Upload
auctioncom
View
445
Download
3
Tags:
Embed Size (px)
DESCRIPTION
Slides from the U.S. Commercial Real Estate Market Forecast Summer Update webinar by Peter Muoio, Head of Auction.com Research.
Citation preview
The US Commercial Real Estate Market Forecast: Summer Update
July 2014
Auction.com Research
Outlook for US Economy
2
US Growth Should Improve in Coming Years
» Reduced uncertainty helps spur private sector spending and investment. » Improving wealth provides tailwind to consumer spending. » Recovering housing market contributes to growth. » US energy boom boosts domestic manufacturing and exports. » Europe slowly pulls out of recession, aiding export volume.
GDP Gradually Accelerates Job Growth Picks Up as Economy Improves
Risks to the Outlook
3
Geopolitical Risks High
» Market discounting risk emanating out of Russia » Potential impact of sanctions/trade disruption on Europe » Geopolitical instability across many parts of the globe: Europe/emerging markets/Ukraine/Middle
East/Venezuela and Argentina » Unclear if China growth picks up? Additionally: » Housing market recovery could stall » Tapering is not smoothly executed or market reacts poorly to tapering moves/statements » Tech bubble?
Macro Overview: Growth Slowed in the Winter but Has Thawed
4
Economic Growth Made Significant Headway in 2013, Slowed in 1st Quarter, Now Stronger
Slowdown in GDP reflects the key risks we had identified: » Housing ebb led to drag from residential investment. » Slowdown in China and weakness in Japan helped drag down exports, while Europe ex UK still
slow. » Weather also played a very big role.
GDP Growth Slowed in the First Quarter, Exports, Investment and Weather Were Key Drags
Monthly Job Growth Solid After a Few Weak Months
Lower Uncertainty Could Help Unleash Household Spending and Business Investment
5
High Level of Uncertainty Between 2008 and 2012 Was a Key Impediment to Growth, Lower Uncertainty Will Help Boost Spending and Investment
Sources: Steven Davis, Scott Baker and Nicholas Bloom, Maximus Advisors
Single Family Looks to Be Thawing After Severe Winter
6
After Step Back, Recovery Appears to Be Heating Up
Existing Home Prices Up After Some Softness New and Existing-Home Sales Starting to Pick Back Up
Sources: Census, NAR, Zillow, FHA, S&P, Maximus Advisors
US Households Benefitting from Tailwind of Rising Financial and Residential Wealth
7
Household Wealth Has Surpassed Pre-Financial Crisis Level; Increase in Home Values Played Huge Role in 1st Quarter Increase
Sources: Federal Reserve, Maximus Advisors
Consumer Situation Still Generally Positive
8
Consumer Attitudes and Spending Emerging from Depths of Great Recession and Financial Crisis
Consumer Confidence Emerging from Deep Drop… …Propelling Consumer Spending
Sources: Conference Board, Census, Maximus Advisors
Natural Gas Prices Much Lower in US, Giving Manufacturers a Cost Advantage
9
Estimated Landing Prices Show Natural Gas is Far Cheaper in US
Sources: FERC, Maximus Advisors
Nearly All Major Metros Have Grown Over the Past Year
10
Detroit and DC Only Metros with Employment Down Year Over Year
Sources: BLS, Maximus Advisors
Economic Momentum Heatmap
11
Most Metros Have Good Economic Prospects
Source: Maximus Advisors
• Economy ratings range from 1 (very strong) to 6 (very weak) based on our analysis of current and near-term economic momentum.
• Individual box size is based on market population.
