Commercial Real Estate: Steady As It Goes?

Transcription

1 Commercial Real Estate: Steady As It Goes? Presented By: Brian D. Bailey, CCIM Subject Matter Expert

2 The views and opinions expressed are those of the presenter and are not necessarily those of the Federal Reserve Bank of Atlanta or the Board of Governors of the Federal Reserve System.

3 Agenda 1. Economy 2. Commercial Real Estate Fundamentals 3. Commercial Real Estate Finance Source: Bureau of Economic Analysis, Federal Reserve Bank of Atlanta

4 CONTRIBUTIONS TO REAL GDP GROWTH Source: BEA, Risk Analysis Unit/Federal Reserve Bank of Atlanta 4

5 UNEMPLOYMENT RATES Unemployment Rate % 18 Current: 9.7% 9.5% 16 Pre Crisis: 8.4% Current: 4.9% 2 Pre Crisis: 4.6% U3 U6 Current: As of 10/2016 Source: Bureau of Labor Statistics, STL FRB FRED 7

6 JOB GROWTH APRIL 2016 Areas y prices Source: Bureau of Labor Statistics (Household Survey) 12

7 JOB GROWTH JUNE 2016 Source: Bureau of Labor Statistics (Household Survey) 13

8 JOB GROWTH SEPTEMBER 2016 Areas that should thrive on low energy prices 36% of the counties experienced negative job growth over the prior 12 months Source: Bureau of Labor Statistics (Household Survey)

9 SERIOUSLY DELINQUENT MORTGAGES HOME MORTGAGES 90+ PAST DUE AS OF 3Q 2016 Source: McDash Analytics 9

10 SERIOUSLY DELINQUENT MORTGAGES YEAR-OV ER-YEAR CHANGE, HOME MORTGAGES 90+ PAST DUE AS OF 3Q2016 Source: McDash Analytics 10

11 Source: FRBNY Consumer Credit Panel (2016Q3 data) 11 TOTAL AUTO LOAN DELINQUENCIES AS OF 3Q2016

12 Source: FRBNY Consumer Credit Panel (2016Q3 data) Total Auto Loan Delinquencies Change in the Last 12 Months

13 Source: FRBNY Consumer Credit Panel (2016Q3 data) 13 TOTAL AUTO LOAN DELINQUENCIES AS OF 3Q2016

14 Total Auto Loan Delinquencies Source: FRBNY Consumer Credit Panel 2016Q3 2010Q1

15 Economic Expansions Average 93 months Average 60 months The longer the cycle lasts, the more risk that generally enters the marketplace Source: National Bureau of Economic Research, Risk Analysis Unit/Federal Reserve Bank of Atlanta 15

16 NATIONAL CRE VACANCY RATES Source: AXIOMetrics, CBRE-EA, Risk Analysis Unit/Federal Reserve Bank of Atlanta 16

17 MULTIFAMILY OCCUPANCY 12 MONTH CHANGE Source: AXIOMetrics, Risk Analysis Unit/Federal Reserve Bank of Atlanta 17

18 MULTIFAMILY EFFECTIVE RENT GROWTH 12 MONTH CHANGE Source: AXIOMetrics, Risk Analysis Unit/Federal Reserve Bank of Atlanta 18

19 NEW CONSTRUCTION AS A PERCENT OF STOCK Source: AXIOMetrics; Risk Analysis Unit/FRB Atlanta

20 Is CRE Overbuilding? Variance from Long-Term Average % of Existing Inventory Source: CBRE-EA/AXIOMetrics/FRB Atlanta Risk Analysis Unit. 20

21 Why CRE? Technology disruptors are impacting the industry Current Future CRE is generally one of the last sectors to embrace technology. Office densification is having a slow but significant impact. Consumers buying habits continue to shifted by E-Commerce & Virtual Reality. Source: Amazon, Google, Dailydigi.com, various 21

22 CRE National Lifecycle High Rent Growt h in Tight Market Mult if amily Office Warehouse Ret ail Rent s Rapidly Rise Toward New Const. New Const ruct ion Cost Feasible Number of Unit s Negat ive Rent Growt h Below Inflat ion Rent Growt h Long Term Average Occupancy Downt urn Recovery Upt urn Mat ure Downt urn Market, product t ype, locat ion all impact performance. Specific market s and product t ypes may be at different st ages Source: AXIOMetrics, CBRE-EA, REIS, Mueller, Risk Analysis Unit/Federal Reserve Bank of Atlanta 22

23 Foreign Investment in US CRE Continent of Origin (Billions of US $) Billions 4Q Rolling Sum Q3 Data as of 11/1/2016 Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit. 23

24 BANK SENTIMENT Percent of Respondents Tightening Underwriting Percent of Respondents Reporting Increased Demand for New Loans Net Loan Demand In six of the last eight quarters, a net number of respondents reported tightening underwriting standards on multifamily loans. After a noteworthy slowdown in 2016Q1; Net Loan Demand appears to be improving in C&D and Nonfarm NonRes Source: Federal Reserve; Risk Analysis Unit/FRB Atlanta

25 COMMERCIAL REAL ESTATE LOANS LENDING SOURCE MARKET SHARE Source: Real Capital Analytics 25

26 MAJOR MARKET CRE PRICE INDICES = Apartment Office Industrial Retail Suburban Office Major Markets: Boston, Chicago, Los Angeles, New York City, San Francisco, Washington D.C. Source: RCA Analytics, Risk Analysis Unit/Federal Reserve Bank of Atlanta 26

27 NON-MAJOR MARKET CRE PRICE INDICES = Apartment Office Industrial Retail Suburban Office Non-Major Markets: All Markets Except the Majors (Boston, Chicago, Los Angeles, New York City, San Francisco, Washington D.C.) Source: RCA Analytics, Risk Analysis Unit/Federal Reserve Bank of Atlanta 27

28 Commercial Real Estate Prices Price Growth Rates Annual Price Growt h % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2% 10% RCA Major Markets 7% 5% RCA Non-Majors Markets 1 Year 3 Year 5 Year LT Average 1 Year Price Growth is slowing in both Major and Non-Major Markets Major Markets: Bos, Chi, LA, NYC, SF, Wash DC *RCA indices based on Property Sales > $2.5mm Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit. 28

29 Commercial Real Estate Prices Major vs. Non-Major Markets (Cumulative) 100% 93% 95% Major 80% 60% 40% 20% 0% -20% 100% 72% 70% 59% 50% 47% 23% 19% 13% 8% 0% -3% -3% -4% Apartment Office Industrial Retail Suburban Office 94% 80% 73% Non-Major 60% 40% 20% 0% -20% 60% 51% 51% 36% 10% 4% 5% 3% 3% 3% -13% -1% -10% Apartment Office Industrial Retail Suburban Office *on Property Sales > $2.5mm 1 Year 3 Year 5 Year From Pre-Downturn Peak Source: Real Capital Analytics/FRB Atlanta Risk Analysis Unit. 29

30 30 SUMMARY -Slowing for the Apartment Sector and sporadic Hotel markets -Declining vacancy combined with limited near-term new supply appears to indicate continued robust rent growth on the horizon for the Office and Industrial Sectors. -The amounts of future new supply in some asset classes may be impacted by the evolution of technology and the changing uses of CRE. Greater space efficiency may translate to less need for new supply in certain sectors. -As conditions improve, and in some cases deteriorate, more risk will continue to enter the marketplace. -Future refinancing risk continues to grow as some property sectors underperform and others experience outperforming dynamics.