What were the Defining Moments of 2008?
Question of the Week
By Jack Box
Frederick Ross Company
As I write this I am remembering the last severe economic downturn. I was in New York City at a conference in October 1987 on "Black Monday," when the Dow fell more than 500 points in a single day, losing 22.6 percent of its value – the largest one-day percentage decline in stock market history. There was shock and dismay as people kept leaving the conference to receive margin calls from their stock brokers and we all wondered what it meant. So what is different this time, especially from a real estate perspective?
In the 1980s, the Denver real estate market went through the most explosive growth in its history. In particular, from 1979 to 1984, fueled by the energy boom, the Denver office market grew from 26 million square feet of office space to more than 57 million sf, resulting in a vacancy factor of 25 percent and plummeting rental rates.
Then, in the last gasp of a failing savings-and-loan industry, six large new office projects all commenced construction at the same time in the Denver Tech Center, which put the frosting on the office-glut cake. Shortly thereafter we were dealing with what we all came to call the "triple witching hour," where the impact of the S&L crisis, a prime rate above 20 percent, and a change in the tax laws eliminating many of the investor tax benefits of real estate ownership, combined to send the Denver real estate market into a "great real estate depression."
This time, from a real estate perspective, it is much different. Unlike the late 1980s, when Denver, Dallas and Houston were in the bull’s-eye of the energy bust and suffered the most from the downturn in the economy, Denver is on the other end of the spectrum.
If you could turn off all media coverage of the outside world and instead just view Denver’s current economic performance, you might say "Denver’s not doing too badly." The thinking here is this: Denver will ride out this crisis more decisively than in past down cycles and will emerge a national leader.
Some key facts:
- Denver has maintained positive job creation over the past year.
- Denver now enjoys a well-diversified economy, with aerospace, renewable energy, biosciences and technology companies thriving.
- While our economy is still steeped in traditional energy businesses, the industry makes up a far smaller percentage of our gross domestic product and office tenancy than it did 20 years ago.
- The credit crunch has limited office developers, who have gone vertical with only the most viable of projects, and as the economy recovers, Denver will not have a glut of oversupply to work through.
- Denver’s housing market is showing signs of recovery, unlike most U.S. markets, which are still suffering from oversupply and hyperinflation. In October, the supply of unsold homes plummeted to a three-year low and housing starts are at a historic low, moving the market toward equilibrium.
As 2008 draws to a close, it is important to step back from overriding concerns about the economy and remember some of the year’s most significant positive events:
- This summer, Denver shone in the international spotlight as host to the 2008 Democratic National Convention. The event was flawless and created a regional economic benefit of $266 million.
- Denver’s northwest sector is poised to emerge as a world-class renewable energy hub, driven by the synergy of major projects planned by ConocoPhillips and Vestas, and our unparalleled intellectual capital at the University of Colorado, Colorado State University, Regis University, University of Denver, Colorado School of Mines and National Renewable Energy Laboratory.
A new generation of super-premium, LEED-certified buildings is transforming the Denver skyline and has enjoyed strong preleasing. Recent deliveries include Palazzo Verdi, One Lincoln Station and 1401 Wynkoop and major projects, such as 1800 Larimer and 1900 16th Street, will be completed in the next 12 to 18 months.
We are truly fortunate to live in a market that much of the rest of the nation envies. While the media is busy pumping doom and gloom into our living rooms, we see the situation here differently. Once the global markets recover – most economists suggest a rocky ride through 2009 – Denver is poised to perform extremely well, as investors and businesses benefit from our solid economic dynamics. We are working hard to ensure that outcome.