20
State of the U.S. Economy, Capital Markets, and Commercial Real Estate
Calgary Real Estate Forum October 24, 2012
Douglas Poutasse Head of Strategy and Research Bentall Kennedy Group
1
-4
-3
-2
-1
0
1
2
3
4
5 ANATOMY OF A DELEVERAGING CYCLE
Year 1 Year 2/3 Year 4/5 Year 6+ or more?
This is where we are!
Price Discovery
Contingent Liability
Realization
Deleveraging Concludes
Repair & Recognition
Crisis Hits
Real GDP Growth
This Was Not Your Father’s Recession
State of U.S. Economy, Capital Markets, and Commercial Real Estate
2
The New Globalization
State of U.S. Economy, Capital Markets, and Commercial Real Estate
3
U.S. Fiscal Policy: Spend What You Want, Tax What You Can
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
Outla
ys & Ta
xes %
of G
DPOutlays Tax Receipts
Solving U.S. fiscal problems will require a dual approach
State of U.S. Economy, Capital Markets, and Commercial Real Estate
4
Labor Market Recovery Remains Sluggish
Sources: Moody’s Analytics, Bureau of Labor Statistics
-‐1,000
-‐800
-‐600
-‐400
-‐200
0
200
400
600
2008 2009 2010 2011 2012
Mon
thly Change (jo
bs, 000
s)
Goods-‐Producing Service-‐Producing (Ex-‐Government) Government Total
State of U.S. Economy, Capital Markets, and Commercial Real Estate
5
Capacity Tightening, Corporations Have Cash to Spend: But Under What Rules?
State of U.S. Economy, Capital Markets, and Commercial Real Estate
65
67
69
71
73
75
77
79
81
83
600
800
1,000
1,200
1,400
1,600
1,800
2005 2006 2007 2008 2009 2010 2011 2012
Capacity Utiliza
tion (%, SA)
Corporate Profits ($
, bil., SAA
R)
Corporate Profits Capacity Utilization
Sources: Federal Reserve, BEA
6
Tech & Energy Markets Leading the Recovery
State of U.S. Economy, Capital Markets, and Commercial Real Estate
-‐15.0%
-‐10.0%
-‐5.0%
0.0%
5.0%
10.0%
Houston
New
York
Washington, D.C.
Dallas
Denver
Boston
San Francisco
San Jose
Baltimore
Seattle
Minne
apolis
United States
Portland
Philade
lphia
San Diego
Atlanta
St. Lou
is
Miami
Chicago
Orla
ndo
Los A
ngeles
Northern New
Jersey
Oakland
Orange Co
unty
Phoe
nix
Fort Laude
rdale
Riverside
West P
alm
Las V
egas
Employmen
t Change (% of p
eak)
Peak to Trough Trough to July 2012 Trough to July 2011 Peak to July 2012
Sources: Moody’s Analytics, Bureau of Labor Statistics
7
Have to Add Value Somewhere
State of U.S. Economy, Capital Markets, and Commercial Real Estate
8
High Educational Attainment Positions Metros for Stronger Growth
State of U.S. Economy, Capital Markets, and Commercial Real Estate
0
5
10
15
20
25
30
35
40
45
50
Houston
New
York
Washington, D.C.
Dallas
Denver
Boston
San Francisco
San Jose
Baltimore
Seattle
Minne
apolis
United States
Portland
Philade
lphia
San Diego
Atlanta
St. Lou
is
Miami
Chicago
Orla
ndo
Los A
ngeles
Northern New
Jersey
Oakland
Orange Co
unty
Phoe
nix
Fort Laude
rdale
Riverside
West P
alm
Las V
egas
% of P
opulation with
a Bache
lor's Degree or Highe
r
Avg. of Metros: 33.7
Sources: Moody’s Analytics, U.S. Census Bureau
9
Tech Markets Experiencing Fastest Office Demand Growth
State of U.S. Economy, Capital Markets, and Commercial Real Estate
*Bubble Size Denotes Market Size
AtlantaBoston
Chicago
Dallas
Denver
Edison
Houston
Los Angeles
New York
Newark
PhiladelphiaPhoenix
San Francisco
Seattle
Washington, DC
San Jose
CharlotteMiami
-‐4.0%
-‐2.0%
0.0%
2.0%
4.0%
6.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Demand Grow
th 201
1Q2 to 201
2Q2
Vacancy 2012Q2
Sources: CBRE-EA
10
Retail Sales Rising Again but Gas and Internet Sales grabbing a Larger Share
State of U.S. Economy, Capital Markets, and Commercial Real Estate
4%
6%
8%
10%
12%
14%
16%
$100
$150
$200
$250
$300
$350
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Share of Sales
Retail Sales (billion
s)
Store-‐based Gas Stations
Nonstore Gas (Share)
Nonstore (Share)
Source: U.S. Census Bureau
11
American Consumers have far more options for spreading out our shopping dollars
State of U.S. Economy, Capital Markets, and Commercial Real Estate
24
14.5
$400
$600
$0
$100
$200
$300
$400
$500
$600
$700
0
5
10
15
20
25
30
US Canada
SHOPPING CENTRE SALES AND SUPPLY
Sq. ft. per capita Sales per sq. ft.
