Canada
Emerging Trends in Real Estate 2014 Emerging Trends is the industry s most predictive forecast 35th annual outlook Based on over 1,000 interviews and surveys of industry leaders Sponsored by PwC and the Urban Land Institute
Key themes for 2014 Continuing urbanization and reverse migration to urban areas Increase yield by optimizing asset and property management Rental apartments see rising demand
Key themes for 2014 Canadian investors look for non-domestic opportunities especially US Capital will be available for development US and European retailers will continue to find the market attractive
Business conditions
Economic forecast Increase Significantly Remain Stable Decrease Significantly Inflation Short-term rates Long-term rates (1-year treasuries) (10-year treasuries) 2014 Next Five Years Commercial mortgage rates
2014 could be a cautious year for transactions Excellent Hold Fair Buy Sell Poor 2008 2009 2010 Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 2011 2012 2013 2014
Capital market outlook
Capital flows outlook Equity capital for acquisitions 2.6% Substantially undersupplied 21.8% Moderately undersupplied 2014 38.5% In balance 2013 24.4% 2012 Moderately oversupplied 12.8% Substantially oversupplied 0% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 10% 20% 30% 40% 50%
Capital flows outlook Debt capital for acquisitions 3.95% Substantially undersupplied 18.42% Moderately undersupplied 55.26% In balance 15.79% Moderately oversupplied 2014 2013 2012 6.58% Substantially oversupplied 0% 10% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 20% 30% 40% 50% 60%
Capital flows outlook Debt capital for refinancing 5.26% Substantially oversupplied 14.47% Moderately oversupplied 61.84% In balance 17.11% Moderately undersupplied 2014 2013 2012 1.32% Substantially undersupplied 0% 10% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 20% 30% 40% 50% 60% 70%
Capital flows outlook Debt capital for development 8.0% Substantially undersupplied 32.0% Moderately undersupplied 45.3% In balance 12.0% Moderately oversupplied 2.7% Substantially oversupplied 0% 10% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 20% 30% 40% 50%
Equity Underwriting Standards 11.5% Less Rigorous 44.8% 2014 2013 2012 Will Remain the Same 43.7% More Rigorous 0% 10% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 20% 30% 40% 50% 60%
Debt Underwriting Standards 9.5% Less Rigorous 40.5% 2014 2013 2012 Will Remain the Same 50.0% More Rigorous 0% 10% Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 20% 30% 40% 50% 60% 70%
Change in availability of capital for real estate Equity Institutional Investors/Pension Funds Foreign Investors Private Equity/Opportunity/Hedge Funds Private REITs Private Local Investors 2014 2013 Public Equity REITs Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 0 large decline 1 2 3 4 5 6 stay the same 7 8 9 large increase
Investment activity by buyer type 40% 2013 (YTD) 2012 26% 2011 22% 53% 58% 51% 45% 2010 0% 30% 6% 11% 14% 16% 20% 40% 60% 80% 100% Source: Real Capital Analytics Institutional Public Listed/REITs Private Cross-Border User/Other
Change in availability of capital for real estate Debt Non-Bank Financial Institutions Mezzanine Lenders Securitized Lenders/CMBS 2014 Mortgage REITs 2013 Insurance Companies Commercial Banks Government Sponsored Entities Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 0 1 large decline 2 3 4 5 stay the same 6 7 8 9 large increase
Global investment by market since 2007 Millions of US$ $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $1,775 $1,167 Source: Real Capital Analytics $1,021 $964 $589 $568 $488 $17
Property type outlook
Investment prospects by property type Retail Apartment Industrial/Distribution 2014 2013 Office Hotels 0 1 2 Abysmal Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 3 4 5 Fair 6 7 8 9 Excellent
Development prospects by property type Industrial/Distribution Retail Apartment 2014 2013 Office Hotels 0 1 2 Abysmal Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 3 4 5 Fair 6 7 8 9 Excellent