Real Estate Capital Markets
Transaction Volume Back to Healthy Level and on a Generally Upward Trajectory
13
Total Deal Volume Ranging at Healthy Level, Up 19% from a Year Ago
Sources: BLS, Maximus Advisors
$0
$20
$40
$60
$80
$100
$120
$140
$160
$18001
Q1
01Q3
02Q1
02Q3
03Q1
03Q3
04Q1
04Q3
05Q1
05Q3
06Q1
06Q3
07Q1
07Q3
08Q1
08Q3
09Q1
09Q3
10Q1
10Q3
11Q1
11Q3
12Q1
12Q3
13Q1
13Q3
14Q1
Deal Volum
e, $ Billions
Cap Rates Resisted Upward Interest Rates
14
Interest Rates Started to Climb in 2013 but Cap Rates Were Range-Bound to Lower
0
500
1000
1500
2000
2500
3000
3500
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Cap Rates 10 Year UST Spread
Sources: Federal Reserve, Maximus Advisors
Apartment Segment
Residential Demand Dynamics in Flux
16
Homeownership Showing Signs of Stabilizing; Household Formation Rate Still Weak
Sources: Census, Maximus Advisors
Homeownership Gliding Toward Stabilization… …But Reported Household Formation Rate Has
Fallen to Unbelievable Recession Levels
Generation Y Numbers Some 80 Million and Represents Huge Untapped Reservoir of Apartment Demand
17
But This Cohort Faces Significant Headwinds
Sources: Census, Maximus Advisors
…And Nearly One-Third of 18-34 Year Olds Are Living With Their Parents
Young Adult Jobless Rate Has Made Significant Headway Despite Recent Choppiness, but
Remains High …
» “Generation Y” will have a massive impact on the residential market, numbering about as large as the baby boom.
» High student debt load remains a key uncertainty in young adult household formations and single-family demand.
» Urban focus may change ownership/rental and suburban/urban housing demand mix.
1-Family Affordability Good but Rising Rates and Prices Caused Some Erosion
18
Rent vs. Buy Seesawing
Several factors still inhibiting single-family demand: » Lack of mortgage credit » Damaged credit scores » Home viewed as risky investment » Owning limits liquidity and mobility.
Rising Rates and Prices Diminishing Affordability … … Shifting Home Price-to-Rent Ratio Near Balance, Slightly Favoring Renting
Sources: Census, MBA, NAR, Maximus Advisors
Apartment Fundamentals Very Healthy
19
Vacancies Have Fallen to Very Low Level, Generating Solid Rent Growth
Sources: Reis, Maximus Advisors
Vacancies Sitting Around 4% Apartment Effective Rent Growth Strong
New Development Cycle Underway but Oversupply Is Not an Issue at this Time
20
Multifamily Starts Up from Modern Record Low but Not at Overbuilding Level
Sources: Reis, Maximus Advisors Forecasts
Multifamily Starts Up, Portending Future Supply
Multifamily Starts Likely to Continue to Increase in Near Term Amid Low Vacancies and High and Rising
Rents
Apartment Vacancies Low but Approaching Stabilization as Supply Picks Up
21
Apartment Segment Is a Standout
Sources: Reis, Maximus Advisors Forecasts
Apartment Vacancies Will Trough at Very Low Level in 2016
US Apartment Rents Will Continue to Rise Despite An Uptick In Vacancies In Later Years
Apartment Markets Look Strong Over Next Few Years
22
Pink Markets Reflect Development Further Along
Source: Maximus Advisors
• Economy ratings range from 1 (very strong) to 6 (very weak) based on our analysis of current and near-term economic momentum.
• Individual box size is based on market apartment inventory.
Office Segment
Office Recovery Pace Will Mirror Strength of Economy; Shadow Inventory Erased
24
Office Job Growth Back on Track; With Shadow Space Erased, Absorption Should Strengthen
Sources: Reis, Maximus Advisors Forecasts
Office Jobs Growing Strongly Again Office Job Growth Over Past 4 Years Has Worked Off Shadow Space
Office Recovery Has Been Tepid
25
Vacancies Slightly Off Peak; Rents Just Above Floor
Sources: Reis, Maximus Advisors
…Constraining Rent Growth To Minimal Gains Office Vacancies Just 80 bps Off Their Peak….
Office Recovery Will Pick Up Steam with the Economy
26
Vacancies Have Peaked and Rents Have Troughed; Stage Set for Stronger Recovery
Sources: Reis, Maximus Advisors forecasts
Office Recovery Should Start to Accelerate Office Rents Will Grow Slowly Until Demand Picks
Up and Brings Vacancies Down More Rapidly
Regional Clusters of Strong Office Markets
27 Sources: Maximus Advisors
• Our forward view of segment fundamentals on scale of 1/dark green (very strong) to 6/dark red (very weak).
