Moodys Assessment of Metro Denver Commercial Real Estate Health Indicates Weakness

The rating firm Moodys does a periodic report intended to measure the health of commercial real estate markets in the U.S. by metro area as part of their assessment of commercial mortgage backed securities (CMBS).

Denver's commercial real estate sector has generally been perceived in the media to be healthier than many markets across the country but the data in this report suggests this assessment should be reconsidered. Overall, Denver has a low yellow score which indicates substantial weakness. Denver is ranked 41st out of 60 major metro markets in terms of commercial real estate health. For those people employed in the Front Range's construction sector and local real estate development buffs such as myself these scores are, not surprisingly, a cause for concern.

Of course any metro wide measurement of real estate market health can mask conditions in localized sub-markets and individual sectors which should be specifically analyzed when considering any given project proposal.

First a bit about the study's methodology and then details on the Denver Region's scores. According to Moody's:

"The scores are derived using supply and demand forecasts, as well as current
market conditions and momentum. The report is based on data from
the fourth quarter of 2008"

Each real estate sector (Multifamily, Industrial, Office: Central Business District, Office: Suburban, Retail, Hotel: Full Service, and Hotel: Limited Service) is given a ranking between 0 and 100, 0 being the lowest, least healthy score.

RED=Less than 33 (Unhealthy)

YELLOW=34-66

GREEN=67 or more (Healthy)

Now the Metro Denver Results Based on Fourth Quarter 2008 Data

Clearly Moody's believes the hotel and suburban office property sectors are extremely unhealthy in Metro Denver today and unlikely to experience additional new development in the short to medium term. Even the CBD office market, which is in better supply demand balance than it was in the eighties and nineties is currently in a low yellow status. The multifamily sector is the single source of strength in Metro Denver's commercial property markets.

No one study or report should be taken as the final word in assessing something as complex and fluid as a region's commercial real estate market health but people with rosy short term assessments of the Denver property markets would be well advised to consider these results as they make short term decisions and long term plans

Full Report Name: CMBS: Red - Yellow- Green Update, First Quarter 2009 Quarterly Assessment of U.S. Property Markets, April 21, 2009.