Economic surge not without its challenges
Last Updated: 15:58 January 22, 2014
From rising interest rates to stagnant wages to lasting effects of September's flood to a lack of space for Boulder businesses to grow, there are still plenty of reasons to at least keep in check the enthusiasm surrounding the improving economy.
That was a general theme at the Boulder County Business Report's CEO Roundtable focused on the economy that featured several area executives.
Richard Wobbekind, executive director of the business research division at the University of Colorado-Boulder's Leeds School of Business, reiterated the economic forecast he's been giving for the state. That is, he sees robust growth for the state's economy, with hiring levels expected to increase in most industries. Colorado, he said, is among the top five states in the country in the context of growth even as the national economy picks up steam.
Jackie Osborn, chief executive at Bolder Staffing Inc., said her firm is seeing a 20 percent uptick in orders from businesses looking for workers in a wide range of sectors, including manufacturing. She added that she sees more old jobs coming back as businesses ramp back up to capacity. And Frances Draper, vice chancellor for strategic relations at the University of Colorado, pointed out that recruiter activity is picking up significantly on campus.
All of that said, Osborn noted that wages still have been depressed locally, even for high-level earners, and even at a time when businesses are having trouble filling all of their positions due to workforce shortages.
"I assume the wages will come back, but they're not there right now," Osborn said.
Two industries that have enjoyed noted growth and activity in Colorado recently are health care and energy.
Wobbekind said the recently enacted Affordable Care Act creates incredible advantages for large health-care organizations, which will continue to drive the acquisition of smaller practices and facilities. He said the ACA will help increase affordability of care, but patients will be seeing their local doctors less as the industry transitions to larger organizations. He said he sees "a few big monsters" battling it out.
"It's not a mom and pop shop business anymore," Wobbekind said.
The energy industry has garnered plenty of attention locally largely because of bans on hydraulic fracturing enacted by local communities. Ironically, the oil and gas industry doesn't contribute a lot of direct jobs locally as there's not much fracking or drilling in Boulder and Broomfield counties. But as the drilling and fracking booms continue to the east, the industry does help support many professional services in the metro area.
The energy industry effects area real estate brokers as they advise landowners on sales. Karen Bernardi, owner of The Bernardi Real Estate Group, said no longer are those discussions just about the land and water value but also the mineral rights involved.
"It's really an interesting play we're seeing right now," Bernardi said.
With low inventory of homes on the market, Bernardi said the residential real estate sector will continue to be strong this year in a fairly balanced, yet still seller's, market. As the stock market surges, high-end home sales in particular will follow suit. One area where she does foresee some turbulence, however, is in Longmont.
Longmont was the local community hit hardest by foreclosures when the housing bubble burst. The town's residential market was enjoying a nice recovery, but Longmont was also one of the hardest-hit by September's flood, with many homes suffering major damage in areas where few if any residents had flood insurance.
"When you have a $300,000 home and your damage is $100,000, some people are walking away again from these properties," Bernardi said. "It's going to make a big difference in the short-sale market and banks and things again that we thought we were out of the woods on. And I don't think we are."
Brad Lesch, vice president of First Citizens Bank in Boulder, said he expects interest rates to keep creeping upward. Coupled with the Dodd-Frank Act that tightens lending rules for banks this year and could make home loans tougher to come by, those factors could at least slow some of the residential real estate growth.
But Lesch also noted that some banks have loosened some of their own lending practices a little as the economy improves, which is helping fuel new construction.
"The banks need to make loans, so it's become a very competitive environment throughout 2013, which is good," Lesch said.
In the commercial realm, Lesch said he's seeing more small- and medium-size businesses wanting to own real estate as an asset.
"I've seen what I think is great news in that area in that I've seen a whole lot more land sales, a whole lot more commercial construction, and a lot of expansion," Lesch said. "We didn't see that until 2013 came around."
In the commercial real estate realm, Gibbons-White Inc.'s vice president of brokerage services Chris Boston said there's been across-the-board strength in Boulder with respect to increasing lease rates and decreasing vacancy. That in turn is helping lead into spillover recovery in towns like Longmont, Louisville and Lafayette. He said 2014 will continue to see vacancy rates decrease in all types of properties, from retail to industrial to office.
While the strength is across the board, Boston noted in particular the extremely low warehouse vacancy in Boulder in response to a question about how the marijuana industry is affecting commercial real estate. Grow operations, he said, have snatched up much of the available space.
"If you're working with a company that needs distribution space or warehouse space, it's very hard to find in Boulder County," Boston said.
A lack of space is one of multiple challenges facing businesses in Boulder, especially in the fast-growth tech startup scene.
Clif Harald, executive director of the Boulder Economic Council, said Boulder's robust and diverse economy is something to be proud of and not taken for granted. He pointed out that the city has 550 to 600 primary employers, or businesses that primarily export their services and products to other areas thus bringing money into the local economy.
Plenty of new commercial development is on the way in Boulder, but to some extent it can't keep pace with some of the economic growth that's happening now. Expanding local companies are challenged to find not only space but also talent, from software developers to executives.
"It's becoming much more challenging for growing businesses to continue to see the magnitude of growth they'd like to see, not just in Boulder, but the Denver metro area in general," Harald said.
At the University of Colorado, a major piece to Boulder's economic puzzle, the economic pressures are more monetary as federal research dollars and state funding continue to decrease.
Draper, CU's vice chancellor for strategic relations, said state funding for higher education is actually increasing this year, and she's hoping that continues for a couple of years.
"But we still anticipate that over the long haul money for higher ed is headed down to zero just because of all the other pressures on the state budget," Draper said.
CU Boulder receives 4 percent of its budget from the state, which amounts to a little less than $3,000 per student when the cost of educating them averages $22,000 each. Only eight years ago, Draper said, CU Boulder received about $8,000 per student.
Draper said CU received about $360 million in federal research money last year. While CU remains a top-tier research institution nationally, federal budget cuts and increased competition from some 1,400 research institutions receiving federal money continue to make those dollars tougher to come by.
Harald noted that threats to federal research funding levels at CU is nothing for Boulder as a whole to take lightly as Wednesday's discussion turned to town-gown relationships. Much of the research that has been done at CU has spun off into positive economic impact for the town and helped to influence the innovative culture in the community.
"Who Boulder is today kind of goes back to the university for many decades, or more than a century now," Harald said.
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