Leadership & Strategy

2013 Market Forecast1st Quarter UpdateKiley Advisors LLCASHRAE Meeting

April 17, 2013

Leadership & Strategy

2012 Market Begins to Transform• Employment Growth (119,000)• Net Positive Absorption• McGraw Hill Contracts $3.7B -

$3.9B• Surge Felt by All Parties

Looking Back

Leadership & Strategy

Looking Back

CBRE Q4 SF Under Construction

Net Absorption (YOY)

Office (Q4) 8.5 msf 4.3 msf

Industrial (Q3) 3.8 msf 1.5 msf

Retail (Q3) 1.4 msf 225k sf

Multifamily (Q3) 12,000 3,195 units

• Office• Houston recovered all square footage lost during

recession by the end of 2011, so 4.3 msf is true growth• Houston had the most absorption in a single year since

2006.• Overall rates have increased by almost $1 and Class A

rates have risen $2.25 over the year

Leadership & Strategy

• Home Sales• Up 16.1% in 2012

• Auto Sales – 325,000 units• Commercial Real Estate “White Hot”

Looking Back

Leadership & Strategy

International Picture•Positive Growth – All Regions

Looking Ahead

Leadership & Strategy

International Picture•China 8.6%; India 6.5%•Western Europe, Greece and Spain •Mongolia, Macau and Libya – The Stars

A Deeper Look

Leadership & Strategy

National Picture

•Fiscal Cliff Averted•GDP Growth 2 – 2.5%•2M Jobs•7.5% Unemployment

Looking Ahead

Leadership & Strategy

National Picture

•Construction Starts Increasing• McGraw Hill 6%• FMI 8%• Commercial 5%

•Home Building Returns

Looking Ahead

Leadership & Strategy

Texas and Houston•Population and Employment Growing•Shale Boom•Cost of living remains reasonable•All markets increasing

Looking Ahead

Leadership & Strategy

Shale Plays

Source: www.Angus.us

Leadership & Strategy

Shale Gas - The Game Changer for American Manufacturing

•Reshoring•1-3M Jobs (2025-2030)

• Deloitte & Bain Studies

Leadership & Strategy

Trends/Issues

Leadership & Strategy

Trends/Issues

Leadership & Strategy

• Job and Population Growth • 85,000 jobs; 115,000 people• Construction adding 16,200

• Oil and Gas Prices remain favorable• Vacancy levels low• Quick delivery/value building Tenant

Financed/HR Driven• Financing available but tight parameters• Panama Canal Expansion

What Will Drive Construction?

Leadership & Strategy

•EIA Projections• WTI $88.29 per barrel average• Henry Hub $3.49 average

What Will Drive Construction?

CBRE Vacancy (Total)

Office (Q4) 12.9%

Industrial (Q3) 5.2%

Retail (Q3) 7.8%

Multifamily (Q3) 89.6% occupancy

Leadership & Strategy

Sector and Segment Highlights

Leadership & Strategy

• 27,500 new single family dwellings• 10,000 new multi-family units• Lot supply scarce?

Residential

Leadership & Strategy

• 10 billion in Houston Area• 56 billion from Corpus to Baton Rouge• Significant for our workforce picture

The Industrial Picture

Leadership & Strategy

• Harris County slightly up due to the new medical examiners building • City of Houston down 23% from a year ago• Port of Houston $200M

Public Work - Commercial

Department Amount Aviation Facilities $135 MFire Protection Facilities $14.6 MGeneral Government Facilities $2.8 MHomeless & Housing Facilities $0 Library Facilities $7.2 MParks and Recreation Facilities $20.2 MPolice Facilities $10.5 MPublic Health Facilities $1.5 M

Solid Waste Management Facilities $3.6 M

Total $195.4M

Leadership & Strategy

Institutional

Institution 2013 Construction

University of Houston $200M (subject to approval)

Lone Star College System $200M

University of St. Thomas $0

Houston Community College $400M bond ($100M in 2013)

Leadership & Strategy

Churches

• $200M market historically• Archdiocese of Galveston-Houston

• 28M over 10 projects

• Market seems to be flat or slightly down

Leadership & Strategy

Commercial and Light Industrial SegmentsPrivate Work

Leadership & Strategy

• More alive than any time in the past 30 years• “Children of Exxon” – 40+ projects; 15 million square feet• Employment growth plus changing requirements driving

• Quick delivery/value buildings• Accommodating the knowledge worker

• Light Industrial picture• Oil field companies• Port expansion• Vacancies small/rents improving

Office & Light Industrial Picture

Leadership & Strategy

• Slow steady growth – 5% increase over 2012• 2.27 million square feet in 2013

• New retail player• Aldi (a discount concept)• Sprouts (health food)• Fresh Market (specialty produce market)

• Taking the Rice Epicurean space• Healthcare taking retail space (Texas Children’s, Memorial Hermann,

Kelsey-Seybold)• 2014-2015 should be boom years

The Retail Picture

Leadership & Strategy

• Lots of activity that drives hotels• Convention Activity• Oil & Gas• 2013 NBA All Star Game• Dynamo Stadium

• RevPAR moving in the right direction• 2011 - $90• 2012 - $95• 2013 - $100 anticipated

• Occupancy will continue to increase• 2011 = 59.8%• 2012 – 64%• 2013 – 66%

Hotels

Leadership & Strategy

• Mainly smaller community projects• Memorial Hermann 4 POBS• Bigger work being considered

• MD Anderson/ Methodist/ Memorial Hermann• Perhaps some bio science expansions (new med center CEO)• Concerns:

• St. Luke’s• ACA

Healthcare

Leadership & Strategy

• (24 districts reporting)

• Anahuac, Channelview, Clear Creek*, Cleveland, Conroe, Damon, Danbury, Dayton, Deer Park, Dickinson, Katy, La Porte, Santa Fe and Texas City all reported no construction in 2013

• 2012 had 28 districts reporting $749M in work• The “caboose” of construction markets

K-12

District BudgetAlief $5,000,000Alvin $13,500,000 Cy-Fair $87,000,000 HISD $148,000,000Hull-Daisetta $350,000 Klein $18,000,000 Pasadena $87,000,000 Sheldon $15,000,000 Splendora $10,500,000 Spring Branch $18,000,000 Total $402,350,000

Leadership & Strategy

• Immigration Reform• Margins and Fees remain low• Bonding lines being cut/capped• Concerns of Failures Still Exist- Overall Bonding

Environment Easing, However.. Texas Lures• Skilled craft worker shortage• Talent management remains critical

Industry Issues

Leadership & Strategy

Infrastructure - $57 Billion/2020•Financing

• Infrastructure Banks• Sovereign Wealth• Pension

•Streamlining•StandardizingMega Projects•0 in 2008•1004 in 2011•Bonding/Impact on Resources

Other Global Issues

Leadership & Strategy

Longer Range?

• Perryman Population Projection• 10.25M by 2040

• Scenario 2040 • 8-12M

Leadership & Strategy

• New Contracts Awards• $4 Billion total expected in 2013

2013 Forecast

Leadership & Strategy

The information contained in this report was obtained from various publications and sources. Special thanks to CB Richard Ellis, American

Metro Studies, O’Connor & Associates, Accenture, ENR Magazine, Grubb & Ellis, Greater Houston Partnership, Ken Simonson - National AGC

economist, Industrial Info Resources, University of Houston Institute for Regional Forecasting, Reed Construction Data, McGraw-Hill, PKF

Consulting, the Houston Chronicle, and other sources mentioned who supplied information and assistance for this forecast.

© Kiley Advisors, LLC

Sources