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Succeeding in a Competitive Market
Succeeding in a Competitive Market
Tota
l Ret
urn
/Ye
ar
U.S. REAL ESTATE
STOCKS
BONDS
S&P 500
NCREIF Property Index
Barclays Capital Government Bond
Investment Alternatives Commercial Real Estate vs. Stocks vs. Bonds
0%
2%
4%
6%
8%
10%
10 Years 5 Years
Source: Delta Associates; February 2013. Note: Periods ending December 2012.
Succeeding in a Competitive Market
-$180
-$160
-$140
-$120
-$100
-$80
-$60
-$40
-$20
$0
2009 2010 2011 2012
Bill
ion
s o
f D
olla
rs
Fund Flows U.S. Stock Mutual Fund Flows
Source: Morningstar, Lipper, Wall Street Journal, Delta Associates; February 2013.
$413 Billion
Succeeding in a Competitive Market
0%
1%
2%
3%
4%
5%
6%
7%
8%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Fixe
d-R
ate
Co
ntr
act
Inte
rest
Rat
es
Source: ACLI, Delta Associates; February 2013.
Leverage is Cheap Commercial Fixed-Rate Contract Interest Rates
*As of 3rd quarter 2012. All other totals are as of year-end.
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE NATIONAL ECONOMY
Succeeding in a Competitive Market Succeeding in a Competitive Market
The National Economy GDP Recovery Patterns after the Past Three Recessions – United States
0%
2%
4%
6%
8%
10%
12%
14%
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
1991-Q1
2001-Q4
2009-Q2
Quarters After Trough
Cu
mu
lati
ve P
erc
ent
Ch
ange
in G
DP
Source: Bureau of Economic Analysis , CRA, Delta Associates; February 2013.
Succeeding in a Competitive Market
Note: Annualized.
An
nu
al G
DP
Ch
ange
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Private Sector*
Government Expenditures
Source: Bureau of Economic Analysis , Delta Associates; February 2013.
The National Economy Contributions to U.S. GDP – United States
2007 2008 2009 2010 2011 2012 *Includes personal expenditures, gross private
domestic investments, and net exports.
Succeeding in a Competitive Market Succeeding in a Competitive Market
VULNERABILITY
Succeeding in a Competitive Market
-10
-5
0
5
10
15
20
25
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
Oct
No
v
Dec
Jan
Feb
Mar
Ap
r
May
Jun
Jul
Au
g
Sep
Oct
No
v
Pay
roll
Job
Ch
ange
in T
ho
usa
nd
s
Annual Month-over-the-Year
Vulnerability Federal Government Payroll Job Change – Washington Metro Area
Annual 2011 2012
Source: Bureau of Labor Statistics, Delta Associates; February 2013.
Succeeding in a Competitive Market
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
Bill
ion
s o
f D
olla
rs
Vulnerability Federal Procurement Spending – Washington Metro Area – 1980-2012
Source: GMU CRA, Census, Delta Associates; February 2013.
Down $7 billion over 2 years
Succeeding in a Competitive Market
0
20
40
60
80
100
120
140
NY LA Hou SF DFW Bos Phx Den Atl Chi Was S. Fla
Tho
usa
nd
s o
f N
ew
Pay
roll
Job
s
30.2
Vulnerability Payroll Job Growth – Large Metro Areas – 12 Months Ending December 2012
Source: Bureau of Labor Statistics, Delta Associates; February 2013.
Succeeding in a Competitive Market Th
ou
san
ds
of
Ne
w P
ayro
ll Jo
bs
-60
-40
-20
0
20
40
60
80
100
120
140
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Vulnerability Payroll Job Growth – Comparing Expansion Cycles – Washington Metro Area – 1997-2017
80-100
50-60
40-50
Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; February 2013.
Fewer office jobs, lower wages
More office jobs, higher wages
Succeeding in a Competitive Market Succeeding in a Competitive Market
PRIVATE SECTOR GROWTH
Succeeding in a Competitive Market
Private Sector Growth Organizations Moving to or Expanding in the Washington Metro Area
Source: Amazon.com, Bechtel, Hilton, INOVA, Johns Hopkins University, Siemens, Delta Associates; February 2013.
Succeeding in a Competitive Market
0% 10% 20% 30% 40% 50%
Technology Infrastructure
International Market Access
Quality of Life
Federal Government Access
Skilled & Educated Workforce
Share of Respondents
Source: MWCOG, Delta Associates; February 2013.
Note: Multiple responses were permitted.
Private Sector Growth Primary Reasons Companies Relocate to Area – Washington Metro Area
Succeeding in a Competitive Market
$50,502
$86,680
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
United States Washington Metro Area
Me
dia
n H
ou
seh
old
Inco
me
Private Sector Growth Median Household Income – 2011
Source: U.S. Census Bureau, Delta Associates; February 2013.
