Perspectives on U.S. real estate investment

Transcription

1 Perspectives on U.S. real estate investment Looking ahead in 2017 Sean Coghlan Director, Investor Research April 7, 2017

2 The past year s headlines have been unsettling in impact, frequency and market reaction China slowdown; RMB devaluation Fear over first Fed rate hike; Falling commodity prices China slowdown; Oil falls below $40 China & Global uncertainty; Oil falls below $27 Volatility Index (VIX) Fed rate hike Brexit Rate hike uncertainty U.S. Presidential election results 10 Source: JLL Research, CBOE, Bloomberg 2

3 On the heels of sustained, goldilocks growth and increased pressures, friction is emerging Employee Employer Tech Venture Capital Millennials Baby Boomers Monetary policy Fiscal policy 3

4 And this same friction is evident in the board room Tenant Landlord LP GP Buyer Seller Domestic Investor Offshore Investor 4

5 Despite the headlines, market volatility has normalized and cautious optimism is reemerging CBOE Volatility Index (VIX) Q Q Q Q Q Q Q Q Maximum Minimum Average Source: JLL Research, CBOE, Bloomberg 5

6 11 investment realities to watch in

7 1 growth but U.S. economy is strong and leading global the pace of growth is naturally slowing +235,000 (77 consecutive months of growth) 1-month net change +2,350,000 (+1.6% y-o-y) 12-month change +792, year average annual growth 4.7% Unemployment rate -20bp 12-month change in unemployment 63.0% Labor force participation rate 5,501,000 (+4.2% y-o-y) Job openings 5,252,000 (-2.8% y-o-y) Hires 2,979,000 (-3.5% y-o-y) Quits Source: JLL Research, Bureau of Labor Statistics (Employment data as of December 2016) 7

8 2 While the pace has slowed, tech continues to drive more markets... joined by service-based and creative industries Growing Stable Shrinking Telecom Life sciences Real estate Engineering Technology Healthcare Insurance Professional services Accounting and consulting Education Non-profit Aerospace and defense Other Advertising and marketing Food and beverage Architecture and engineering Finance Media and entertainment Law firm Energy and utilities Government 57.0% 53.0% 52.1% 50.3% 47.1% 44.5% 38.9% 35.0% 32.0% 30.0% 27.8% 25.3% 15.8% 15.6% 13.8% 11.8% 83.2% 79.5% 76.8% 76.4% 73.2% 36.1% 48.7% 6.8% 20.5% 20.8% 23.6% 20.0% 42.0% 26.7% 20.3% 47.9% 36.3% 46.7% 35.2% 46.6% 54.7% 49.0% 70.0% 65.3% 68.9% 82.2% 48.2% 37.4% 84.3% 10.0% 2.5% 6.8% 0.9% 13.4% 6.1% 20.3% 14.5% 10.3% 19.0% 6.9% 5.7% 1.9% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of activity (%) 4.0% Source: JLL Research industries with more than 100,000 s.f. of leasing activity in Q4 8

9 3 All property sectors are now in the peaking quadrant: Rents rising and so is development Hotels CBD multifamily Prime urban and Class A retail CBD office, Industrial Urbanized suburban office Suburban multifamily Rental growth slowing Rental growth accelerating Rental values falling Rental values bottoming out B & C retail Suburban office Source: JLL Research 9

10 4 Investment activity slowed in 2016, but there is room to run Total investment sale volumes (billions of $US) $600.0 $500.0 $400.0 $300.0 $200.0 $ % +22% +19% +29% Forecasted FY % - 9% $ Multifamily Office Retail Industrial Hotels Forecast Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0m; Includes portfolio, entity-level transactions) 10

11 5 Pricing and returns are under pressure Hotels 93% 7% Office 25% 25% 50% Multifamily 11% 52% 37% Industrial 4% 44% 52% Retail 29% 71% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Annual cap rate fluctuations Softening Stable Compressing Source: JLL Research, NCREIF 11

12 6 Diversification of multifamily and retail capital leading secondary market investment to historic highs Secondary market volumes (billions of $US) $120.0 $100.0 $80.0 $60.0 $40.0 $93.1B $109.5B $13.6B $15.3B $37.2B Leading secondary markets by sector Volumes, FY 2016 Seattle, South Bay, South Florida, Phoenix, Orange County Las Vegas, Phoenix, Fort Lauderdale, San Diego, Denver $20.0 $43.5B Dallas-Ft. Worth, Atlanta, Northern New Jersey, Philadelphia, Miami $ Denver, Phoenix, Austin, Portland, San Diego Multifamily Office Retail Industrial Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M; Includes portfolio, entity-level transactions) 12

13 7 Niche sectors going mainstream with institutional and offshore investment rising 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 47.0% 45.0% 42.0% 39.0% 24.0% Lab/life sciences Cold storage Student housing Data center Seniors housing Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M; Includes portfolio, entity-level transactions) 13

14 8 High growth markets capturing an outsized percentage of investment dollars Texas Pacific Northwest Northern California Mountain New York City Boston Atlanta / Carolinas Midwest Southern California New York Metro Mid-Atlantic Phoenix Florida -14.3% -1.2% -3.9% -6.6% 8.7% 8.6% 26.6% 23.7% 21.5% 43.9% 42.3% 39.2% 38.1% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% Current to prior peak volume differential Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M; Includes portfolio, entity-level transactions); Excludes hotels 14

15 9 After a down year in 2016, portfolio- and entity-level transactions expected to lead 2017 deal flow Portfolio and entity-level transaction volumes (billions of $US) Single asset transaction volumes (billions of $US) $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $- Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M; Includes portfolio, entity-level transactions); Excludes hotels 15

16 1 Offshore capital is transforming the U.S. real estate capital markets, most notably from Asia Countries investing in U.S. CRE Cross-border Asian investment (%) 100.0% 90.0% 80.0% 70.0% Leading offshore Asian buyers Transactions this cycle to prior cycle Japan 2: % 50.0% Hong Kong 3: % 40.0% 30.0% Singapore 10: % 20.0% 10.0% South Korea 11: % China 48:1 Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M); Excludes hotels 16

17 1 Capital strategies evolving as the appetite for greater risk-adjusted yield persists 1 Value Added 23.5% 2015 CRE fundraising 2016 CRE fundraising Core 7.8% Core-Plus 4.3% Debt 12.0% Distressed 1.2% Value Added 24.0% Core 7.8% Core-Plus 1.9% Debt 29.3% Opportunistic 51.2% Opportunistic 26.7% Distressed 10.3% Source: JLL Research, Real Capital Analytics (Transactions larger than $5.0M); Excludes hotels 17

18 Closing thoughts on climbing the wall of worry Regulatory and political pressures on real estate are rising Bumpiness is down but not lost Don t fear the Fed Labor market constraints will weigh on demand Market fundamentals will fall out of sync as new supply delivers Don t let the recency effect bias your outlook Source: JLL Research 18

19 Thank you