Economic Forecast Breakfast provides food for thought

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Several hundred business and community leaders listened intently last week as four local experts on the Springs economy shared economic insights at the annual Institute of Real Estate Management (IREM) Economic Forecast Breakfast Tuesday, Feb. 29. Mike Anderson, Director, City Office of Budget and Financial Analysis; Doug Carter, of Doug Carter, LLC, and authority on the local multi-family market; Dale Stamp, President of Grubb & Ellis/Quantum Commercial Group; and Rocky Scott, CEO of the Greater Colorado Springs Economic Development Corporation (EDC), all offered research and projections for the year ahead.
Mike Anderson opened the program with an overview of sales tax receipts, by industry as well as related employment figures, lay-off statistics and other factors affecting the Colorado Springs’ economy. His message to the business community was clearly to “plan conservatively” and “stay realistic.” Pointing to falling energy prices and attractive low interest rates as positive factors in 2002, he also explained that the overall national economy, plunging stock market, recent layoffs and dropping consumer confidence (although end of January consumer confidence did see a slight uptick) will continue to adversely affect Colorado Springs’ residents. “Sales tax receipts for the past 12 months provide an excellent barometer of our local economy,” said Anderson, “And, from November 2000 through November 2001, we saw declining sales tax revenues throughout the State.”
Anderson believes that a full recovery will take time – even if the majority of economic indicators began rebounding immediately. “Economics is not an exact science,” says the veteran analyst. “We will be watching very carefully in coming months, and may have to adjust the City Budget to reflect changing economic conditions.” Those changes are not expected to include additional City layoffs.
Sixty percent of City revenues come from sales tax collections with additional dollars provided from utilities, property taxes, use taxes and state or federal funding programs. Anderson does foresee a jump in Federal dollars funneled to the Pikes Peak region by local Department of Defense (DOD) contractors who win a portion of the additional $48 billion to be approved by Congress this month for Defense and another $13 billion for Homeland Security. “The trouble is that the DOD pipeline moves slowly,” he says, “and it could take 12 to 18 months for a company to be awarded a contract.” In the meantime, Anderson expects a 2.7 percent increase in City sales tax collections in 2002, but admits that an expected 2.9 percent inflation rate could erase most of those gains. “It remains a challenge to continue to deliver the City services we all expect with tightening revenues. And, like Rocky Scott says, our under-funded transportation system, for example, could ultimately keep companies from wanting to move to the Pikes Peak region.”
While Carter and Stamp focused on the multi-family and office, industrial and retail real estate markets, and hoped for a brighter second half for 2002, both stopped short of promising a quick recovery. Carter did remind attendees that in spite of trends downward in the construction of new multi-family units as well as in rents and occupancies (particularly of newer, pricier apartments in the Northeast Pikes Peak region ) that the market as a whole is not overbuilt. “This economic slump is not as deep or as bad as in the late 1980s and early 1990s,” he pointed out. Carter also said that banks and financing institutions had not allowed spec construction of new complexes as in the past, thereby keeping vacant inventory to acceptable levels (ranging from five percent in southwestern Colorado Springs to a high of 30 percent vacancy rates in the Northeast quadrant). His projections of a 7.5 percent overall vacancy rate through 2002 represent a fall from last year’s five percent or lower numbers – but are still fairly strong in view of the national economy.
Dale Stamp reviewed Grubb & Ellis’ projections for second tier cities, like Colorado Springs, and confirmed local commercial realtor assessments that large blocs of sublease space will continue to plague the market – at least through mid-2002. Stamp’s research also indicated that Central Business District office rents in secondary markets will likely slide (nationally this equates to an average of $37 per square foot from a high of $45 per square foot in 2001). The same trend is expected for suburban office space, with all-inclusive rents expected to drop from last year’s high of $28 per square foot to a more conservative $23 per square foot. He did point out that for real estate investors, the economic crunch may actually result in new, more desirable properties coming onto the market. “In 2001, we saw just $250 million in investment sales – that’s half the deals closed a year earlier because there just weren’t enough good properties for prospective buyers. This year should be much more attractive for investors.”
Scott provided the Breakfast’s final overview. He was a bit more pessimistic than in years past, but announced EDC’s plans to beef up Web-based prospect marketing and lead generation programs and to generate increased responsiveness from state, city, utilities and community sectors necessary to the economic development process. He noted that as a result of current layoffs, Colorado Springs can offer a qualified, educated high tech labor pool and plentiful real estate, but has many competitors with the same resources. “Once high tech companies are back on their feet, they will want to move quickly. Firms like Intel can save as much as $30 million by cutting 30 days from the approval process, says Scott, noting the increasing importance of responsive city and state governments. Scott believes that leaner corporations will emerge from the present economic downturn – and Colorado Springs’ ability to differentiate itself from other cities of similar size and resources depends on the commitment of community leaders to work as partners with expanding companies.
NOTE: Since Anderson’s address, City sales tax receipt reports for December 200 show a 5.7 percent decline over the prior year period. During the month, Auto Dealers saw a 17.88 percent gain, followed by Utilities with a 6.09 percent gain, and Restaurant, posting a 2.87 percent increase. From the same January 4, 2002 report, “Industries that reported decreases this month were Sales to Business down (27.66%), Hotel/Motel down (23.01%), and Furniture/Appliances/Electronics down (13.63%). Utilities lead the biggest gainers for the year with a 31 percent gain, followed by Restaurants at 3.78 percent.