• Individual box size based on market office inventory.
Retail Segment
Retail Segment Is Drifting
29
No Signs of Momentum
Sources: Reis, Maximus Advisors
Retail Effective Rents Soft Retail Vacancies Remain Elevated
Retail Recovery Also Awaits Stronger Macro Growth but Will Continue to Have Headwinds
30
Vacancies Will Decline Swiftly Once Demand Accelerates but Remain Above Previous Cycle Level
Sources: Reis, Maximus Advisors forecasts
Absence of Development Will Assist the Retail Recovery but Economy Must Cooperate Rents Will Be Slow to Recover Amid High Availability
» Brick & mortar retail remains under intense pressure from e-retail. » Impact comes in form of store closings and changed footprint of stores.
Many Retail Markets Drifting; Demographics Are Destiny
31 Sources: Maximus Advisors
• Our forward view of segment fundamentals on scale of 1/dark green (very strong) to 6/dark red (very weak).
• Individual box size based on market retail inventory.
Strong Pockets in Texas and Coasts
Industrial Segment
Industrial Drivers Healthy
33
Underlying Industrial Demand Drivers Bounced Back, Appear Primed for Continued Strength
Sources: Census, Federal Reserve, Maximus Advisors
» Industrial sector benefitting immensely from shift to e-retail.
» Expansion of Panama Canal will benefit US East Coast ports.
Capacity Utilization Nearing Normal, Healthy Level
New Capital Goods Orders Strong
Industrial Production Has Surpassed Prior Peak
Another Hiccup for Trade
34
Improvement in Europe and China Economies Would Help Propel Further Gains
Sources: Census, Maximus Advisors
If Demand Holds Up, Industrial Vacancies Will Drop Rapidly
35
Strong Absorption May Simmer Down but Vacancies Look to Decline; Development Likely to Pick Up
Sources: Reis, Maximus Advisors forecasts
Industrial Vacancies Will Continue to Improve Amid Solid Demand and Limited Supply Industrial Rents Will Accelerate as Vacancies Fall
Industrial Markets Improving but Starting to See Supply Pick Up
36 Sources: Maximus Advisors
• Our forward view of segment fundamentals on scale of 1/dark green (very strong) to 6/dark red (very weak).
• Individual box size based on market industrial inventory.
Larger Industrial Markets Among Healthiest
Hospitality Segment
Key Drivers of Hospitality Demand Growing
38
Drivers of Hospitality Demand Look Good
Sources: BEA, GBTA, Maximus Advisors
Consumer Spending on Hotels & Motels Has Been Strong
Business Travel Trips Edged Down in 2013 but Spending Was Up; Both Trips and
Spending Look to Grow in 2014
Key Drivers of Hospitality Demand Growing
39
Hiccup in Foreign Travel Spending Mirrors Exports Slowdown
Sources: ITA, Maximus Advisors
Hospitality Healthy
40
Room Demand Remains Strong, Up a Healthy 3.7% from a Year Ago; Supply Continues to Increase Modestly
Sources: STR, Maximus Advisors
Occupancies Stand at Healthy Level, Enabling Hotel Operators to Raise Rates
41
Occupancies Have Resumed Upward Momentum; ADRs & RevPAR Growing
Sources: STR, Maximus Advisors
Occupancies Healthy Room Rate and RevPAR Maintain Healthy Growth
Outlook for Operating Conditions
42
Expansion Should Stay on Track but Slow as It Matures
Sources: STR, Maximus Advisors forecasts
Occupancies Will Continue Their Upward Trajectory
Room Rate and RevPAR Growth Will Cool to Still-Healthy Pace in Coming Years
Most Hospitality Markets Have Strong Prospects
43 Sources: Maximus Advisors
• Our forward view of segment fundamentals on scale of 1/dark green (very strong) to 6/dark red (very weak).
• Individual box size based on market hotel inventory.
Peter Muoio, Ph.D. 646-‐352-‐9510 pmuoio@auc<on.com
For our latest insights follow us at: www.auc4on.com/blog Twi9er: @MaxRockResearch Facebook: MaxRockResearch Linkedin: Maximus Advisors www.auc4on.com