Succeeding in a Competitive Market Succeeding in a Competitive Market
CHANGING DEMAND PATTERNS
Succeeding in a Competitive Market
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012-3
0
3
6
9
12
15
18
Mill
ion
s o
f SF
10-Year Trailing Average
Changing Demand Patterns Office Net Absorption – Washington Metro Area
10.3
7.1
4.4
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market P
erc
en
t o
f O
ffic
e L
eas
ing
65%
45%
15%
0%
20%
40%
60%
80%
100%
2010 2011 2012
Federal Government Balance
Changing Demand Patterns Office Leasing by Sector – Washington Metro Area
Source: CoStar, Delta Associates; February 2013.
Succeeding in a Competitive Market
175
180
185
190
195
200
2000 2005 2010 2015
Ave
rage
Re
nta
ble
SF
pe
r W
ork
er
Changing Demand Patterns Average Office Square Feet Per Worker – Washington Metro Area
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
-5,000
-3,000
-1,000
1,000
3,000
5,000
7,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Changing Demand Patterns Annual Net Apartment Absorption – Class A & B Units – Washington Metro Area
Un
its
Source: Delta Associates; February 2013.
Class B Units Class A Units
Succeeding in a Competitive Market
-2%
0%
2%
4%
6%
8%
10%
12%
25-34 35-44 45-54 55+
Age Range
Source: U.S. Census, GMU CRA, Delta Associates; February 2013.
Ave
rage
An
nu
al C
han
ge
2000-2006 2006-2011
Changing Demand Patterns Population Change by Age Group – Washington Metro Area – 2006-2011 vs. 2000-2006
Succeeding in a Competitive Market
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Pe
rce
nt
wit
ho
ut
Dri
ver’
s Li
cen
ses
Age Range 20-24 25-29
Changing Demand Patterns Percent without Driver’s Licenses by Age Group – United States – 1983 vs. 2007
Source: The Wall Street Journal, Michael Sivak and Brandon Schoettle, University of Michigan, Delta Associates; February 2013.
2007 2007 1983 1983
Succeeding in a Competitive Market
-4% -2% 0% 2% 4% 6% 8% 10%
Toy stores
Books
Electronics
Apparel
Home improvement/bed & bath
Office
Department stores
Grocery
Drug
Pet supply stores
Supercenters
Club
E-commerce
Annual Growth Rate
Changing Demand Patterns Projected Annual Retail Growth Rate – United States – 2010-2016
Source: Nielsen TDLinx & Nielsen Analytics, Delta Associates; February 2013.
Succeeding in a Competitive Market
47%
32%
47%
60%
5% 8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
15-Year Annual Average 2011 and 2012
Flex/R&D
Flex/Warehouse
Bulk Warehouse
Shar
e o
f N
et A
bso
rpti
on
Changing Demand Patterns Flex/Industrial Net Absorption – Washington Metro Area
Source: Delta Associates; February 2013.
Note: Totals may not add to 100% due to rounding.
Succeeding in a Competitive Market Succeeding in a Competitive Market
MORE DEVELOPMENT-
FRIENDLY ENVIRONMENT
Succeeding in a Competitive Market
0
5
10
15
20
25
1996 2000 2007 2012
Pipeline (under construction) Demand (5-year trailing average)
Mill
ion
s o
f SF
More Development-Friendly Environment Office Pipeline vs. Demand – Washington Metro Area
Source: Delta Associates’ analysis of CoStar data; February 2013.
Succeeding in a Competitive Market
0
5,000
10,000
15,000
20,000
25,000
30,000
1996 2000 2007 2012
Un
its
More Development-Friendly Environment Apartment Pipeline vs. Demand – Washington Metro Area
Source: Delta Associates; February 2013.
Pipeline (under construction) Demand (3-year trailing average)
Succeeding in a Competitive Market Succeeding in a Competitive Market
A MORE COMPETITIVE
MARKETPLACE
Succeeding in a Competitive Market
-5
-4
-3
-2
-1
0
1
2
3
Mill
ion
s o
f SF
Class A
Class B/C
A More Competitive Marketplace Office Absorption by Class of Space – Washington Metro Area Annual Average – 2011-2012
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
-4,000
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
4,000
5,000
Un
its
Class A
Class B
A More Competitive Marketplace Apartment Absorption by Class of Unit – Washington Metro Area Annual Average – 2011-2012
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market Succeeding in a Competitive Market
CAPITAL MARKETS
Succeeding in a Competitive Market
5%
6%
7%
8%
9%
Office Grocery-
Anchored SC Apartments Flex/Industrial
Ave
rage
Cap
Rat
e –
All
Cla
sse
s
Capital Markets Survey of Year-End Cap Rates – Washington Metro Area
Source: Delta Associates’ Market Maker Survey; February 2013.