Global transaction volume since 2010 Millions of US$ $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 $1,915 $1,511 Source: Real Capital Analytics $1,473 $925 $392 $373
Prospects for residential property types Investment Development Infill and Intown Housing Senior Elderly Housing Single-Family: Moderate Income Single-Family: High Income Multifamily Condominiums Student Housing Affordable Housing Manufactured Home Communities Second and Leisure Homes Golf Course Communities 0 1 Abysmal Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 2 3 4 5 Fair 6 7 8 9 Excellent
Prospects for niche and multiuse property types Development Investment Mixed-Use Town Centers Infrastructure Urban Mixed-Use Properties Medical Office Self-Storage Facilities Lifestyle/Entertainment Retail Data Centers Master-Planned Communities Resort Hotels Master-Planned Resorts 0 1 Abysmal Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 2 3 4 5 Fair 6 7 8 9 Excellent
Markets to watch
2014 Markets to Watch Edmonton 6.18 Vancouver 6.10 Winnipeg 5.50 Calgary Saskatoon 6.40 6.12 Source: Emerging Trends in Real Estate 2014 survey. Note: Based on Canadian respondents only. Ottawa 5.52 Montreal 5.21 Toronto 6.03 Halifax 5.36
2014 population Change Winnipeg Vancouver Toronto Saskatoon Ottawa-Gatineau Montreal Halifax Edmonton Calgary -20,000 Intercity Source: Statistics Canada 20,000 40,000 International 60,000 80,000 100,000 Interprovincial
2014 economic growth GDP Emp Income Pop Retail Sales Calgary 3.4% 2.8% 2.8% 2.1% 5.2% Edmonton 3.2% 1.6% 2.1% 1.9% 5.0% Saskatoon 3.5% 0.8% 1.3% 2.6% 5.3% Vancouver 3.1% 2.5% 3.3% 1.6% 3.8% Toronto 2.7% 1.6% 2.5% 1.7% 3.6% Winnipeg 2.1% 1.5% 2.8% 1.2% 4.6% Ottawa 1.6% 1.6% 3.1% 0.7% 3.4% Halifax 2.6% 1.6% 2.9% 0.9% 3.6% Montreal 2.1% 0.6% 2.1% 1.0% 3.4% Source: Statistics Canada
Markets by scoring category 2014 Investment Calgary Development 6.40 Homebuilding 6.25 6.91 Edmonton 6.18 6.06 6.45 Saskatoon 6.12 6.12 6.43 Vancouver 6.10 6.17 6.39 Toronto 6.03 Ottawa 5.52 Winipeg 5.50 Halifax 5.36 Montreal 5.21 Source: Emerging Trends in Real Estate 2014 survey Note: Based on Canadian respondents only 5.88 5.07 6.46 5.71 5.32 5.04 4.82 5.71 4.95 5.30
Outlook for all markets level off Good Modestly good Calgary Edmonton Toronto Vancouver Ottawa Montreal Fair Modestly poor 2008 2009 2010 2011 2012 2013 2014
Investment transactions by market Millions of US$ 6,000 5,000 4,000 3,000 2,000 1,000-2010 Source: Real Capital Analytics 2011 2012 2013 YTD
Best bets 2014 Urban and infill retail development - Build mixed use downtown Invest in commercial multifamily developers Lock in or refinance at low rates Look for under performing or mismanaged assets
United States
Emerging trends key drivers for 2014 Industry profitability expected to continue to improve Interest rates expected to increase Dependence on cap rate compression to drive increase in value to be replaced by emphasis on asset management Markets are expected to be well supplied with both equity and debt capital
Emerging trends key drivers for 2014 Opportunities to develop property finally appear in sectors other than multifamily Industry begins to notice and understand needs of both Gen Y and the baby boomers Needs of end users of commercial space continue to evolve The single family housing market continues to make a positive contribution to the overall economy
Prospects for profitability by percentage of respondents 80% 70% 60% 50% Abysmal to Poor 40% Modestly Poor to Modestly Good Good to Excellent 30% 20% 10% 0% 2010 2011 2012 Source: Emerging Trends in Real Estate surveys Note: Based on US respondents only 2013 2014
Development expands beyond multifamily: Why? We haven t added to supply Aggregate new supply as % of inventory 1.6% 1.4% 1.2% Development Opportunity 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Reis, Inc. CBRE-EA Conditions in a certain markets have reached a point where new development of certain property is feasible
