Transcript Jeanette I. Rice

ECONOMIC OUTLOOK: IT’S THE ECONOMY!
GET SMART ON WHAT TO EXPECT IN 2015
January 28, 2015
Jeanette I. Rice
Americas Head of Investment Research
SOUTH FLORIDA CHAPTER
1.
2.
3.
4.
National economy in great shape for 2015
Property market fundamentals are all favorable
Tons of capital for commercial real estate
South Florida well positioned to benefit from all of the above
AGENDA
1. National Economy
2. Capital Markets
3. Property Markets
U.S. ECONOMY
4
U.S. ECONOMY - EMPLOYMENT
Total Historical Employment
US economy - four years of economic
recovery/expansion.
Millions
145
Last May, US regained all jobs lost
(numerically) during recession.
140
135
Currently +2.1% yoy
(3.0 million jobs).
130
125
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Dec = +252,000 jobs
2014 average = +246,000
Jan-14
Historical Employment – % Change Y-o-Y
4
2
0
-2
-4
-6
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
5
Source: U.S. Bureau of Labor Statistics,
seasonally adjusted data through Dec 2014
U.S. ECONOMY – SECTORS TO WATCH
Total Single-Family Starts
Housing
Millions
2.0
1.5
1.5
1.2 1.3
1.6
1.7
Manufacturing
1.5
1.4
1.0
1.0
0.6
0.4 0.5 0.4
0.5
0.6 0.6
0.5
Consumer Spending
Global Economies
0.0
00
02
04
06
08
10
12
14
Energy
 Still way below 2000s
peak, but rising.
High Tech
 Nationally, starts rose
15% in 2013.
 In 2014, starts rose
5% over 2013 to an
annual rate of
648,000 units.
Interest Rates
6
Source: U.S. Bureau of Census (starts data).
U.S. ECONOMY – EMPLOYMENT GROWTH UNEVEN
Top Metros for Projected Annual Pct
Employment Growth
Over Next Two Years
Historical Employment – % Change Y-o-Y
Nashville
6
3.8
Austin
3.6
West Palm Beach
3
3.4
Fort Lauderdale
3.0
Fort Worth
0
-3
2.9
San Antonio
2.8
Salt Lake City
2.8
Orlando
Greenville
-6
Raleigh
-9
Jan-04
Jan-06
Jan-08
Jan-10
U.S.
Detroit
Austin
Jan-12
Jan-14
Miami MSA
7
2.7
2.5
2.4
Dallas
2.3
Phoenix
2.3
Riverside
2.2
Miami
2.2
Indianapolis
2.2
Charlotte
2.2
Atlanta
2.2
Denver
2.2
Sources: CBRE Research, U.S. Bureau of Labor Analytics
(data through Nov 2014), Moody’s Analytics (forecasts as
of Q3 2014; “Sum of the Markets” = 1.6%).
U.S. ECONOMY – OUTLOOK
Employment Forecasts - Change Y-o-Y
3%
2014 = 1.8%
2%
1%
2015 = 2.1%
0%
About 245,000 jobs/month
-1%
-2%
-3%
-4%
-5%
03
07
11
15
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 01.13.15).
Capital Markets
Increased Global Capital Flows, Favorable Returns, Disciplined Debt
CAPITAL MARKETS - IMPRESSIVE INVESTMENT GAINS
Total Direct Investment in U.S. Commercial Real Estate
$ Billions
600
 Total 2014 direct
investment = $424
billion.
500
 17% rise over
2013.
400
 2014 still 26%
below prior peak
(but only 5% below
when entity sales
removed).
 CBRE Research
projects a gain of
10-15% in 2015.
300
200
100
01
02
03
04
05
06
Individual
10
07
08
Portfolio
09
10
11
12
13
14
Entity
Sources: Real Capital Analytics and CBRE Research..
U.S. INVESTMENT VOLUMES – BY GLOBAL REGION ORIGIN
2014 Global Total = $41 Billion
Other
23%
Canada
25%
Australia
3%
Singapore
4%
Norway
11%
Switzerland
5%
Hong Kong
5%
Germany
6%
China
8%
Japan
10%
11
Sources: Real Capital Analytics and CBRE Research. Totals
excluding transactions under contract.
THE SCARCITY OF CORE
12
U.S. COMMERCIAL MORTGAGE MARKET
1. Nearly all capital sources firing on
all cylinders and expected to
increase lending in 2015
2. Delinquency rates at decade low
and expected to remain there
through 2015
3. CMBS 2005-06-07 vintages coming
due, but not likely to create much
distress
4. Mortgage interest rates to remain
very low with favorable outlook for
2015
5. Underwriting loosening, but not
dangerously
13
PROPERTY MARKETS
Recovery Maturing, Continued Gains in Market Performance,
OFFICE
Changing Patterns of Demand, Continued Recovery
OFFICE SUPPLY, DEMAND, VACANCY OUTLOOK
Vacancy
Completions and Absorption (millions of sq. ft.)
