Headwinds, tailwinds for Northern Colorado economy

LOVELAND — Northern Colorado’s economy will experience strong growth in 2016, but two key sectors — agriculture and natural resources — will struggle due to low commodity prices, including energy, cattle and crops.

But look for strong markets in the health-care, banking, commercial real estate and startup sectors.

That was the message from Rich Wobbekind, executive director of the Business Research Division at the University of Colorado Boulder Leeds School of Business, and other speakers at the Northern Colorado Economic Forecast, Jan. 27. Wobbekind was keynote speaker at the event, which attracted more than 500 people to the First National Bank Exhibition Hall at the Ranch events complex in Loveland.

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Wobbekind provided an outlook for the national, state and local economies.

“The U.S. is a strong growth country compared with the rest of the world,” Wobbekind said, noting that the U.S. unemployment rate stands at just 5 percent, with even lower numbers in Larimer and Weld counties, which hover at around 3 percent.

“Colorado is one of the fastest-growing states in the country in terms of employment growth,” Wobbekind said, noting that the top states in the country for employment growth include either strong technology or energy sectors, or both.

In Colorado, “the tech sector has been very strong, and of course, both of those sectors have been growing in Larimer/Weld,” Wobbekind said.

Low unemployment will cause increasing competition for skilled workers, Wobbekind, added.

“Both nationally and in Northern Colorado, we are going to have a shortage of talent,” he said, adding that Colorado needs continued in-migration of new residents, as well as increased participation from the existing labor force.

Statewide, Wobbekind’s forecast calls for slower job growth in 2016.

“Yet the number we’re forecasting, if it comes true, if it is realized, will probably put us in the top five states for job growth again,” he said.

Wobbekind said that consumer consumption has helped the U.S. recover from the worst recession since the Great Depression.

“The consumer has kept the U.S. economy going over the past several years,” he said.

Additionally, low interest rates have contributed to a low debt-burden service, as consumers paid off credit-card debt after the recession. Additionally, wealth has increased significantly, and consumer confidence is strong.

Wobbekind said that, nationally, manufacturing remains a concern, with manufacturing employment on the decline and a strengthening dollar affecting exports negatively.

One area that represents both a positive and a negative for the state and local economy is the high price of housing, which is good for homeowners but bad for would-be homebuyers. Housing appreciation statewide grew by 12.7 percent last year, he noted.

“We have a very, very hot housing market,” Wobbekind said.

That can make it difficult to recruit companies and talent to the Northern Colorado and the state overall.

“We need to be putting more housing on the market,” he said, adding that surging construction prices make it difficult to solve issues with affordability.

The two sectors that Wobbekind believes will struggle in 2016 include agriculture and energy.

“We view this as a difficult year for agriculture based on cattle prices and commodity prices,” Wobbekind said. “We do think that prices are going to make it difficult for farmers to have a banner year.”

That will lead to less demand for tractors, equipment and other capital expenditures for the ag sector.

Low energy prices should be a positive for the national economy, but Wobbekind acknowledged that the state of the energy economy will present challenges for Northern Colorado, particularly Weld County.

“I think you’re going to see a little bit of a shakeout, a little bit of a consolidation (among energy companies),” Wobbekind said.

Among other industry sectors:

Health care

Panelist Roland Lyon, vice president of strategy, market expansion and network operations, Kaiser Permanente Colorado, said the Patient Protection and Affordable Care Act, known as Obamacare, “has really turned the industry on its side,” with employer-sponsored health plans decreasing in number.

That’s made consumers more conscious of the cost and value of health-care services, he said.

“We think that’s a positive,” he said.

But the percentage of U.S. gross domestic product devoted to health care continues to increase, to 18 percent, compared with 5 percent in 1960.
“It can’t continue,” Lyon said, referring to rising costs for health-care premiums, deductibles and services.

Startups

Panelist Charisse Bowen, campus director, Galvanize Fort Collins, described the rapid growth of an entrepreneurial ecosystem in Northern Colorado, with programs at Colorado State University, the University of Northern Colorado and elsewhere helping to promote startup companies and a culture of innovation.

Innosphere, a Fort Collins incubator, last year graduated the largest class in its history, 18 companies, Bowen noted, with 120 companies having gone through the incubators doors since its opening.

She noted that Galvanize Fort Collins, located on Linden Street downtown, opened with 75 percent occupancy and now ranks as the most-occupied of all Galvanize locations.

“It’s a true testament to what is happing in the startup scene here,” Bowen said.

Banking

Panelist Jamie Hardy, senior vice president and manager of healthcare banking, Guaranty Bank and Trust, noted that the Colorado banking sector now employs 22,000 workers, with $1 billion in payroll and $126 billion in assets.

Banks have recovered from the financial woes of the Great Recession, Hardy said.

“We have surpassed, in terms of assets, deposits and loans the pre-recession levels,” he added, adding that non-accrual loans and other real estate owned — properties taken back by banks — have both gradually declined nationwide.

“Balance sheets are extremely strong right now,” he added, noting that consolidation among financial institutions likely will continue.

“I would not be surprised to see some more this year,” he said.

Commercial real estate

Panelists Jessica Ostermick, director of research and analysis — Colorado region, for CBRE, and Kyle Lundy, vice president, senior adviser, CBRE – Northern Colorado, said the Northern Colorado commercial market remains very strong, with the office market enjoying higher rental rates and lower vacancies.

Office demand is particularly strong in the technology sector, creative industries, and health care and insurance sector, with agribusiness expected to see increasing demand.

Industrial space has not yet felt the effects of lower energy prices — energy companies use large chunks of industrial square footage — but CBRE has spotted some increase in industrial space available for sublease.

“This industry has been so important to absorption,” Ostermick said. “We think it’s going to pause.”

Ostermick noted that the Northern Colorado apartment market has been exceptionally strong, with 5,000 of 20,000 existing units being built in the last five years, adding that the new supply should help slow the growth of rental rates.

The retail sector will continue to absorb the effects of redevelopments of Foothills Mall in Fort Collins and Twin Peaks Mall in Longmont. But the region’s growth has brought significant new national retailers, including Trader Joe’s, Nordstrom Rack and Costco, Lundy said.

On the negative side, e-commerce will pose challenges for traditional retailers.

“It (e-commerce) has put a little dent in our brick-and-mortar footprint,” she said.

Lundy noted that Northern Colorado has begun to attract large out-of-state investors, including real estate investment trusts, lured by the region’s growing population, strong demographics and diversified employment base.

“A lot more investors are willing to come here,” he said.

Presenting sponsors for the Economic Forecast included Coan Payton & Payne LLC, Guaranty Bank and Trust Co., Monfort College of Business at the University of Northern Colorado, CBRE and Kaiser Permanente.