7.2% 7.0%
5.5%
6.4%
Succeeding in a Competitive Market
$0
$5
$10
$15
$20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Flex/Industrial
Retail
Apartment
Office
Bill
ion
s o
f D
olla
rs
Capital Markets Investment Sales – Washington Metro Area
Note: Excludes whole-company transactions. Source: Real Capital Analytics, graphic by Delta Associates; February 2013.
Normalized volume
Succeeding in a Competitive Market
Property Sectors Washington Metro Area – Year-End 2012
Office: 403 million SF
Flex/Industrial: 398 million SF
Apartment: 543,000 units
Condominium: 125,000 units
Grocery-Anchored Shopping Center: 317 centers
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE WASHINGTON AREA
OFFICE MARKET
Succeeding in a Competitive Market
-4
-2
0
2
4
6
8
10
12
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
10-Year Annual Average = 4.4 Million SF
Mill
ion
s o
f SF
Source: Delta Associates; February 2013.
The Washington Area Office Market Office Space Net Absorption – Washington Metro Area
Succeeding in a Competitive Market
0
2
4
6
8
10
12
14
No. Virginia Sub. MD District
29.2 million SF =
Demand
Total = 20.5 million SF
Under construction: 8.0 million SF
Planned and may deliver by 12/17: 12.5 million SF
Deliveries
=
=
The Washington Area Office Market Office Space Demand and Deliveries – Washington Metro Area
Five Years Ending December 2017
Source: CoStar, Delta Associates; February 2013.
Mill
ion
s o
f SF
Succeeding in a Competitive Market
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Rent Equilibrium Zone = 10.7% - 10.9%
The Washington Area Office Market Overall Office Vacancy Rate – Washington Metro Area – 2000-2017
Ove
rall
Vac
ancy
Rat
e
Source: CoStar, Delta Associates; February 2013.
13.4%
10.6%
Succeeding in a Competitive Market
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
The Washington Area Office Market Office Effective Rent Change – Washington Metro Area – 2000-2017
Effe
ctiv
e R
en
t C
han
ge
Long-Term Average = 3.0%
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
Source: Arlington Gateway Investors, LLC: Arlington Gateway, Delta Associates; February 2013.
The Washington Area Office Market Opportunities
Location implications
Renovations to capitalize on flight to quality
Dealing with densification
Elevators/stairwells
Parking
Floor plates
Amenities/finishes/features
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE WASHINGTON/BALTIMORE
FLEX/INDUSTRIAL MARKET
Succeeding in a Competitive Market
-4
-2
0
2
4
6
8
10
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
15-Year Average = 4.2 million SF
Mill
ion
s o
f SF
The Washington/Baltimore Flex/Industrial Market Flex/Industrial Net Absorption
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Washington Metro Baltimore Metro
4.7 million SF =
Demand
Total = 2.1 million SF
Under construction: 1.2 million SF
Planned and may deliver by 12/2013: 0.9 million SF
Deliveries
=
=
Mill
ion
s o
f SF
The Washington/Baltimore Flex/Industrial Market Flex/Industrial Space Demand and Deliveries – 12 Months Ending December 2013
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
6%
8%
10%
12%
14%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ove
rall
Vac
ancy
Rat
e
Rent Equilibrium Zone = 10.2% to 10.4%
8.8%
The Washington/Baltimore Flex/Industrial Market Overall Vacancy Rate
Source: CoStar, Delta Associates; February 2013.
9.5%
Succeeding in a Competitive Market
-5%
0%
5%
10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Long-Term Average = 3.0%
Ask
ing
Re
nt
Ch
ange
The Washington/Baltimore Flex/Industrial Market Asking Rent Change
Source: CoStar, Delta Associates; February 2013.
Succeeding in a Competitive Market
Source: Delta Associates; February 2013.
The Washington/Baltimore Flex/Industrial Market Opportunities
Locations
Ashburn/Dulles Corridor
BWI Corridor
Prince William County
Serve the demand drivers
E-commerce
Retail
Data centers
Housing recovery
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE WASHINGTON AREA
APARTMENT MARKET
Succeeding in a Competitive Market
-4%
-2%
0%
2%
4%
6%
8%
10%
2009 2010 2011 2012 2012
U.S.
Effe
ctiv
e R
en
t G
row
th
The Washington Area Apartment Market Annual Class A Apartment Rent Growth
Source: MPF, Delta Associates; February 2013.
1.9%
Note: U.S. data is Class A and Class B combined.
Succeeding in a Competitive Market
0
2
4
6
8
10
12
14
16
District Sub. MD No. Virginia
Net Absorption: 5,117/Year = 15,350
Demand
Deliveries
Planned and may deliver by 12/15: 6,869 units
Under construction: 28,898 units
Total = 35,767 units
Projected Stabilized Vacancy % at December 2015
5.3% Metro-Wide
Mar
ket
Rat
e U
nit
s in
Th
ou
san
ds
The Washington Area Apartment Market Class A Apartment Demand and Delivery Projections – Three Years Ending December 2015
Source: Delta Associates; February 2013.