 Net absorption far
outpacing new supply.
 In 2014, demand rose
46% reaching 53
million sq. ft. This was
the highest level since
2007.
 New supply also rising
(+22% in 2014), but far
below demand at 22
million sq. ft.
 2014 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.
100
18
Forecast
75
15
50
12
25
9
0
6
-25
3
-50
0
04
05
06
07
08
Completions
09
10
11
12
Net Absorption
13
14
15
16
17
18
Vacancy (4Q)
 .
16
Source: CBRE Econometric Advisors,
4Q 2014. Forecasts as of 3Q 2014.
MARKET FUNDAMENTALS – RENT GROWTH
Annual Rent Change
Top Metros for
Projected Annual Rent Growth
Over Next Two Years
12
8
3.3
4
3.33.4
4.5
Dallas
10.6
0
-4
Austin
8.5
-8
-12
-16
00
02
04
06
08
10
12
14
16
18
Salt Lake City
7.4
Indianapolis
7.1
Wilmington
7.0
West Palm Beach
6.7
Fort Lauderdale
6.6
Miami
6.6
Las Vegas
6.4
Charlotte
17
6.0
Source: CBRE Econometric Advisors, Q3
2014. Historical average = 1.0%
SQUARE FOOTAGE REDUCTION, CHANGING STYLE
18
OFFICE INVESTMENT – IMPRESSIVE GAIN OF 17%
250
Billions
200
150
100
50
01
02
03
04
05
06
07
CBD
08
09
10
11
12
13
14
Suburban
19
Sources: Real Capital Analytics; CBRE Research.
2014 still 26% below prior peak year of 2007.
OFFICE TRANSACTIONS – PRICING METRICS
Average Cap Rates
9%
8%
7%
6%
04Q1
06Q1
08Q1
10Q1
12Q1
14Q1
12Q1
14Q1
Average Price PSF
$300
$250
$200
$150
$100
04Q1
06Q1
08Q1
20
10Q1
Sources: Real Capital Analytics and CBRE Research. For all office
transactions > $2.5 million and all classes of space. Through Q4 2014.
INDUSTRIAL
Shift to Light Industrial?
INDUSTRIAL SUPPLY, DEMAND, VACANCY OUTLOOK
Vacancy
Completions and Absorption (millions of sq. ft.)
300
15
Forecast
 Completions – 115
million sq. ft. in 2014
200
12
 Net Absorption –
224 million sq. ft.,
highest since ’05
100
9
0
6
-100
3
-200
0
 Availability – 10%,
favorable 1 point
drop in 2014
-300
-3
04
05
06
07
08
Completions
22
09
10
11
12
Net Absorption
13
14
15
16
17
18
Vacancy (4Q)
Source: CBRE Econometric Advisors,
4Q 2014. Forecasts as of 3Q 2014.
MARKET FUNDAMENTALS – RENT GROWTH
Annual Rent Change
8
4.7 5.3
Top Metros for
Projected Annual Rent Growth
Over Next Two Years
5.7
4
Riverside
10.4
San Jose
9.9
0
-4
Atlanta
9.4
-8
Detroit
9.3
-12
Cincinnati
9.0
00
02
04
06
08
10
12
14
16
18
West Palm Beach
Orange County
8.0
Charlotte
7.8
San Diego
7.2
Las Vegas
7.1
Fort Worth
7.1
Fort Lauderdale
7.1
U.S.
23
8.6
5.5
Source: CBRE Econometric Advisors, Q3
2014. Historical rent change = 0.3%
E-COMMERCE
E-commerce sales have risen by
16.2% in year ending Q3 2014,
compared to all retail which is up 4.2%.
E-Commerce Retail Sales - YOY Change
E-commerce as % of All Retail Sales
8%
45%
6.6%
E-Commerce
6%
30%
4%
15%
2%
0%
All Retail
0%
-15%
02
04
06
08
10
12
14
24
02
04
06
08
10
12
14
Source: U.S. Census Bureau, data through Q3
2014. Data are seasonally adjusted.
LARGEST U.S. CONTAINER PORTS
All Others
22%
Los
Angeles
18%
Seattle
4%
Long
Beach
15%
Charleston
4%
Tacoma
4%
Houston
4% Norfolk
5%
Oakland
5%
Los Angeles and Long Beach
combined = 33% of all US
container traffic.
The top 10 ports account for
nearly 80%.
25
NY/NJ
12%
Savannah
7%
Sources: CBRE Research, American Association of Port
Authorities; market share based on total 2013 TEUs
LARGEST U.S. PORTS
Y-o-Y Change in Container Volumes
U.S.
