Metro Washington, DC State of the Market

Transcription

1 Metro Washington, DC State of the Market Q1 2016

2 U.S. office clock San Francisco Peninsula Silicon Valley Houston Dallas, San Francisco Austin Nashville Peaking phase Falling phase Denver, Minneapolis, Seattle-Bellevue Los Angeles, San Diego New York, Pittsburgh, Portland, Tampa Boston Atlanta, Jacksonville, Miami, Orange County, Richmond, United States Chicago, Phoenix Charlotte, Fort Lauderdale, Kansas City Oakland-East Bay, Orlando, Salt Lake City Cleveland, Indianapolis, Raleigh-Durham, St. Louis Cincinnati, Fairfield County, Hampton Roads, Milwaukee Long Island, Philadelphia Baltimore, Detroit, Hartford, San Antonio, West Palm Beach, Westchester County Columbus, Sacramento Source: JLL Research Rising phase Bottoming phase New Jersey, Washington, DC 2

3 The 18.7 m.s.f. of absorption in Q4 pushed vacancy down sharply by 40bp to 14.7%; first time it has fallen below 15.0% this cycle % 16.0% Total vacancy (%) 14.0% 12.0% 1 8.0% 6.0% 4.0% 2.0% % 18.0% 17.0% 16.0% 15.0% 14.0% Source: JLL Research 3

4 Annual rent growth remains steady at around 3.5 percent per year, while asking rents are at pre-recession highs $35 2 $ % 1 Average asking rent ($ p.s.f.) $25 $20 5.0% -5.0% Annual rent growth (%) $15-1 $ % Source: JLL Research 4

5 Both CBD and suburban rents are rising appreciably, but the gap between the two grew further to $16.67 per square foot $45.00 CBD Suburbs $40.00 Average asking rent ($ p.s.f) $35.00 $30.00 $11.36 $16.67 $25.00 $ Source: JLL Research 5

6 Washington, DC office clock Uptown Logan / U Street Capitol Hill Peaking phase Rising phase Falling phase Bottoming phase Uptown, Prince George s County Fairfax Center, Springfield, Rock Spring Park CBD, Toll Road, Bethesda, Rockville Pike East End, Chevy Chase Georgetown Capitol Riverfront, Silver Spring Source: JLL Research West End Crystal City, Southwest Rosslyn-Ballston Corridor, Merrifield Alexandria, Loudoun, Prince William, Frederick NoMa, Route 28 South, Tysons, I-270 Corridor

7 More than 75% of associations, manufacturing, technology an real estate companies signed expansionary leases in Q4 Association nonprofit union Manufacturing and distribution Technology Real estate Other professional services Retail and hospitality Accounting and consulting Education Food and beverage production Healthcare Life sciences Media and entertainment Banking and financial services Nonprofit Aerospace and defense Marketing and communications Other Architecture and engineering Law firm Insurance Government Energy and utilities Engineering Telecom Construction Source: JLL Research 18.3% 15.4% 15.2% 19.4% 29.4% 28.3% 38.5% 38.2% 35.6% 41.2% Growing Stable Shrinking 51.1% 62.1% 59.9% 65.0% 64.6% 64.2% 63.4% 71.6% 70.6% 78.0% 76.3% 74.8% 81.0% 87.2% 49.8% 62.1% 10 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 48.7% 51.6% 79.4% 81.7% Share of leasing activity (%) 61.5% 59.8% 64.4% 56.8% 15.7% 27.3% 34.5% 48.9% 26.9% 35.8% 34.3% 21.8% 28.4% 29.4% 30.8% 19.7% 23.7% 22.7% 19.0% 19.7% 21.9% 20.1% 12.8% 8.0% 10.6% 3.4% 5.7% 5.2% 2.2% 2.3% 2.0% 2.0% 7

8 Over the long term, each new office job created in Metro DC has generated square feet of net absorption, although that metric has fallen recently given increased office density 2,000 1,500 Square feet 1, s.f. per job added Average = s.f s.f. per job added Source: JLL Research, Bureau of Labor Statistics 8

9 Historical share of leasing activity occurring within ½ mile of existing or planned Metro 100% Share of leasing activity within ½ mile of existing/planned Metro 90% 80% 70% 60% 50% 40% 30% 20% 10% 60.1% 62.2% 69.6% 65.0% avg. 59.5% 57.4% 66.3% 59.2% 71.5% 67.5% 71.4% 80.4% 92.1% 0% Source: JLL Research 9

10 Capital markets trends 10

11 The world as we ve known it is changing at a steady pace Federal funds rate increase Foreign capital & FIRPTA Steady rise of allocations to real estate Relatively stable & disciplined leverage levels Source: JLL Research 11

