Democrats Are Coming,
But Is That Enough?

Expectations are a mile high in Denver, where a hotel boom and a brisk job market have bolstered the city's downtown as it prepares to host the Democratic National Convention in August.

The city's commercial core now counts roughly 7,400 rooms, with the largest of its recent additions being the 1,100-room Hyatt Regency at Colorado Convention Center that opened in late 2005. At least eight projects at various points of planning and development stand to add 1,400 rooms to that downtown inventory over the next three years. That compares to more than 1,000 new rooms planned in downtown Dallas, 1,400 slated for downtown Phoenix and 123 in downtown Salt Lake City.

Stoking Denver's market for the hotel proposals is the convention center, which completed a $311 million expansion in 2004 and has since hosted gatherings of the International Association of Fire Chiefs and the Custom Electronic Design & Installation Association, among others. Those lined up for this year include the National Performing Arts Convention in June and the Democratic convention in August.

The Mile High City has matured and diversified from its dark days in the 1980s, when an oil bust left many downtown office towers mostly empty. The metro area, with a population of 2.6 million, added 24,000 jobs last year, a 2% increase when many comparable cities posted smaller gains -- or losses. That growth has bolstered Denver's office and hotel markets but also contributed to slight overbuilding of its retail market.

Still, even bullish market observers concede that not all of the proposed hotels will be delivered, especially if the credit crisis persists and commercial-construction lenders remain stingy. But those observers point out that Denver's downtown hotels have thrived since the expanded convention center and its Hyatt opened. The downtown market chalked up an occupancy rate of 69.5% and an average room rate of $147 at the end of last year, up from 68.5% and $135 a year earlier, according to hospitality consulting firm Horwath HTL.

"There are probably 10 to 15 projects being talked about today," said John Montgomery, managing director of Horwath's Denver office. "A few of them will slip out and not happen. But do I think the rest of them will happen? Absolutely."

Fueling Denver's job growth have been the energy sector as well as professional services, financial services and government jobs. The area's unemployment rate was 4.7% in January, below the national rate of 4.9% but higher than Denver's 4.4% rate in January 2007.

The added jobs have helped buoy Denver's office market. The vacancy rate stood at 12.6% at the end of last year, down from 14.2% a year earlier, according to brokerage CB Richard Ellis Group Inc. The average lease rate of $20.08 a square foot marked a 10% increase from the year-earlier level. Net absorption -- the amount of additional space leased -- amounted to 2.5 million square feet last year, or roughly 2% of the market's leasable square footage.

Roughly 2.2 million square feet of office projects are now under construction in Denver.

Though Denver's absorption of office space continues to outpace its construction of new office projects, vacancies could rise in some parts of the metro area in 2009 and 2010 because of an anticipated wave of new projects, according to CB Richard Ellis.

But Denver isn't immune to the national slowdown in consumer spending. The area's housing market registered a 3% decline in sales of previously owned homes in February from a year earlier and a 4% decline in average resale price, according to Metrostudy Inc.

With shoppers nervous, Denver's retail vacancy rates climbed to 6.4% from 5.5% a year earlier, and average lease rates slid to $16.10 a square foot, down from $16.62, according to CB Richard Ellis.

Email your comments to rjeditor@dowjones.com.