.lau@ bination of low interest and high prices tion. The trailing four quarters of absorp- colorado.edu. have prohibited them from the “boom” tion was 8,500 units in Denver, double the some have experienced. The average new usual amount of absorption. In 2014, net

Scott Johnson, Lennar Multifamily; Tom Thibodeau, University of Colorado Real Estate Center; Brett Russell, HVS; Doug Wulf, Cassidy Turley Fuller Real Estate; and Tyler Carner, CBRE

COLORADO BUSINESS REVIEW 11 Learn, Live, Grow continued from page 9

involvement creates socially conscious indi- economic system of a community, of a viduals who share this community commit- society, of our country, should be designed ment with their place of work. DaVita makes to serve the country and society.” He financial contributions to nonprofit organiza- asserted that many of the world’s problems The CBR is a quarterly publication of the Business ­Research Division at CU-Boulder. Opinions and tions that its employees are involved in. “The cannot be solved without harnessing the ­conclusions expressed in the CBR are those of the volunteerism in America, and , power of the system. Colo- authors and are not endorsed by the BRD, the Leeds is unlike any other country in the world,” rado’s strong economy is what has made School of Business faculty, or the officials of CU. Thiry said. It is difficult for an individual to it a national economic leader and why he View our website: have a tangible impact on the community believes that Colorado is positioned to colorado.edu/business/brd with “one-and-done” volunteering; however, remain a leader for the foreseeable future. Richard L. Wobbekind, editor; Cindy DiPersio, assistant if companies are committed to volunteer- “This is a state and a city that is better editor; Brian Lewandowski, technical advisor; ing, they bring administrative abilities, a level positioned to make the right decisions over Lynn Reed, design. of commitment, and expertise that cannot the next 50 years.” This report is not produced at taxpayer expense. The be attained on an individual level. DaVita University of Colorado Boulder is an equal opportunity/ nondiscrimination institution. effectively gives back to the community with Jackson Rueter is a Student Research Assistant with teams of employees that work with nonprofit For information/address change: the Business Research Division. He may be contacted at organizations to help them develop market- [email protected]. Business Research Division ing and operations functions, for example. 420 UCB University of Colorado Boulder Thiry concluded his address by declar- Boulder, CO 80309-0420 ing “We must always remember that the 303-492-8227