Transcript Document

Commercial Real Estate Trends
and Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at Southwest Florida CCIM Annual Outlook
Conference
Ft. Myers, FL
January 29, 2015
Commercial Investment Sales of Large Properties
(Properties valued at $2.5 million and over)
Commercial Sales in $Billions
571
430
400 420
423
362
355
299
212
130
233
174
147
67
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
Federal Reserve Commercial Property
Price Index
300
250
200
150
100
50
0
2000 - Jan
2000 - Sep
2001 - May
2002 - Jan
2002 - Sep
2003 - May
2004 - Jan
2004 - Sep
2005 - May
2006 - Jan
2006 - Sep
2007 - May
2008 - Jan
2008 - Sep
2009 - May
2010 - Jan
2010 - Sep
2011 - May
2012 - Jan
2012 - Sep
2013 - May
2014 - Jan
2014 - Sep
Value of New Non-Residential Construction
($ million)
450000
400000
350000
300000
250000
200000
GDP Burst
in 2014 Q2 and Q3
GDP Annualized Growth Rate
6
4
2
0
-2
-4
-6
-8
-10
2007 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014
- Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3 - Q1 - Q3
142000
140000
138000
136000
134000
132000
130000
128000
126000
124000
122000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - May
2013 - Nov
2014 - May
2014 - Nov
Jobs
(8 million lost … 11 million gained)
In thousands
550
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
Weekly New Unemployment Insurance Claims
600
In thousands
500
450
400
350
300
250
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Unemployment Rate
12
10
8
6
4
2
0
8200
8000
7800
7600
7400
7200
7000
6800
6600
6400
6200
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Jobs in Florida
In thousands
250
240
230
220
210
200
190
180
170
160
150
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Jobs in Cape Coral-Ft. Myers
In thousands
Household Net Worth at All-Time High
85000
80000
75000
70000
65000
60000
55000
50000
45000
40000
$ billion
But Wait …
“I am not feeling it”
-2
-4
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
GDP Still not Robust …
Below 3% for 9 straight years
GDP Annual Growth Rate
10
8
6
4
2
0
Sluggish Growth + Gap after Great Recession
($1.5 trillion gap … $4,700 per person)
GDP in 2009 Dollars
18000
3% Growth Line
17000
16000
15000
2.2% Growth Line
14000
13000
12000
11000
10000
1998 - Q1
2000 - Q1
2002 - Q1
Real GDP
2004 - Q1
2006 - Q1
2008 - Q1
2010 - Q1
Real GDP W/O Recession
2012 - Q1
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Employment Rate
66
64
62
60
58
56
54
41,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
2014 - Q1
43,000
Renter Households over 10 years
(Increased by 8 million)
In thousands
39,000
37,000
35,000
33,000
31,000
29,000
27,000
25,000
80,000
1980 - Q1
1981 - Q1
1982 - Q1
1983 - Q1
1984 - Q1
1985 - Q1
1986 - Q1
1987 - Q1
1988 - Q1
1989 - Q1
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
2014 - Q1
Homeowner Households over 10 years
(Decreased by 2 million)
In thousands
75,000
70,000
65,000
60,000
55,000
50,000
1990 - Q1
1991 - Q1
1992 - Q1
1993 - Q1
1994 - Q1
1995 - Q1
1996 - Q1
1997 - Q1
1998 - Q1
1999 - Q1
2000 - Q1
2001 - Q1
2002 - Q1
2003 - Q1
2004 - Q1
2005 - Q1
2006 - Q1
2007 - Q1
2008 - Q1
2009 - Q1
2010 - Q1
2011 - Q1
2012 - Q1
2013 - Q1
2014 - Q1
Homeownership Rate
70
69
68
67
66
65
64
63
62
61
60
Household Net Worth
($5,500 vs. $195,500)
1998
2001
2004
2007
2010
2013
$250,000
$200,000
$150,000
$100,000
Homeowner net worth
ranges from 31 to 46
times that of renters
x31 x36 x46 x46 x34 x36
$50,000
$0
Renter
Source: Federal Reserve Survey of Consumer Finances
Homeowner
Median Home Price: U.S. and Ft. Myers
(Near 25% gain in 3 years for U.S.)
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
The Reason for Not Feeling It
• Very Slow Housing Market Recovery
• Very Slow Commercial Market Recovery
• Holds Back Economic Recovery
REALTOR® Markets & Deal Size
(Not $2.5 million Properties)
2013 CRE Lending Survey: Value of most recent sales transaction
> $10,000,000
$5,000,000 - $10,000,000
$2,000,000 - $5,000,000
$1,000,000 - $2,000,000
2%
1%
12%
17%
$500,000 - $1,000,000
$250,000 - $500,000
< $250,000
26%
22%
21%
Source: NAR
Small Banks Important to REALTORS®
Current sources of financing for commercial deals
National banks (“Big four”)
3%
1%
8%
Regional banks
11%
Local banks
17%
Credit unions
Life insurance companies
REITs
18%
Private investors
Public companies
Small Business Administration
4%
25%
6%
7%
Source: NAR
Other, please specify
REALTORS® Report Commercial Sales Increase
Sales Volume
Sales Volume
30%
20%
Percent Cha nge, year-over-year
10%
0%
-10%
-20%
-30%
-40%
-50%
Source: National Association of Realtors®
New Construction and Leasing Favorable
REALTORS help Small Businesses
Did you close a sale in the past 12
months?
