Lecture 1 Market Analysis

Global Research and Consulting

Market Analysis SES 0549500 Lecture 1 September 6th Presented by: Raymond G. Torto, Ph.D, CRE Global Chief Economist CBRE [email protected]

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Beware the Boston Accent! 1. Speaks quickly with nasalized pronunciation 2. Omits the r sound in -ar combination and adds an r to words that end

with an a: Car Mark Idear Floridar

3. The er sound at the end of the word becomes an uh:

Sistuh Donuh 4. The ow sound at the end of the word often becomes an uh (as in cut): Felluh Tomorruh 5. When words end in ing, the ng becomes an n sound: Walkin Meetin


Macro Perspective: Global Economies

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Regional Shares of World Output and Population

Source: IHS Global Insight, Q3 2012

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The Largest 15 Global Economies

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000

United States

China

Japan

Germany

France

United Kingdom

Brazil

Russia

Italy

India

Canada

Australia

Spain

Mexico

South Korea

2012 Nominal GDP, $USD, Billions

Source: IHS Global Insight as of Q3 2012.

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Future GDP Growth by Country

Source: IHS Global Insight as of Q3 2012.

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The Population Growth is Not In the West!!

Source: Lachman, October 2011. and for next slide

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Population Growth by Region

2010 Population

2030 Population

Growth Population Number

North America 344 m 401m + 16% 57m

Latin America 590m 701m +18% 111m

Asia 3.9b 4.5b +15% 600m

Europe 738m 741m (919m 2050) 0 3m

Middle East and Africa 1,297m 1,949m +50% 652m

Total 1,423m

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We Are Urban

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Population: A Leading Indicator of Real Estate Demand

Globally, population growth entirely urban Greatest urban population growth in 3 largest countries:

China, India, U.S.

Rapid expansion of moderate-income, middle-class, and affluent households throughout developing world

Fastest growing regions: Africa, Middle East, Southeast Asia, South Central Asia

North, Central, and South America growing steadily Europe: only region facing population decline Strong consumer demand -- globally

Source: M. Leanne Lachman, Presentation PREA October 2011

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The Growth of the Middle Class: Real GDP per Capita % Change

-15%

-5%

5%

15%

25%

35%

45%

55%% Change in Real GDP per Capita from 2007 to 2012

Source: CBRE Research, IHS Global Insight as of Q3 2012.

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Europes Tough Property Prospects

In western Europe, replacement demand only Demolition must match new construction (or high

vacancy will pull rents down) Eastern Europe needs contemporary product, but

demographics are poor Strong nursing home need throughout Europe Look to Japan as mature market model U.K. and northern Europe in slightly better shape

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Emerging Market Demand

Hypermarkets

Workforce housing

Budget hotels

Warehouses

Water and air ports

Retail malls

Mortgage finance

Offices

Middle-class condos

Tourist facilities

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Institutional Real Estate Size By Region

A Birds Eye View of CRE: Feb 2012. Prudential Real Estate

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CRE Estimates

Source: Birds Eye.

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Where is the Estimated Growth in CRE?

Source: Birds Eye.


Charts from Rena Chapter 1

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Course Focus

The role of market research is to analyze the market-

related determinants of project profitability at the macro and micro level, help address questions of market entry and pro-active project design, and provide the bottom-line rent and absorption figures that are necessary for the assessment of the financial feasibility of a particular development.

Rena, p 15

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Residual Land Value Maximization

Source: Rena, p.. 14.

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Factors Driving Potential Income Figure 1.2 Influences on Project Income-Earning Capacity

ProjectIncome-Earning

CapacityInfluences

a. General Macro/Metro c. Location andGrowth Forces Property-specific

Factors(Amenities and

constraints)

Fixed or time-variantTime-variant

Effective Competing Location CompetingSpace Space and Space

Demand Supply Product SupplyDemand

Average Consumer/Tenant Project-specificMarket Prices/Rents Preferences Prices/RentsMarket Absorption and Project Absorption

Abilityto Pay

Determine the average performance Determine the competitive position and performance of a projectof a real estate market through time within its market at a given point in time

b. Macro Forces DrivingSpecific Space Markets(e.g., residential, office)

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Who Is the Competition? or What is the Market ?

Table 1.1 Market Analysis Components

a. Metropolitan b. Macro Analysis c. Micro AnalysisGrowth Analysis of Real Estate Markets of Development Projects

Unit of The metropolitan area The project's competitive The project and its immediate analysis (economic market) market area: the geographic and neighborhood environment

of the project area funneling effective demand for a project and encompassing the locationsof all competing projects

Focus of Analysis of the sources and Analysis of historical and Analysis of location/projectanalysis consequences of metropoli- current indicators of market amenities and constraints,

tan growth. In terms of sources, strength: effective market consumer preferences and emphasis is placed on industry demand, competing supply, ability to pay for location demand shifts, industrial stru- prices/rents, and vacancies and project attributes, thecture and amenity-induced by product design type and project's competitivemigration. In terms of conse- consumer segment, if possible position, and implicationsquences, emphasis is placed on regarding project absorptionpopulation, employment, and and pricesincome growth paths.

Bottom line Type and magnitude of growth Forecasts of the time paths Location selection/evaluationoutcome(s) the metropolitan area in of effective market demand/ and proactive design of a

question is experiencing and net absorption, competing marketable project; forecastswill likely experience in the supply, rents, and vacancies of project-specific rent/pricefuture; and the set of opportunities at the time of sale in the case and absorption schedulesand constraints such growth of for-sale projects and duringpatterns present for real estate the expected holding period indevelopment/investment the case of income-producing

properties

Contribution Facilitates a broad assessment Facilitates the identification of Provides inputs that are crucialof demand at the margin for product and consumer niches in evaluating the financial feasibilityreal estate property types and the best timing for market and viability of the project

entry; provides inputs for micro-market analysis and financialfeasibility analysis

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Disclosures: Raymond G. Torto

The information presented reflects the opinions of Raymond G. Torto based on sources and data believed to be reliable. Although the information used has been obtained from sources believed to be reliable, CBRE and CBRE Econometrics Advisors (formerly Torto Wheaton Research) does not guarantee its accuracy or completeness. This material is for private use and is for informational purposes only. Unauthorized distribution or use of the information is strictly prohibited and all rights to the material are reserved. There is no obligation to update or supplement this information at any time or in any way. Ray Torto is not a registered investment advisor.

All contents of this work product and all projections, opinions and forecasts

contained in the presentation are based upon historical events, trends and econometric models which are subject to material variation and interpretation. The material is also based upon various assumptions and is subject to significant uncertainties and contingencies, as well as possible typographical, arithmetic and other human error, and no representations or warranties, expressed or implied, as to the accuracy or completeness of the products and publications or any of their separate contents are made herein. This presentation does not take into account the investment objectives or financial situation of any particular person or institution.

Market Analysis SES 0549500Lecture 1September 6th Beware the Boston Accent!Macro Perspective: Global EconomiesRegional Shares of World Output and PopulationThe Largest 15 Global EconomiesFuture GDP Growth by CountryThe Population Growth is Not In the West!!Population Growth by RegionWe Are Urban Population: A Leading Indicator of Real Estate DemandThe Growth of the Middle Class: Real GDP per Capita % ChangeEuropes Tough Property ProspectsEmerging Market DemandInstitutional Real Estate Size By RegionCRE EstimatesWhere is the Estimated Growth in CRE?Charts from RenaChapter 1Course FocusResidual Land Value MaximizationFactors Driving Potential Income Who Is the Competition? or What is the Market ?Disclosures: Raymond G. Torto

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Lecture 1 Market Analysis