Fundamentals: Higher occupancy and rental rates will drive NOI growth Demand is Back Improving occupancy pushes up NOI growth 0.89 0.04 0.035 0.885 0.025 0.875 0.02 0.87 0.015 0.01 0.865 0.005 0.86 0 0.855-0.005 2011 2012 2013 Occupancy Rate 2014 2015 NOI Growth Source: Reis, CBRE-EA A number of markets are positioned to see substantial gains in occupancy and rent growth NOI Annual Growth Occupancy Rate 0.03 0.88
Aggregate demand for housing is increasing 1,500 70 Annual HH Formation Homeownership Rate 69 68 1,000 67 750 66 65 500 64 250 63 0 62 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 Homeownership % Annual change in Households (000s) 1,250
Population by generation 28.5% 15.3% 15-29 67+ 45-66 30-44 28.1% 28.0% Greatest Generation Baby Boomer Generation X Generation Y
The influence of demographic shifts continue to shape multiple markets millions of residents 69.0 68.5 68.0 67.5 67.0 66.5 66.0 65.5 65.0 64.5 64.0 2013 2014 2015 Source: US Census Bureau, Moody's Analytics 2016 2017 2018 2019 2020 Generation Y, Millennials, whatever we call them, they represent a large segment of the population
Capital markets
Prospects by Investment Category/Strategy Value-added Investments 6.32 Development 6.15 Opportunistic Investments 6.13 Core-plus Investments 5.95 Core Investments 5.53 Distressed Properties 4.99 Distressed Debt 4.80 0 Abysmal Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only 1 2 3 4 5 Fair 6 7 8 9 Excellent
Global capital expands to non-major markets 2009 Foreign investment in U.S. RE dates back to the 16 century 36% 2013 YTD 43% 57% 64% Top 6 Non-Major Top 6 Source: Real Capital Analytics Global capital is increasingly willing to look at alternative markets for higher returns Non-Major
Change in Availability of Capital for Real Estate in 2014 Equity source Foreign Investors 6.43 Institutional Investors/Pension Funds 6.18 Private Equity/Opportunity/Hedge Funds 6.12 Private Local Investors 6.00 Private REITs 5.70 Public Equity REITs 5.38 0 1 Very large decline Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only 2 3 4 5 6 Stay the Same 7 8 9 Very large increase
Change in Availability of Capital for Real Estate in 2014 Lending source Securitized Lenders/CMBS 6.24 Commercial Banks 6.12 Insurance Companies 6.03 Mezzanine Lenders 6.00 Non-Bank Financial Institutions 5.95 Mortgage REITs 5.54 Government Sponsored Enterprises 4.55 0 1 Very large decline Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only 2 3 4 5 Stay the Same 6 7 8 9 Very large increase
Capital flows outlook Real estate capital market balance forecast for 2014 Substantially oversupplied 13.7% 2.7% 40.5% Modestly oversupplied 23.5% 26.9% In balance 43.4% 17.1% Moderately undersupplied Substantially undersupplied 26.0% 1.8% 4.4% Equity capital for investing Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only Debt capital for acquisitions
Markets to watch More markets look attractive
Markets: 2 2010 emerging trends
Markets: 201 2014 emerging trends
Top 10 total rank 2014 Investment Development Homebuilding 1. San Francisco 7.0 6.9 2. Houston 7.0 6.6 7.5 3. San Jose 6.8 6.7 7.4 4. New York 6.8 6.6 5. Dallas/Ft. Worth 6.8 6.4 7.4 6. Seattle 6.8 6.4 7.2 7. Austin 6.7 6.3 7.3 8. Miami 6.6 6.4 7.1 9. Boston 6.6 6.4 6.9 10. Orange County, CA 6.6 6.2 Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only 7.7 7.2 6.9
Next 10 markets 2014 11. Denver Investment 6.5 Development 6.1 12. Nashville 6.5 6.2 6.8 13. Los Angeles 6.5 6.2 6.7 14. San Antonio 6.3 6.1 6.8 15. San Diego 6.5 5.9 6.7 16. Charlotte 6.4 5.9 6.8 17. Raleigh/Durham 6.3 5.9 6.8 18. Salt Lake City 6.4 6.0 6.5 19. Portland, OR 6.5 5.9 6.3 6.3 5.9 20. Minneapolis/St. Paul 6.3 Source: Emerging Trends in Real Estate 2014 survey Note: Based on US respondents only Homebuilding 6.8
Tampa Minneapolis No NJ NYC Boroughs Denver San Jose Atlanta San Francisco Baltimore Phoenix Nashville DC MD burbs Austin Broward St Louis Raleigh/Durham Source: Real Capital Analytics DC Dallas San Diego Chicago Seattle Houston Boston Los Angeles Manhattan Canadian investment in US markets since 2007 Millions of US$ 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000