Emerging Trends in Real Estate We are in a long cycle, not in boom/bust.

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1 Emerging Trends in Real Estate 2018 Navigating at Altitude We are in a long cycle, not in boom/bust. The key to the next few years is to expand horizons, market by market, property type by property type. * *

2 PwC ULI Outlook on Trends 39th 320/480/1,600 Who? A record total Thank You!

3 How do we feel about 2018? Emerging Trends in Real Estate

4 ? How would you characterize the expected profitability of your real estate business in 2018? A. Good-Excellent B. Fair C. Abysmal-Poor

5 Expected profitability of your business 100% 90% 80% 70% 86.9% 82.2% 79.6% Good-Excellent 60% 56.1% 50% 40% 30% 20% 26.2% Fair 19.3% 10% 0% Abysmal % 5

6 Expected profitability of your business 70.0% 60.0% 50.0% 60.3% Good 62.8% 40.0% 32.9% 30.0% 20.0% 28.5% Excellent 16.8% 10.0% 0.0% 6.4% 2005 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 6

7 Emerging Trends in 2018 Long Glide to a Soft Landing Working Smarter and Harder Retail Transforms and Stores Remain Procession of Generations: Gen Z Housing at a Technological Tipping Point It s Different This Time Isn t it? Don t Forget the Boomers PwC 7

8 A Long Glide Path to a Soft Landing PwC 8

9 Long glide path to a soft landing I hate the what inning are we in question. It makes it seem like cycles have to end after a pre-set time has elapsed. Emerging Trends in Real Estate

10 Long glide path to a soft landing 4.5% 4.0% Current expansion, slow by comparison but is it more sustainable? Annual Employment Growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 2009 to Current months months months months months months 0.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% Annual Real GDP Growth 10 Source: NBER, Bureau of Economic Analysis, Bureau of Labor Statistics

11 Dec-00 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Dec-10 Aug-17 Long glide path to a soft landing RCA Commercial Property Price Index, by Sector PwC Apartments Office - CBD Industrial Office Office- Suburban Retail

12 Dec-00 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 Long glide path to a soft landing RCA Commercial Property Price Index, by Market Type Major Markets (All Property) Non-Major Markets (All Property) PwC

13 Working Smarter And Harder PwC 13

14 Working smarter and harder Real estate facilities are not just overhead, but a way to improve not just employee happiness and engagement, but also productivity. Emerging Trends in Real Estate

15 Working smarter and harder Productivity growth continues.at a much lower rate % Average annual growth % Average annual growth Emerging Trends in Real Estate

16 Working smarter and harder Change in Worker Output v Employment Growth by Sector: Exhibit

17 Working smarter and harder It s all about ROI and it s human capital that counts the most, where investment really pays off Get smart about the workplace.today it s all about the smart experience...as well as the smart building Emerging Trends in Real Estate

18 Working smarter and harder 30.00% Percent of Office Inventory by Decade Constructed 25.00% 24.0% 20.00% 15.00% 15.2% 12.9% 12.7% 15.0% 10.00% 7.6% 8.6% 5.00% 4.0% 0.00% Source: U.S. Energy Information Administration, CoStar 1940's 1950's 1960's 1970's 1980's 1990's 2000's 2010's 18

19 Working smarter and harder Office capital Improvement over acquisition? expenditures may need to increase to meet changing tenant demand 2.5% In 2018, investing 4Qtr moving average 2.0% in what you already have will 1.5% be more important than what you 1.0% may acquire Best Bet! Income over potential appreciation 0.5% 0.0% Office cap ex as a % of market value 30-year average 1990 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 Source: NCREIF 19

20 Procession of Generations Gen Z PwC 20

21 Procession of Generations.Gen Z Generations Boomers mil Gen X 78.6 mil Millenials 79.6 mil Gen Z 65.1 mil Emerging Trends in Real Estate

22 Procession of Generations.Gen Z It isn t what you don t know that you should be worried about; it s what you think you know..thought we knew.what actually HAPPENED Boomers Retire early & to mild climates Not so fast Gen X Bigger suburban houses Hit by GFC Millennials Urban forever Majority in suburbs already 22

23 Procession of Generations.Gen Z It isn t what you don t know that you should be worried about; it s what you think you know. PwC 23

