commercial real estate: 2015 investment outlook lawrence yun, phd chief economist, sr. vp national...
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COMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOKCOMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOK
LAWRENCE YUN, PhDLAWRENCE YUN, PhD
Chief Economist, Sr. VP
National Association of REALTORS®
DONALD E. HUFFNERDONALD E. HUFFNER
Managing Director, Head of Americas
AIG Global Real Estate
RICHARD M. GATTORICHARD M. GATTO
Executive Vice President
The Alter Group
ANDREW H. TROTTER, IIIANDREW H. TROTTER, III
Chief Investment Officer
Centennial Holding Company
COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM
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Commercial Real Estate Trends and Outlook
Lawrence Yun, Ph.D.Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at:NAR Annual Commercial Real Estate Forum
New Orleans, LA
November 7, 2014
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Commercial Investment Sales of Large Properties
(Properties valued at $2.5 million and over)
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Federal Reserve Commercial Property Price Index
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GDP Reboundin 2014 Q2 and Q3
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GDP Still not Robust … Below 3% for 9 straight years
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Household Net Worth at All-Time High
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Monetary Policy by Federal Reserve (zero rate policy for 6 years!)
%
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Federal Reserve Balance Sheet from Quantitative Easing
$ million
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10-year Treasury Yield
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Non-worrisome CPI Inflation – YetCOLA of 1.7% in 2015
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Rising Renters’ and Homeowners’ Rent Growth
(Above 3%)
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Oil Price
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REALTOR® Rent Survey – Shows Rent Pressure
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U.S. Dollar Strength vs Euro
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U.S. Dollar Weakness vs Chinese Yuan
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Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in 2015 Q1/Q2
• 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
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Jobs(8 million lost … 10 million gained)In thousands
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Weekly New Unemployment Insurance Claims
In thousands
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Job Market Comparisons by StateFast Growing States
1-year Growth Rate
North Dakota 4.5
Nevada 3.7
Texas 3.4
Florida 2.9
Utah 2.9
Colorado 2.8
Oregon 2.7
Delaware 2.6
West Virginia 2.5
California 2.2
Slow Moving States
1-year Growth Rate
Michigan 0.7
Alabama 0.6
Wyoming 0.6
South Dakota 0.3
Virginia 0.3
New Jersey 0.1
Illinois 0.0
Alaska 0.0
New Mexico -0.1
Vermont -0.2
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REALTOR® Markets & Deal Size(Not $2.5 million Properties)
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Small Banks Important to REALTORS®
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NAR Member Commercial Activity Survey2nd Quarter, 2014
• Sales volume rose 7% YoY
• Sales prices increased 3% YoY
• Cap rates averaged 8.3%
Main market challenges:• Inventory shortage • Pricing gap between buyers and sellers• Local economies
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REALTORS® Help Small Businesses
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Credit Difficulty
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A Typical Commercial REALTOR®
BUSINESS REVENUE AND FIRM AFFILIATION
•The median gross annual income of commercial members was $96,200 in 2013, an increase from $90,200 in 2012. The median gross annual income of commercial members has increased for the past four years.
•Eighty percent of commercial members work at least 40 hours a week.
•Sixty-two percent of commercial members of NAR derived 50 percent or more of their income from all commercial real estate in 2013.
•Fifty-seven percent of members work for a local commercial real estate firm.
BUSINESS ACTIVITIES OF NAR COMMERCIAL MEMBERS
•Commercial members completed a median of eight transactions in 2013.
•The median sales transaction volume in 2013 for members who had a transaction was $2,554,700 – an increase from $2,507,700 in 2012.
•The median gross leasing volume was $431,600 in 2013– a decrease from the $476,400 in 2012.
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CCIM Member Survey on Cap Rates
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SIOR Member Survey on Activity
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Economic Forecast
2013 2014Likely
2015Forecast
2016 Forecast
GDP Growth 2.2% 2.2% 2.7% 2.9%
Job Growth +2.3 million +2.5 million +2.5 million +2.6 million
CPI Inflation 1.5% 1.6% 2.7% 3.3%
Consumer Confidence
73 87 95 98
10-year Treasury
2.5% 2.6% 3.2% 4.3%
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OFFICE 2014 2015 2016Vacancy Rate 16.2% 15.8% 15.6%Net Absorption ('000 sq. ft.) 36,192 50,678 57,782Completions ('000 sq. ft.) 26,450 41,799 44,862Rent Growth 2.6% 3.2% 3.6%
INDUSTRIAL 2014 2015 2016Vacancy Rate 8.9% 8.5% 8.1%Net Absorption ('000 sq. ft.) 107,580 104,948 105,044Completions ('000 sq. ft.) 83,424 68,755 61,720Inventory ('000,000 sq. ft.) 8,468 8,537 8,598Rent Growth 2.4% 2.8% 2.9%
RETAIL 2014 2015 2016Vacancy Rate 9.8% 9.7% 9.4%Net Absorption ('000 sq. ft.) 11,214 19,314 24,313Completions ('000 sq. ft.) 7,275 12,196 16,342Rent Growth 2.0% 2.4% 3.0%
MULTI-FAMILY 2014 2015 2016Vacancy Rate 4.0% 4.0% 4.2%Net Absorption (Units) 223,421 170,065 140,128Completions (Units) 191,481 146,461 122,381Rent Growth 4.0% 3.9% 3.5%
Sources: National Association of REALTORS® / Reis, Inc.
Commercial Real Estate Forecast
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Washington Policy Watch onCommercial Real Estate
• Facilitate Covered Bonds to help credit flow
• Raise cap on holding of commercial RE loans by credit unions
• Preserve Like-Kind Exchanges
• Preserve Terrorism Insurance
• Preserve capital gains status on carried interest
• Depreciation Rules should match economic life
• Oppose lease-accounting changes
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Richard M. GattoExecutive Vice President
The Alter Group
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Donald E. HuffnerManaging Director, Head of
the AmericasAIG Global Real Estate
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Andrew H. Trotter, IIIChief Investment Officer
Centennial Holding Company
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COMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOKCOMMERCIAL REAL ESTATE: 2015 INVESTMENT OUTLOOK
LAWRENCE YUN, PhDLAWRENCE YUN, PhD
Chief Economist, Sr. VP
National Association of REALTORS®
DONALD E. HUFFNERDONALD E. HUFFNER
Managing Director, Head of Americas
AIG Global Real Estate
RICHARD M. GATTORICHARD M. GATTO
Executive Vice President
The Alter Group
ANDREW H. TROTTER, IIIANDREW H. TROTTER, III
Chief Investment Officer
Centennial Holding Company
COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM