Denver-area real estate industry points to economic, political headwinds

Headwinds — economic, political, social — continue to batter the real estate market nearly three years after the start of the pandemic and industry representatives see collaboration with public officials as key to revitalizing downtown Denver and meeting the demand for affordable housing and other needs.

High inflation, rising interest rates and costs and new government requirements are creating more challenges as business districts struggle to rebound in the face of still-empty offices and less foot traffic, according to speakers at a forum Tuesday.

The developers, builders, bankers and investors assembled by Bisnow, a commercial real estate media and services company, said it will be important for the new Denver mayor and administration to collaborate with the business community.

“From the municipal levels along with private development, we need to be working together,” said Haroun Cowans, founder and CEO of Goshen Development. “I believe counties as well as local governments should be working together to see how private investors, how private developers are able to be innovative.”

That collaboration is needed, industry representatives said, as business and civic leaders work to rebuild the vibrancy of downtown before the coronavirus pandemic erupted in March 2020, shutting down restaurants, stores and many offices.

“We’re starting to see some rebound. The return to the office is improving,” said Matt Teeters, regional president for Alpine Bank.

In January, the number of employees working downtown was roughly 55% of the pre-COVID levels, Teeters said. Pedestrians downtown currently total about 180,000, compared to 230,000 for the same period in 2019.

“So there’s an improvement, but it’s still probably not vibrant enough to carry downtown,” Teeters said.

The vacancy rate of office buildings in downtown Denver ranges from 20% to 24%, depending on how it’s measured, said Billy Woodward with Unico Properties.

At the same time, businesses are operating in what several speakers called “a unique environment,” one in which stubborn high inflation has spurred the Federal Reserve Board to keep raising interest rates to slow price increases even as job growth stays strong.

“It’s different this time. It’s unique that we’ve had two negative quarters of GDP growth but still had positive employment growth. The Fed has flipped from worrying about inflation to worrying about wage inflation,” said University of Denver professor Glenn Mueller.

The Fed keeps moving the goalposts when it comes to its policies and goals for dealing with inflation, some of the speakers said.

The higher interest rates have reshaped investors’ expectations of the real estate market, Teeters said. “The last 10 years, we lived on cheap money. It microwaved expectations.”

Teeters said what he hears now from investors is a reset of expectations. “They’re probably looking to source more patient, longer-term capital.”

Industry representatives said they are also looking to public officials for more give and take on policies and regulations that they say can run up business costs and delay projects.

For instance, Mark Witkiewicz, a principal with Westside Investment Partners, is keeping an eye on bills in the Colorado legislature that deal with metropolitan districts. He worries that some of the legislation could end up costing developers and property owners money. The legislature is responding to homeowner pushback in some metro districts. In at least one case, homeowners have taken over the metro district board and filed lawsuits against the developers, though the courts so far have sided with the developers.

There are also concerns about a Denver ordinance aimed at phasing out gas-fired water and space heating and cooling in buildings. The Denver ordinance and state codes promoting electrification of new buildings are an attempt to increase the use of renewable energy  and reduce greenhouse gas emissions.