U.S. Industry and Economic Outlook Some Questions to Ponder

Transcription

1 U.S. Industry and Economic Outlook Some Questions to Ponder Michael P. Niemira Vice President, Chief Economist & Director of Research International Council of Shopping Centers 1221 Avenue of the Americas, 41st Floor New York, New York A Presentation for the 2013 ICSC-CSCA Canadian Research Conference May 14, 2013

2 International Council of Shopping Centers Founded in 1957, the International Council of Shopping Centers (ICSC) is the global trade association of the shopping-center industry. With over 60,000 members in the U.S., Canada and more than 80 other countries, its members include shopping-center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. As the global industry trade association, ICSC links with more than 25 national and regional shopping center councils throughout the world.

3 Highlights How s s Business in the U.S. Shopping-Center Industry? Risk and Reward Neighborhood Centers, Power Centers Doing Well Watch Out for Expenses How s s the U.S. Economy? What Was Learned from the Recession? The Wealth Effect Improves Have Consumer Services Come Alive? What is Potential Growth? ICSC Forecast

4 U.S. Shopping-Center CRE Fundamentals Healthy for Both Public and Privately-Held Sectors

5 U.S. Retail REIT Returns Have Fully Recovered from Recession REIT Total Returns 2013 YTD AVERAGE (Through April 30, 2013) Index (1993=100) 2,400 2,000 1,600 1, INDUSTRIAL/ OFFICE RETAIL RESIDENT IAL (MULT I-F AMILY) DIVERSIFIED HEALTHCARE LODGING / RESORTS SELF STORAGE Source: NAREIT 2,400 2,000 1,600 1,200 Retail

6 What Do We Know About U.S. Shopping-Center Risk? Higher Return and Higher Risk Standard STDDEV Deviation NOI Return vs. Risk.9 Super Regional.8 Regional Period 2000/Q1-2013/Q1.4.3 Power Community.2 Neighborhood U.S. Dollars MEAN Per Quarter Source: NCREIF; ICSC Research. As would be expected, higher returns are associated with higher risk and vice versa. Power and neighborhood centers have the lowest risk profile. Risk/reward profile explained shift to less risky center investment during the last recession and a shift to the more risky in the aftermath of recession.

7 U.S. Retail REIT Total Returns Up 17.34% YTD in 2013 Investment Performance by Property Sector and Subsector April 30, 2013 Number of Total Return (%) Dividend Sector Constituents April 2013: YTD Yield (%) FTSE NAREIT All Equity REITs FTSE NAREIT Equity REITs Industrial/Office Industrial Office Mixed Retail Shopping Centers Regional Malls Free Standing Residential Apartments Manufactured Homes Diversified Lodging/Resorts Health Care Self Storage Timber Infrastructure FTSE NAREIT Mortgage REITs Home Financing Commercial Financing Source: FTSE TM, NAREIT.

8 But Expense-Pressures Building U.S. Shopping Center Industry Performance U.S. Dollars Per Square Foot (SF), Unless Otherwise Noted ALL SHOPPING CENTERS NATIONAL ANNUAL QUARTERLY INCOME AND EXPENSES ($/SF) Total Operating Income $24.68 $23.81 $24.36 $6.26 $6.36 % Change from Prior Year Total Operating Expenses $8.44 $8.13 $8.12 $2.10 $2.12 % Change from Prior Year Net Operating Income $16.24 $15.68 $16.24 $4.16 $4.24 % Change from Prior Year ADDENDUM U.S. Shopping-Center NOI Growth Strong in Q1 Occupancy Rate (%, End of Period) Source: National Council of Real Estate Investment Fiduciaries

9 U.S. Shopping Center Industry Performance By Center Type SELECTED SHOPPING CENTERS SEGMENTS NATIONAL U.S. Dollars Per Square Foot (SF), Unless Otherwise Noted ANNUAL QUARTERLY NET OPERATING INCOME ($/SF) Neighborhood Centers $12.80 $13.14 $14.18 $3.51 $3.75 % Change from Prior Year Community Centers $14.03 $12.20 $12.28 $3.04 $3.30 % Change from Prior Year Power Centers $10.42 $10.85 $11.84 $3.06 $3.06 % Change from Prior Year Regional Malls $21.32 $20.50 $19.84 $5.22 $5.21 % Change from Prior Year Super Regional Malls $21.56 $21.88 $22.40 $5.88 $5.54 % Change from Prior Year Source: National Council of Real Estate Investment Fiduciaries

10 U.S. Shopping-Center Net Operating Income $4.80 Trend Projection (Shaded Area) Very Favorable for 2013Q2-2015Q4 But There Are Fundamentals that Could Alter This Projection $4.80 $4.40 $4.40 U.S. Dollars Per Quarter $4.00 $3.60 $3.20 Will NOI Break Previous High This Year? Marker to Watch $4.00 $3.60 $3.20 $ $2.80

11 CRE Borrowing and Lending Much Improved

12 Net Percentage Net Percentage of U.S. Bankers Tightening Standards for Commercial Real Estate Loans Easiest CRE Lending Standards Since 2005 Modest Easing in Q CRE Lending Standards, But Easiest Since Net Percentage Source: Senior Loan Officers Survey, Federal Reserve Board Supply of Funds A moderate net fraction of domestic respondents to the April survey reported that they had eased standards on CRE loans over the previous three months. Meanwhile, foreign respondents reported that standards were about unchanged. In addition, significant net fractions of domestic banks reported that demand for CRE loans had strengthened, while a moderate net fraction of foreign respondents also reported having experienced stronger demand for such loans.

