Friday, May 31, 2013

Brahos: 'Avoid euphoria'

A good summary of the real estate buzz in several cities including Denver and Boulder. Some relevant passages: 

John E. Starke, a veteran real estate investment strategist in Denver, said that foreign and domestic investors were active in Denver’s commercial real estate last year. Colorado’s economy expanded by about 3.9% in 2012, according to Starke. That’s good, but not great for a recovery, he says. And, Starke doesn’t expect that rate to increase in the next several years. Commercial real estate activity around Denver jumped in 2012, but is now flattening a bit. Office vacancy rates declined by about 12.2% last year.
The darling sector in each of our cities, as it is nationwide, is multifamily rental housing, according to panelists at the various forums. They feel this largely reflects a major decline in homeownership caused by collapse of the housing bubble, the recession and tighter lending standards. It may also reflect disillusionment about homeownership among younger “Generation-Y” families. Regardless of the reason, rents are climbing and apartment vacancy rates have slipped to about 5 percent nationwide. In Denver, the vacancy rate is down to 4.9% 
But multifamily housing is an exception to the general picture. Demand for rental apartments surged in part because the housing bust and recession turned millions of homeowners and would-be homebuyers into renters. By contrast, demand for office and retail space ultimately depends on increases in employment and personal income. 
Our takeaway: avoid euphoria.