2015 REAL ESTATE ECONOMIC FORECAST The National Economy and What It Means For Real Estate

Transcription

1 2015 REAL ESTATE ECONOMIC FORECAST The National Economy and What It Means For Real Estate February 5, 2015 Jeanette I. Rice Kentucky Chapter

2 National economy in great shape for 2015 Creating excellent demand for all property markets Attracting lots of debt and equity capital for commercial real estate

3 U.S. ECONOMY 3

4 Millions U.S. ECONOMY - EMPLOYMENT Total Historical Employment Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 US economy - four years of economic recovery/expansion. Last May, US regained all jobs lost (numerically) during recession. Currently +2.1% yoy (3.0 million jobs). Dec = +252,000 jobs 2014 average = +246,000 4 Historical Employment % Change Y-o-Y Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 4 Source: U.S. Bureau of Labor Statistics, seasonally adjusted data through Dec 2014

5 U.S. ECONOMY EMPLOYMENT GROWTH UNEVEN Historical Employment % Change Y-o-Y Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 U.S. Detroit Austin Louisville Top Metros for Projected Annual Pct Employment Growth Over Next Two Years Nashville Austin West Palm Beach Fort Lauderdale Fort Worth San Antonio Salt Lake City Orlando Greenville Raleigh Dallas Phoenix Riverside Miami Indianapolis Charlotte Atlanta Denver US Louisville Sources: CBRE Research, U.S. Bureau of Labor Analytics (data through Dec 2014); CBRE Econometric Advisors forecasts as of Q

6 U.S. ECONOMY 10-YEAR TREASURIES = 1.68% Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 6 Source: Federal Reserve Bank, data through

7 U.S. ECONOMY SECTORS TO WATCH Millions Still way below 2000s peak, but rising. In 2014, starts rose 5% over 2013 to an annual rate of 648,000 units. Total Single-Family Starts Housing - Manufacturing - Consumer Spending - Global Economies - Strong U.S. Dollar - - Energy - High Tech - Interest Rates - 7 Source: U.S. Bureau of Census (starts data).

8 U.S. ECONOMY OUTLOOK 3% 2% 1% 0% -1% -2% -3% -4% -5% Employment Forecasts - Change Y-o-Y = 1.8% 2015 = 2.1% About 245,000 jobs/month GDP Outlook 2014 = 2.4% 2015 = 3.3% 2016 = 2.9% 2017 = 2.7% 2018 = 2.7% 8 Sources: CBRE Research (employment forecasts); Oxford Economics (GDP forecasts as of ).

9 2015 REAL ESTATE ECONOMIC FORECAST The National Economy and What It Means For Real Estate Capital Markets Increased Global Capital Flows, Favorable Returns Disciplined Debt

10 CAPITAL MARKETS - IMPRESSIVE INVESTMENT GAINS $ Billions 600 Total Direct Investment in U.S. Commercial Real Estate Total 2014 direct investment = $424 billion. 17% rise over still 26% below prior peak (but only 5% below when entity sales removed). CBRE Research projects a gain of 10-15% in Individual Portfolio Entity 10 Sources: Real Capital Analytics and CBRE Research..

11 U.S. INVESTMENT VOLUMES BY GLOBAL REGION ORIGIN 2014 Global Total = $41 Billion Other 23% Canada 25% Australia 3% Singapore 4% Switzerland 5% Hong Kong 5% Germany 6% China 8% Japan 10% Norway 11% 11 Sources: Real Capital Analytics and CBRE Research. Totals excluding transactions under contract.

12 THE SCARCITY OF CORE 12

13 U.S. COMMERCIAL MORTGAGE MARKET 1. Nearly all capital sources firing on all cylinders and expected to increase lending in Delinquency rates at decade low and expected to remain there through CMBS vintages coming due, but not likely to create much distress this year 4. Mortgage interest rates to remain very low with favorable outlook for Underwriting loosening, but not dangerously 13

14 2015 REAL ESTATE ECONOMIC FORECAST The National Economy and What It Means For Real Estate Property Markets Recovery Maturing, Continued Gains in Market Performance

15 OFFICE Changing Patterns of Demand, Continued Recovery

16 OFFICE DEMAND Absorption (millions of sq. ft.) 100 Forecast Source: CBRE Econometric Advisors, 4Q Forecasts as of 3Q 2014.

17 OFFICE SUPPLY, DEMAND, VACANCY OUTLOOK Net absorption far outpacing new supply. In 2014, demand rose 46% reaching 53 million sq. ft. This was the highest level since New supply also rising (+22% in 2014), but far below demand at 22 million sq. ft construction was concentrated in a few metros: Houston, NYC, Washington, Dallas, San Fran, San Diego, and Pittsburgh. Together, they accounted for 72% of the U.S. total.. Completions and Absorption (millions of sq. ft.) Vacancy Forecast Completions Net Absorption Vacancy (4Q) 17 Source: CBRE Econometric Advisors, 4Q Forecasts as of 3Q 2014.

18 MARKET FUNDAMENTALS RENT GROWTH Annual Rent Change Source: CBRE Econometric Advisors, Q Historical average = 1.0%

19 SQUARE FOOTAGE REDUCTION, CHANGING STYLE 19

20 OFFICE TRANSACTIONS PRICING METRICS 9% Average Cap Rates 8% 7% 6% 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 $300 Average Price PSF $250 $200 $150 $100 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 20 Sources: Real Capital Analytics and CBRE Research. For all office transactions > $2.5 million and all classes of space. Through Q

21 INDUSTRIAL Shift to Light Industrial?

22 INDUSTRIAL DEMAND Absorption (millions of sq. ft.) 300 Forecast Source: CBRE Econometric Advisors, 4Q 2014.

23 INDUSTRIAL SUPPLY, DEMAND, VACANCY OUTLOOK Completions 117 million sq. ft. in 2014 Net Absorption 226 million sq. ft. Availability 10%, favorable 1 point drop in 2014 Completions and Absorption (millions of sq. ft.) Forecast Vacancy Completions Net Absorption Vacancy (4Q) 23 Source: CBRE Econometric Advisors, 4Q 2014.