Rank
All major US ports enjoying year-overyear increases in container volumes,
except Seattle.
Port
Coast
Total
TEUs
Loaded
Inbound
TEUs
1
Los Angeles
W
7.5%
8.7%
2
Long Beach
W
1.7%
2.8%
3
New York/New Jersey
E
4.1%
5.5%
4
Savannah
E
9.5%
16.4%
5
Oakland
W
1.8%
4.1%
6
Norfolk (Port of Virginia)
E
7.1%
8.8%
7
Tacoma
W
11.0%
15.4%
8
Houston
G
-1.6%
15.7%
9
Charleston
E
12.1%
12.8%
10
Seattle
W
-12.0%
-25.0%
4.6%
6.7%
All Major Ports
The greatest gains are being
experienced by East Coast ports.
26
Major West Coast Ports
W
3.7%
4.6%
Major East Coast Ports
E
7.0%
9.2%
Major Gulf Coast Port
G
-1.6%
15.7%
Data Sources: CBRE Research, port authorities for each
port. Yoy change based on ytd totals through October.
INDUSTRIAL TRANSACTIONS – PRICING METRICS
Average Cap Rates
9%
8%
7%
 Investment volume –
9% increase, 2014
 CBRE Research
forecasts industrial
investment volumes
to rise 10-15% in
2015.
 In 2015, there will be
greater % of “light
industrial”
acquisitions.
6%
04Q1
06Q1
08Q1
10Q1
12Q1
14Q1
12Q1
14Q1
Average Price PSF
$80
$70
$60
$50
$40
04Q1
06Q1
08Q1
27
10Q1
Sources: Real Capital Analytics and CBRE Research. For all industrial
transactions > $2.5 million and all classes of space. Through Q4 2014.
RETAIL
Are Rumors of Brick-and-Mortar’s Demise Greatly Exaggerated?
RETAIL SALES – YEAR-OVER-YEAR CHANGE
8%
4.2%
 Yes, 93% of retail
sales still occur out of
brick and mortar
space.
 Retail sales +4.2%
year-over-year as of
Q3 2014.
4%
0%
-4%
 December + 3.2% over
prior year.
-8%
-12%
02
04
06
29
08
10
12
14
Source: U.S. Census Bureau, data through Q3
2014. Data are seasonally adjusted.
RETAIL SUPPLY, DEMAND, VACANCY OUTLOOK
Vacancy
Completions and Absorption (millions of sq. ft.)
100
14
Forecast
80
12
60
10
40
8
20
6
0
4
 Availability rate
dropping steadily.
-20
2
 Q4 2014 = 11%, down
0.6 point in 2014.
-40
 Net absorption far
outpacing new supply.
 Practically no retail
space built for several
years or in the
pipeline. Only about 13
msf in 2014.
 Net absorption - 29
msf, highest since ’07
0
04
05
06
07
08
Completions
30
09
10
11
12
Net Absorption
13
14
15
16
17
18
Vacancy (4Q)
Source: CBRE Econometric
Advisors, as of 3Q 2014.
MARKET FUNDAMENTALS – RENT GROWTH
Annual Rent Change
for Neighborhood & Community Centers
8
4.9
6
Top 10 Metros for
Projected Annual Rent Growth
Over Next Two Years
5.7
3.8
4
Denver
1.3
10.4
Miami
2
8.7
Tulsa
0
-2
-4
-6
00
02
04
06
08
10
12
14
16
18
8.0
Dallas
7.6
San Francisco
7.3
Austin
6.5
Oakland
6.4
Nashville
6.4
Memphis
6.0
Atlanta
5.9
Jacksonville
4.9
U.S.
Orlando
3.6
Tampa
3.3
Fort Lauderdale
West Palm Beach
31
4.4
2.3
1.5
Source: CBRE Econometric Advisors, Q3 2014.
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.
32
RETAIL TRANSACTIONS – PRICING METRICS
Average Cap Rates
9%
8%
All Retail
7%
Malls
Non Mall Centers
6%
04Q1
06Q1
08Q1
10Q1
12Q1
14Q1
12Q1
14Q1
Average Price PSF
 Investment volume
rose 33% in 2014.
$250
$200
$150
$100
$50
04Q1
06Q1
08Q1
33
10Q1
Sources: Real Capital Analytics and CBRE Research. For all retail
transactions > $2.5 million. Through Q4 2014.
Jeanette I. Rice CRE®
Americas Head of Investment Research
CBRE | CBRE Research
2100 McKinney Avenue, Suite 700 | Dallas, TX 75201
T 214 979 6169 | C 817 412 0709
[email protected] | www.cbre.com