Yes
No
Average Value of Sale Transaction
N/A
$10,000,000 <
3%
$5,000,000 - $10,000,000
4%
$2,000,000 - $4,999,999
10%
$1,000,000 - $1,999,999
17%
$500,000 - $999,999
25%
$250,000 - $499,999
25%
< $250,000
16%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2011
2012
2013
2014
Credit Difficulty
Sales transaction fail during the past 12
months due to lack of financing
Yes
No
If answered "Yes," the reason was:
N/A
Financing
availability
80%
70%
17%
20%
60%
Loan
underwriting /
lender
requirements
50%
40%
30%
20%
63%
10%
0%
2011
2012
2013
2014
Appraisal /
valuation
Monetary Policy by Federal Reserve
(zero rate policy for 6 years!)
%
Fed Funds
6
5
4
3
2
1
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4000000
3500000
3000000
2500000
2000000
1500000
1000000
500000
0
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
2012 - Jul
2012 - Dec
2013 - May
Federal Reserve Balance Sheet from
Quantitative Easing
Total Asset Purchase
$ million
10-year Treasury Yield
7
6
5
4
3
2
1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
-1
-2
-3
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
Non-worrisome CPI Inflation – Yet
COLA of 1.7% in 2015
6
5
4
3
2
1
0
-1
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Rising Renters’ and Homeowners’ Rent Growth
(Above 3%)
Owners' Equivalent Rent
Renters' Rent
5
4
3
2
1
0
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
Oil Price
160
140
120
100
80
60
40
20
0
Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in mid-2015
• Earlier Move to Tighten because of Inflation
Pressure
• Long-term Steady State Rate (2016 onwards) ..
10 year Treasury at 5.0%
• Mortgage Rates reaching 6% by 2016
Single Family Housing Starts … ½ the Normal
2000
Thousand units
1800
1600
1400
1200
1000
800
600
400
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
Multifamily Housing Starts … Back to Normal
600
Thousand units
500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan - Jan
2000 - Jan
2000 - Sep
2001 - May
2002 - Jan
2002 - Sep
2003 - May
2004 - Jan
2004 - Sep
2005 - May
2006 - Jan
2006 - Sep
2007 - May
2008 - Jan
2008 - Sep
2009 - May
2010 - Jan
2010 - Sep
2011 - May
2012 - Jan
2012 - Sep
2013 - May
2014 - Jan
2014 - Sep
Housing Permits in Ft. Myers
35000
30000
25000
20000
15000
10000
5000
0
Apartment Fundamentals
U.S. Apartment Fundamentals
Completions
Net Absorption
Vac %
9.0
250,000
8.0
200,000
7.0
6.0
Square Feet
150,000
5.0
100,000
4.0
3.0
50,000
2.0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-50,000
2014 2015 2016
1.0
0.0
Source: NAR, Reis
Industrial Fundamentals
U.S. Industrial Fundamentals
Completions
Net Absorption
Vac %
14.0
150,000,000
12.0
100,000,000
Square Feet
10.0
50,000,000
8.0
6.0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014 2015 2016
4.0
-50,000,000
2.0
-100,000,000
0.0
Source: NAR, Reis
Commercial Office Fundamentals
U.S. Office Fundamentals
Completions
Net Absorption
Vac %
20.0
150,000,000
18.0
100,000,000
16.0
14.0
Square Feet
50,000,000
12.0
10.0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014 2015 2016
8.0
-50,000,000
-100,000,000
6.0
4.0
2.0
-150,000,000
0.0
Source: NAR, Reis
Retail Fundamentals
U.S. Retail Fundamentals
Completions
Net Absorption
Vac %
12.0
40,000,000
30,000,000
10.0
20,000,000
Square Feet
8.0
10,000,000
6.0
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
2014 2015 2016
4.0
-10,000,000
-20,000,000
-30,000,000
2.0
0.0
Source: NAR, Reis
CCIM Member Survey on Cap Rates
Cap Rates and Treasuries: Large Gap
10yr UST*
Cap Rate
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
Economic Forecast
GDP Growth
Job Growth
2013
2014
Likely
2.2%
2.6%
2015
2016
Forecast Forecast
3.1%
3.0%
+2.3 million +3.0 million +2.5 million +2.7 million
CPI Inflation
1.5%
1.2%
2.0%
3.2%
Consumer
Confidence
73
87
95
98
2.5%
2.5%
2.9%
4.2%
10-year
Treasury
Commercial Real Estate Forecast
OFFICE
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth
2014
16.2%
36,192
26,450
2.6%
2015
15.8%
50,678
41,799
3.2%
2016
15.6%
57,782
44,862
3.6%
INDUSTRIAL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Inventory ('000,000 sq. ft.)
Rent Growth
2014
8.9%
107,580
83,424
8,468
2.4%
2015
8.5%
104,948
68,755
8,537
2.8%
2016
8.1%
105,044
61,720
8,598
2.9%
RETAIL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth
2014
9.8%
11,214
7,275
2.0%
2015
9.7%
19,314
12,196
2.4%
2016
9.4%
24,313
16,342
3.0%
2014
4.0%
223,421
191,481
4.0%
2015
4.0%
170,065
146,461
3.9%
2016
4.2%
140,128
122,381
3.5%
MULTI-FAMILY
Vacancy Rate
Net Absorption (Units)
Completions (Units)
Rent Growth
Sources: National Association of REALTORS® / Reis, Inc.
Forecast over the next 2 years
• Rising interest rates …
• Cap rates rise somewhat (narrow the gap first)
• Increased occupancy and falling vacancy (new
supply lacking)
• Rising rents … can offset rising rates to
support property values
• Overall … improving business opportunities
Washington Policy Watch on
Commercial Real Estate
•
•
•
•
Preserve Terrorism Insurance
Preserve Like-Kind Exchanges
Facilitate Covered Bonds to help credit flow
Raise cap on holding of commercial RE loans by
credit unions
• Preserve capital gains status on carried interest
• Depreciation Rules should match economic life
• Oppose lease-accounting changes