24 And Don t Forget the Boomers PwC 24

25 And don t forget the boomers Boomers plan to stay in the workforce longer 35.0% % 25.0% % 32% % 20.0% % 17% 10.0% 5.0% 0.0% Age 65 to 69 Planned Retirement Age Age 70 or older Source: Insured Retirement Institute, "Boomer Expectations for Retirement 2017" 25

26 And don t forget the boomers More older workers in the workplace 1994 Ages 65-74: Labor force participation rate 17.2% Best Bet! Senior housing gains momentum % % % 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 Source: Bureau of Labor Statistics 26

27 Housing at a Technological Tipping Point? PwC 27

28 Housing at a technological tipping point I ve been hearing talk about how technology will transform the way builders build homes for 25 years. Now, I look at what s been happening, and for the first time ever, I m thinking it s more than talk Emerging Trends in Real Estate

29 Housing at a technological tipping point 80% Higher sales prices won t guarantee more new homes 70% Austin % change in housing units 60% 50% 40% 30% 20% 10% Atlanta Boston Raleigh/Durham Dallas/Fort Worth Nashville Salt Lake City Seattle Minneapolis/St. Paul San Diego Fort Lauderdale San Jose Miami 0% Los Angeles 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% % change in housing price index Source: US Census Bureau, IHS Insight f 29

30 Housing at a technological tipping point Not much relief in sight for home construction costs New Home Price Index (2005 = 100) The Wall Street Journal America's continued construction labor crisis CNN Money Best Bet! Evolving housing demand & technologies The dire need to recruit the next Soaring lumber prices a problem for generation of skilled workers home builders and buyers The price of lumber is soaring, and home builders are worried. Real estate CEO: Record low housing inventory is 'freaking us out' CNBC Housing inventory continues to drop amid tight credit and a growing tendency toward becoming a Source: US Census Bureau 30

31 Retail transforms and stores remain PwC 31

32 Retail transforms and stores remain Retail isn t dead, it s just changing. Give it some time to adjust Emerging Trends in Real Estate

33 Retail transforms and stores remain E-Commerce continues to rise as a % of total retail sale but.. $120.0 E-Commerce retail Sales (Bn$) $100.0 $80.0 $60.0 $40.0 $20.0 $- E-Commerce % of total sales 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: US Retail Census 33

34 Retail transforms and stores remain 2016 retail sales distribution by channel (billions of $) Online Sales Fulfilled from Store, $62.2 Electronic Shopping & Mail Order, $445.0 Best Bet! Non-boring retail In-Store, $4,278.0 Source: US Census Retail Trade Sales Annual Report, ICSC Research 34

35 Retail transforms and stores remain 2016 Shopping center gross leasable area sf per capita Germany 2.34 UK 2.98 France 3.84 Japan 4.38 Australia Canada United States Source: ICSC, France data 2014, UK data

36 It s different this time the market outlook PwC 36

37 It s different this time.the market outlook Why deal with the uncertainty of a global market when there are opportunities in Salt Lake City and San Antonio? # 1 Seattle # 3 Salt Lake City # 8 San Jose # 10 Boston # 7 Los Angeles #24 San Diego # 4 Raleigh/Durham # 9 Nashville # 5 Dallas/Ft. Worth # 2 Austin Emerging Trends in Real Estate 2018 # 6 Fort Lauderdale 37

38 It s different this time.the market outlook Top Destination Markets for Migration from Primary Markets, Inland Empire Philadelphia Miami/Fort Lauderdale/West Palm Beach Baltimore San Diego San Jose Phoenix Dallas/Ft. Worth Atlanta Houston Sacramento Seattle/Tacoma Norfolk/Virginia Beach Tampa-St. Petersburg-Clearwater, FL Metro Area Orlando Raleigh/Durham Denver Charlotte Portland Austin Nashville PwC San Diego - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90, ,000 Total In-Migration

39 2018 Local Outlook: San Diego % Investor Demand Local Economy Capital Availability Development Public Private Redevelopment Investment Opportunities Average National Average

40 2018 Sector Outlook: San Diego 4 San Diego National Multifamily Housing Industrial Office Retail Hotel

41 Thank you, and now our panel! Download your copy of Emerging Trends in Real Estate 2018 uli.org/et18 Emerging Trends in Real Estate