24 MARKET FUNDAMENTALS RENT GROWTH Annual Rent Change Source: CBRE Econometric Advisors, Q Historical rent change = 0.3%

25 E-COMMERCE E-commerce sales have risen by 16.2% in year ending Q3 2014, compared to all retail which is up 4.2%. 45% 30% E-Commerce Retail Sales - YOY Change E-Commerce 8% 6% E-commerce as % of All Retail Sales 6.6% 15% 4% 0% -15% All Retail % 0% Source: U.S. Census Bureau, data through Q Data are seasonally adjusted.

26 LARGEST U.S. CONTAINER PORTS Los Angeles and Long Beach combined = 33% of all US container traffic. The top 10 ports account for nearly 80%. East Coast ports container volume +5.9% ytd through November vs. West Coast at +3.7% Seattle 4% Charleston 4% Tacoma 4% Houston 4% All Others 22% Norfolk 5% Oakland 5% Los Angeles 18% Savannah 7% NY/NJ 12% Long Beach 15% 26 Sources: CBRE Research, American Association of Port Authorities; market share based on total 2013 TEUs

27 INDUSTRIAL TRANSACTIONS PRICING METRICS 9% Average Cap Rates 8% 7% Investment volume 9% increase, % 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 CBRE Research forecasts industrial investment volumes to rise 10-15% in In 2015, there will be greater % of light industrial acquisitions. $80 $70 $60 $50 $40 Average Price PSF 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 27 Sources: Real Capital Analytics and CBRE Research. For all industrial transactions > $2.5 million and all classes of space. Through Q

28 RETAIL Are Rumors of Brick-and-Mortar s Demise Greatly Exaggerated?

29 RETAIL SALES YEAR-OVER-YEAR CHANGE 8% Yes, 93% of retail sales still occur out of brick and mortar space. Retail sales +4.2% year-over-year as of Q December + 3.2% over prior year. 4% 0% -4% -8% 4.2% -12% Source: U.S. Census Bureau, data through Q Data are seasonally adjusted.

30 RETAIL DEMAND Absorption (millions of sq. ft.) 100 Forecast Source: CBRE Econometric Advisors, as of 3Q 2014.

31 RETAIL SUPPLY, DEMAND, VACANCY OUTLOOK Completions and Absorption (millions of sq. ft.) 100 Forecast Vacancy 14 Net absorption far outpacing new supply. Practically no retail space built for several years or in the pipeline. Only about 13 msf in Net absorption - 29 msf, highest since Availability rate dropping steadily Q = 11%, down 0.6 point in Completions Net Absorption Vacancy (4Q) 31 Source: CBRE Econometric Advisors, as of 3Q 2014.

32 MARKET FUNDAMENTALS RENT GROWTH Annual Rent Change for Neighborhood & Community Centers Source: CBRE Econometric Advisors, Q

33 THE GREAT AND THE NOT-SO-GREAT Some keys to success today are centers which offer some combination of: luxury goods service entertainment an experience. 33

34 RETAIL TRANSACTIONS PRICING METRICS 9% Average Cap Rates 8% All Retail 7% Malls Non Mall Centers 6% 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 Investment volume rose 33% in $250 $200 Average Price PSF $150 $100 $50 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 34 Sources: Real Capital Analytics and CBRE Research. For all retail transactions > $2.5 million. Through Q

35 MULTIFAMILY Has the Multifamily Sector Peaked?

36 MULTIFAMILY DEMAND Absorption (units) 400 Forecast Source: CBRE Econometric Advisors, as of 3Q 2014.

37 MULTIFAMILY SUPPLY, DEMAND, VACANCY OUTLOOK Completions and Absorption (units) 400 Forecast Vacancy 8 Completions reached about 276,000 in 2014, highest in over a decade Net absorption totaled about 235,000, slightly under new supply Vacancy 4.4% as of 4Q, down 0.5 point in Vacancy almost down to the prior low of 4.3% in Completions Net Absorption Vacancy (4Q) 37 Source: CBRE Econometric Advisors, as of 3Q 2014.

38 MARKET FUNDAMENTALS RENT GROWTH Annual Rent Change Source: CBRE Econometric Advisors, Q

39 NO SIGNIFICANT MOVE TO HOMEBUYING YET Tenure shift and demographics continue to support fundamentals 38 Rental Tenure - % of Renter Households to Total Forecast Q4 85 Q2 94 Average = 36.0% Average = 34.6% Q Q Q Q Q Q Sources: CBRE Research, U.S. Census Bureau. Data through Q

40 MULTIFAMILY TRANSACTIONS PRICING METRICS 8% Average Cap Rates 7% 6% 5% 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 5.8% $130,000 Average Price Per Unit $126,680 $110,000 $90,000 $70,000 04Q1 06Q1 08Q1 10Q1 12Q1 14Q1 40 Sources: Real Capital Analytics and CBRE Research. For all multifamily transactions > $2.5 million and all classes of space. Through Q

41 In short. An excellent 2015

42 Jeanette I. Rice CRE Americas Head of Investment Research CBRE CBRE Research 2100 McKinney Avenue, Suite 700 Dallas, TX T C jeanette.rice@cbre.com