sq. ft. per capita $ per sq. ft
Source: ICSC
12
Perhaps you are following our path to profligacy…
Sources: Statistics Canada, Federal Reserve, BEA, Bentall Kennedy
80
90
100
110
120
130
140
150
160
170
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Debt to
Personal Incom
e Ratio
(%)
U.S.
Canada
State of U.S. Economy, Capital Markets, and Commercial Real Estate
13
The Reality of the American Housing Bust Continues to Play Out
State of U.S. Economy, Capital Markets, and Commercial Real Estate
14
Home Prices Stabilizing (Hopefully) as Sales Volume Improves
State of U.S. Economy, Capital Markets, and Commercial Real Estate
-‐40%
-‐30%
-‐20%
-‐10%
0%
10%
20%
30%
2005 2006 2007 2008 2009 2010 2011 2012
Year-‐over-‐Year Change
Case-‐Shiller US Home Prices Existing Home Sales
Sources: S&P/Case-Shiller, National Association of Realtors
15
Renter Households Set for Continued Strong Growth
State of U.S. Economy, Capital Markets, and Commercial Real Estate
60%
62%
64%
66%
68%
70%
72%
-‐1.5
-‐1.0
-‐0.5
0.0
0.5
1.0
1.5
80-‐84 85-‐89 90-‐94 95-‐99 00-‐04 05-‐09 10-‐11 12-‐16 12-‐16 12-‐16 12-‐16
U.S. H
omeo
wne
rship Ra
te
Renter Hou
seho
lds (M)
Avg. Annual Change in Renter Households
U.S. Homeownership Rate
U.S. Homeownership Rate (Scenarios)
Forecast Scenarios (12-‐16)ApartmentRecovery
Moody'sBasecase
HO Falls2PP
HO Rises2PP
HO RateFlat
Downward Arrow Indicates Falling Homeownership Rate
Sources: Moody’s Analytics, U.S. Census Bureau, Bentall Kennedy Research
16
Apartment Market Experiencing Strong Rent Growth
State of U.S. Economy, Capital Markets, and Commercial Real Estate
17131557
1068
1424
119
121613
12
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Demand Grow
th 201
1Q2 to 201
2Q2
Vacancy 2012Q2 Y/Y Rent Growth >4.5% Y/Y Rent Growth 3.5%-‐4.5%Y/Y Rent Growth 2%-‐3.4% Y/Y Rent Growth <2%
Houston
DallasPhoenix
Atlanta
Los Angeles
BostonMinneapolis
San Francisco
New York
Distict of Columbia
Denver
DetroitSeattle
Orange County
Philadelphia
ChicagoNorthern New Jersey
Source: REIS
17
Apartment Market is only one similar to Canadian Markets
Sources: CBRE-EA, REIS, CMHC
U.S. Apartment
U.S. OfficeU.S. Retail*
U.S. Industrial*
Canada Office
Canada Industrial*
Canada Retail
Canada Apartment
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%
Demand Grow
th 201
1Q2 to 201
2Q2
Vacancy 2012Q2 (*Availability Rate)
State of U.S. Economy, Capital Markets, and Commercial Real Estate
18
Real Estate Offering Attractive Yields Versus Treasuries
State of U.S. Economy, Capital Markets, and Commercial Real Estate
-‐200
-‐100
0
100
200
300
400
500
600
700
800
900
1,000
-‐2
-‐1
0
1
2
3
4
5
6
7
8
9
10
Spread (b
ps)
Cap Rate/Treasury Rate (%
)
Cap Rate Spread 10-‐Year Treasury Cap Rate 4 Qtr Moving Avg. 25-‐Yr Average Spread
Sources: Federal Reserve, Moody’s Analytics, NCREIF (transaction-based cap rates)
19
“Valuation Effect” has played a Significant Role in the Rebound of CRE Performance
State of U.S. Economy, Capital Markets, and Commercial Real Estate
Sources: NCREIF, Bentall Kennedy Research
-‐30%
-‐25%
-‐20%
-‐15%
-‐10%
-‐5%
0%
5%
10%
15%
20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
NCR
EIF Re
turn
Income Return NOI Growth Valuation Effect Total Return