12 One month in, no tangible impact on long-term Treasury yields Long-term Treasury yields have not reacted significantly to Fed beginning to move policy rate; Interest rates and government debt yields remain volatile with global markets as 10-year Treasury fell as low as 1.64 and rose as high as 2.48 in % 7.0% As of 1/15/16, the 5- and 7-year closed at 1.46 and 1.79, respectively. Meanwhile, the 10-year Treasury yield closed at 2.03 versus 1.71 a year ago. 6.0% Yield (%) 5.0% 4.0% 3.0% 2.0% 1.0% Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 5-year Treasury 7-year Treasury 10-year Treasury 1-month Libor Source: JLL Research, Moody s Analytics, Bloomberg (through 1/15/16) 12

13 Long-term Treasury investors unfazed, supporting spread levels Cap rates, on average, are low but quite comfortably above relevant benchmark interest rates (10- year Treasury yield); This spread has room to compress over next couple years. 1 U.S. average office cap rate (%) 10-Year Treasury yield (%) Effective fed funds rate (%) 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Spreads still at healthy levels 2.0% 1.0% Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Source: JLL Research, Moody s Analytics, Federal Reserve Board of Governors, Real Capital Analytics (Data are monthly average), *Interest rates are monthly average, office cap rate is 12-mo. trailing average 13

14 After 25.1 percent growth in volumes at year-end, U.S. momentum strong and positioned to surpass 2007 peak in 2016 Total investment sale volumes (billions of $US) $600.0 $500.0 $400.0 $300.0 $200.0 $ % 22% 19% 25% Forecasted FY 2016: ~10% $ f Multifamily Industrial Office Retail Hotels Forecast Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) 14

15 Cross-border capital now represents 15.4 percent of U.S. buyers Office is no longer the highest recipient of foreign capital: Robust portfolio activity drives industrial to capture 36.1% of inbound capital, driving 40.5% of full-year buyers in % 40% 41% Foreign acquisitions (as a % of sector total) 35% 30% 25% 20% 15% 10% 5% 25% 18% 17% 15% 14% 11% 5% 6% 5% 8% 7% 7% 6% 5% 5% 3% 4% 5% 26% 15% 14% 9% 6% 0% Industrial Hotels United States Office Retail Multifamily Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m) 15

16 Despite headlines, Chinese are not the largest Asian investor Foreign investment activity ( YTD) From Europe From Canada Canada 26.3% ($21.0b) Norway 8.2% ($6.6b) Germany 6.4% ($5.1b) UK 3.2% ($2.6b) Switzerland 5.2% ($4.1b) From Asia Pacific China 5.7% ($4.6b) South Korea 2.8% ($2.2b) Singapore 17.9% ($14.3b) From Middle East Australia 3.4% ($2.8b) Qatar 4.9% ($3.9b) UAE 2.4% ($1.9b) Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m since 2014; Includes portfolio, entity-level transactions) 16

17 Cap rate compression remains evident across all three regional jurisdictions, with a significant spread evident between urban core and suburban assets Yield (%) 1 9.0% District of Columbia Northern Virginia Suburban Maryland 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Source: JLL Research 17

18 In the driver s seat Key dynamics to watch in 2016 Capital supply-demand imbalance Secondary market momentum realized Offensive, value add capital focused on non-core Diversification of foreign capital Real estate M&A Source: JLL 18

19 Healthy cap rate spread holds true across asset sectors While cap rates compressed another 33 basis points on average across sectors in 2015, healthy cap rate spreads to 10-year continue and at a 150-basis-point average spread above prior peak levels 700 Prior peak Prior trough Cap rate spread to 10-year Treasury (bps) Industrial Multifamily Office Retail Hotels Source: JLL Research, NCREIF, Board of Governors of Federal Reserve 19

20 Key takeaways heading into Investment volumes strong with additional 10.0 to 15.0 percent growth forecasted for 2016 Unplaced capital robust and growing at a faster pace than opportunities. With this, a bimodal distribution of capital is emerging, skewed toward value add transactions. Capital shifting up into larger, structured transactions and out into submarkets and assets for yield Despite interest rate hike, 10-Year Treasury remains relatively stable, maintaining healthy cap rate spreads levels with room to compress in coming years Amidst market volatility, CMBS spreads to swaps widen, but issuance momentum continues. U.S. banks and life companies remain active, exceeding CMBS growth. Wild cards to watch: Increased foreign capital into multifamily; increased privatization deals & accelerated dispositions from near-term hold investors 20

21 Thank you! COPYRIGHT JONES LANG LASALLE IP, INC. 2015