5.8% 5.4% 5.1%
Succeeding in a Competitive Market
-4%
-2%
0%
2%
4%
6%
8%
10%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Long-Term Average = 4.5%
The Washington Area Apartment Market Class A Apartment Rent Growth – 2001-2016
Source: Delta Associates; February 2013.
Effe
ctiv
e R
en
t G
row
th
Succeeding in a Competitive Market
Source: Greystar: The Milano, Delta Associates; February 2013.
Superior location
Best-in-class management and marketing
Innovative design
Pet-centric amenities
Interactive and state-of-the-art media
Flexible furniture
Transportation infrastructure
Outdoor living
The Washington Area Apartment Market Opportunities
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE WASHINGTON AREA
CONDOMINIUM MARKET
Succeeding in a Competitive Market
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2007 2008 2009 2010 2011 2012
Nu
mb
er
of
Un
its
= Planned
= Under Construction or Delivered
2,577
Source: Delta Associates; February 2013.
The Washington Area Condominium Market Condominiums Actively Marketing or Under Construction at Each Year-End
Succeeding in a Competitive Market
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
An
nu
al E
ffe
ctiv
e P
rice
Ch
ange
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Delta Associates; February 2013.
The Washington Area Condominium Market New Condominium Effective Price Change
Succeeding in a Competitive Market
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2007 2008 2009 2010 2011 2012 2013
2,250
Nu
mb
er
of
New
Un
its
Sold
Source: Delta Associates; February 2013.
The Washington Area Condominium Market Past and Projected New Condominium Sales
2,046
Succeeding in a Competitive Market
Source: Kettler: Midtown Alexandria Station, Delta Associates; February 2013.
Superior location
Best-in-class marketing
Innovative design
Built in audio system with MP3 docking station
Provide bike storage, bike/car sharing infrastructure
Communal spaces, e.g. rooftop deck or party room
Private elevator access to units in luxury projects
The Washington Area Condominium Market Opportunities
Succeeding in a Competitive Market Succeeding in a Competitive Market
THE WASHINGTON AREA
RETAIL MARKET
Succeeding in a Competitive Market O
vera
ll V
acan
cy R
ate
0%
2%
4%
6%
8%
10%
12%
14%
16%
Was SF Bos NY LA/OC Den Hou Chi DFW Atl Phx
5.0%
National Average = 9.0%
Note: Includes shopping centers of all types.
The Washington Area Retail Market Shopping Center Vacancy Rate – All Types – Select Metro Areas – Year-End 2012
Source: CoStar, Delta Associates; February 2013.
Succeeding in a Competitive Market
The Washington Area Retail Market Consumer Spending per Person – Select Metro Areas - 2012
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
SF Bay Was Bos NY Chi DFW LA/OC Hou
Co
nsu
me
r Sp
en
din
g p
er
Pe
rso
n United States Average = $26,300/Person
Source: Delta Associates; February 2013.
$37,900
Succeeding in a Competitive Market
The Washington Area Retail Market Average Annual Rent Change – Grocery-Anchored Shopping Centers – 2011-2012
0%
1%
2%
3%
4%
5%
Inside the Beltway Outside the Beltway
An
nu
al R
en
t C
han
ge
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
14%
30%
56% 10 Years or Younger
11-25 Years
26 Years or Older
The Washington Area Retail Market Shopping Center Age Distribution – Washington Metro Area – 2012
Source: CoStar, Delta Associates; February 2013.
Succeeding in a Competitive Market
Source: Rappaport: Rock Creek Village, Delta Associates; February 2013.
Renovate to compete
Focus on growing sectors
Pet supply stores
Big box/club stores
Grocery and drug stores
Location implications
Inside the Beltway remains underserved
The Washington Area Retail Market Opportunities
Succeeding in a Competitive Market Succeeding in a Competitive Market
OPPORTUNITIES
Succeeding in a Competitive Market
To Deal with a More Competitive Market,
Success in the Period Ahead Will Depend Upon:
Deep pockets
Sensible capital structure
Best-in-class design
Best-in-class management and marketing
Targeted product at superior locations
Source: Delta Associates; February 2013.
Succeeding in a Competitive Market
Opportunities Washington Metro Area
1. Finance assets with long-term fixed-rate loans while interest
rates are low.
2. Capitalize on flight to quality: reposition Class B and
redevelop Class C properties into Class A.
3. Take advantage of demographic and job growth trends:
invest in and develop seniors housing and medical office.
4. Selectively invest in and develop industrial, condominium,
and retail projects.
5. Accumulate sites for the next cycle of office and
apartment development.
Source: Delta Associates; February 2013.
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