13 CRE Borrowing Demand Is Strong 60 Net Percentage of U.S. Bankers Reporting Stronger Demand for Commercial Real Estate Loans Commercial Real Estate Borrowing Demand Remains Strong Net Percentage Net Percentage Demand for Funds Source: Senior Loan Officers Survey, Federal Reserve Board

14 U.S. Outlook and Understanding the New Dynamic

15 A Brief Recap The Recession Was NOT a Great Recession BUT a LONG ONE Longest in Postwar History (18 Months) U.S. Recessions: Average Contractions Per Quarter Post-War II Experience, Real GDP with Latest Cycle % Change (Annual Rate) If you only focus on depth, you miss the dynamic Recessions Beginning (in Quarters)

16 135 U.S. Real GDP Recovery Patterns Recoveries 135 Index (Trough Level = 100) :Q4 1954:Q2 1958:Q2 1961:Q1 1970:Q4 1975:Q1 1980:Q3 1982:Q4 1991:Q1 2001:Q4 2009:Q Recovery/ Expansion Slowest Quarters from Business Cycle Trough (Trough Denoted by 0)

17 15 Average Housing Prices % Change f rom Prior Year Strong Rebound in Housing Prices Adding to Wealth Effect % Change f rom Prior Year Total Home Prices: Sales-Weighted Av erage of New and Existing Prices OFHEO Home Price Index (Quarterly ) Average Home Price (New and Existing) as Ratio to Disposable Personal Income Per Capita Ratio Ratio And Housing Affordability Still Very Favorable Home Prices Divided by Per Capita Disposable Income Average

18 U.S. Stock Price Rise Above Prior High in 2007 Based on the DJIA (Weekly Data)

19 130 U.S. Real Consumer Spending Recovery Patterns Recoveries 130 Index (Trough Level = 100) :Q4 1954:Q2 1958:Q2 1961:Q1 1970:Q4 1975:Q1 1980:Q3 1982:Q4 1991:Q1 2001:Q4 2009:Q Slow Recovery Due to Slow Consumer 100 Spending But Why? Quarters from Business Cycle Trough (Trough Denoted by 0)

20 What is New for Consumer Spending? 8 Real Personal Consumption for Service Sharp Uptick in Q % Change (SAAR) % Change (SAAR) Service Spending Zero Line Note: Shaded Areas Represent Classical Business Cycle Recessions as Defined by the National Bureau of Economic Research.

21 A Major Turning Point? Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars [Billions of chained (2005) dollars] Seasonally adjusted at annual rates Bureau of Economic Analysis Last Revised on: April 26, Next Release Date May 30, 2013 Largest Quarterly Increase Since Q Line I II III IV I II III IV I 1 Personal consumption expenditures (PCE) % Change Goods % Change Durable goods Motor vehicles and parts Furnishings and durable household equipment Recreational goods and vehicles Other durable goods Nondurable goods Food and beverages purchased for off-premises consumption Clothing and footwear Gasoline and other energy goods Other nondurable goods Services % Change Household consumption expenditures (for services) % Change Housing and utilities % Change Health care % Change Transportation services % Change Recreation services % Change Food services and accommodations % Change Financial services and insurance % Change Other services % Change Final consumption expenditures of nonprofit institutions serving ho Gross output of nonprofit institutions Less: Receipts from sales of goods and services by nonprofit ins

22 How Fast Can the U.S. Economy Really Grow? The 20-Year Average Pace of Real GDP Growth was 2.5%. The 20-Year Average Pace of Real Consumer Spending Growth was 2.8% The 20-Year Average Pace of Real Consumer DURABLE GOODS Spending Growth was 5.7% The 20-Year Average Pace of Real Consumer NONDURABLE GOODS Spending Growth was 1.6% The 20-Year Average Pace of Real Consumer SERVICES Spending Growth was 3.6% GROWTH RATES: GDP PCE PCE-DUR PCE-NON PCE-SERV 2011 Q Q Q Q Q Q Q Q Q

23 2013 Growth Gets Early Lift from Inventory Cycle Impact Expected to Fade in Remainder of Year U.S. Economic Outlook Economic Measure Nominal GDP % Change GDP Deflator % Change Real GDP % Change Real Consumer Spending % Change Aftertax Economic Profits % Change % Change from Prior Year Pretax Corporate Proftis % Change from Prior Year Unemployment Rate Payroll Employment Difference at Monthly Rate Industrial Production % Change Housing Starts (thous.) % Change Consumer Price Index % Change CPI Core % Change Federal Funds Rate Mo. T-Bill AAA Corporate Bond Yield BAA Corporate Bond Yield Ten-Year Govt Note Source: ICSC Research (Projections).

24 U.S. Retail Sales Outlook (Billions of Dollars, Unless O therwise Noted, Seasonally Adjusted) Actual Actual Actual Actual Actual Actual Actual Forecast Forecast Category Total Sales & Food Services % Change from Prior Year Total Sales & Food Services Ex Motor Vehicle & Parts Dealers % Change from Prior Year Motor Vehicle % Change from Prior Year Furniture & Home Furnishings % Change from Prior Year Electronics & Appliances % Change from Prior Year Building Materials, Garden & Supply % Change from Prior Year Food and Beverage % Change from Prior Year Health & Personal Care % Change from Prior Year Gasoline Service Stations % Change from Prior Year Clothing and Accessory Stores % Change from Prior Year Sporting Goods, Hobby, Book & Music % Change from Prior Year General Merchandise % Change from Prior Year Nonstore Retailers % Change from Prior Year Food Services % Change from Prior Year Addendum: Total Retail Sales Less Motor Vehicle and Gasoline % Change from Prior Year Shopping Center-Inclined Sales % Change from Prior Year

25 8 A Slow Pace of Sales U.S. Chain Store Sales Trends % Change from Prior Year Quarterly % Change from Prior Year Quarterly All-Industry Monthly Tracking (Quarterly Average)

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