2017 Closed out as a busy year, but the question I constantly get is are we in a boom or bust? I think with standard economic statistics it’s a little easier to define this as we have measurements like GDP. However, in real estate, I think this gets much more tricky due to the local relationship with the combination of timing adjoined to either the capital markets or other economic challenges like municipal laws, or population segmentation as a whole.All of that to say, I will take a bold move and state that I anticipate 2018 to be a SLIGHT bear market when it comes to commercial real estate. I emphasize the term “slight” because so many of the indicators continue to grow while 2017 numerically is trailing the results for 2016 in each of the real estate sectors. Some of this could be due to the lag between the general economics that real estate has, and some of it may be simply due to the timing shift within the industry. Now, I can only say this with the following data as my guidepost:

Construction defects! While there has been attempts to fix the laws around builders and construction defects, the numbers defiantly support the theory that it’s better to build apartments in Denver than condo’s or townhouses in the last 5 to 6 years. In fact, it looks like  2017 averaged $251k per unit, which is still higher than the reported  $average of $196k per unit in 2016. Or, another interesting stat for this segment is that the average per square foot sales in 2016 was $223, while 2017 shows $270 psf.

Collaborative & remote work space? These are the two terms I keep hearing about as I talk with users as we continue to see a somewhat of a plateau in this sector. Granted, this would completely change if we see Amazon HQ2 select Denver, but I consider that a bit of a pipe dream as we don’t have too many national / international head quarters in our portfolio. The one thing to keep in mind that may also change in this sector is the fact that GAP accounting is changing rules in how leases show up on the balance sheet. This could push some long term leases to now convert to buy, but I think there will be a lag impact to this rule that we will not see until 2019 or later.

Amendment 64 is still impacting as it passed at the end of 2012. However, with several other states now having marijuana on the ballot, or in place, for either medicinal or recreational purposes Denver is no longer the pilot market for the industry. Not to mention, there were several sites brought to market between the last couple of years that I think are pushing into other sub markets (outside of Denver County).
Big box stores should be fearing Amazon! The channels of distribution have drastically changed for retail, and if retailers can’t catch up with the market place they will have much bigger challenges to contend with. This isn’t to say we will not have a need for retail in terms of brick and mortar, it’s just that there is a change in place that needs to be identified before evaluating any retail decision.

There not making any more of it. It’s crazy to think we had an average price per square foot of $73.86, but when we identify the fact that this is based on only 54 transactions for the year it helps to explain things a little more. I say this because my personal land deals only work if the numbers are in the single digit so I’m identifying the fact that some transactions in this segment are not the norm for the industry – even if the numbers add up to this type of an aggregate amount.

* All data provided by CoStar Market Analytics filtered for Denver County only.

Disclaimer: All information provided is not intended for investment advice. Please contact me directly if there are any further inquiries on the data presented above.

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Denver – Boom or Bust?