A June 19 Colorado Office of State Planning and Budgeting economic forecast sees continued slowing in residential and nonresidential construction throughout this year and into 2003 — with a more dire look than previous forecasts.
State economists reported residential construction down 9.4 percent in April from April 2001 and nonresidential construction, excluding public projects like schools and roads, down 4.7 percent year-to-date through April.
Colorado’s hot housing market in 2000 and 2001, when the state hit a 22-year high, contributed to an oversupply of homes in Colorado Springs and Denver markets. The economists expect market corrections will drag construction spending this and next, particularly in apartment construction.
State economists call for a 21.5 percent downward correction this year in residential home construction permits and an additional 9.2 percent drop next year. In April, the forecast projected an 18.4 percent decline in home-building permits and another 3 percent decline before economic recovery might produce moderate residential construction growth.
Multi-family home permits could fall by 28.5 percent this year, according to forecasters, with smaller continuing declines seen through 2003. The more substantial drop in multifamily home permits was attributed to booming apartment construction the past two years, up 46.8 percent in 2000 and 16 percent in 2001.
The average apartment vacancy rate was 8.7 percent during the first quarter of 2002, according to the forecast, the same as fourth quarter 2001 but higher than the same period last year. Apartment vacancy rates peaked in the mid-1980s at 13.5 percent.
Apartment owners have seen the first back-to-back quarters of rent rate declines since the mid-1980s, which the forecasters blame on overbuilding in high-end luxury apartments.
Nonresidential Construction Slumping
The state enjoyed the third-highest nonresidential construction peak in 2001, valued at $3.3 billion, but through April, that had declined by 4.7 percent compared with the same 2001 period. While retail construction was up 26.2 percent compared with a year earlier, office and factory construction dived 46.1 percent and 69.2 percent respectively during the same period.
Forecasters think continued consumer spending during the recession will mean a quicker recovery in nonresidential construction than in the past. However, they see a 12 percent decline this year and a 9.7 percent nonresidential construction decline next year with modest recovery in following years.
National economists have projected that more business spending will be needed to continue economic recovery, emphasizing that continued consumer spending can’t be expected without business growth and capital investment.
Public Works Mania
Large public works projects are compensating for private sector declines, especially major Denver road and building projects that are underway, the forecasters said. They pointed out the $1.7 billion T-REX Interstate 25 highway construction, the planned $400 million Children’s Hospital and $285 million Denver convention center expansions, $200 million-$250 million in Denver International Airport runways, the $132 million Civic Center office building, and the $62.5 million Denver Art Museum improvements.