commercial real estate outlook - constant...

Commercial Real Estate Outlook

Paul FiorillaAssociate Director of [email protected], 1-800-866-1124 x5764

U.S. Retail Sector DynamicsAs of Q1 2018

Source: Reis, Cushman & Wakefield Research

• While many retail categories are in contraction mode and some iconic retailers are facing major challenges, not all categories are shrinking.

• Dollar stores, discounters, off-price apparel concepts are aggressively growing. Food related retail also remains in expansion mode, but growth is slowing.

• These trends have equated to tepid demand and an extremely bifurcated marketplace where Class A projects are accounting for nearly all of the nation’s occupancy growth.

-8%

-4%

0%

4%

8%

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

U.S. Industrial Sector DynamicsAs of Q1 2018

Source: Cushman & Wakefield Research

• We expect the record-setting industrial run to continue, with net absorption tallying over 400 msf for the next two years.

• Despite an active development pipeline, which is expected to peak in 2018, vacancy rates are not expected to rise by much.

• Developers will continue exercising caution, with deliveries modestly outpacing demand, thus allowing vacancy rates to hover in the 5% range through 2020.

• Growth in asking rents is expected to soften but rents will continue to rise.

Net Absorption, msf Vacancy Rate

New Completions, msf Asking Rents

-150

0

150

300

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

4%

6%

8%

10%

12%

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

0

100

200

300

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

Robust demand continues

Vacancy to inch up but remains tight

Supply finally keeping pace

Slower rent growth

Office Using Employment

120

125

130

135

140

145

150

155

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

24

25

26

27

28

29

30

31

32

33

U.S. Employment, Total and Office-Using

Office-Using Jobs (r) Total Jobs (l)

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Job Growth YOY Change

Office-Using Jobs Total Jobs

National Office Supply Pipeline

*National supply is the total of 114 Matrix office marketsSource: Yardi®Matrix

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(F)

% o

f St

ock

Squ

are

Feet

(in

Mill

ion

s)

Square Feet Completed % of Stock

Top 15 Markets 2017-2018 Completions (Mil SF)

*Top supply markets are out of 114 Matrix office marketsSource: Yardi®Matrix

Market2017 Inventory

(Millions of Sq. Ft.)2017-2018 Completions

(Millions of Sq. Ft.)New Supply as a% of 2017 Stock

Bay Area 191.8 14.4 7.5%

Dallas - Fort Worth 261.3 13.3 5.1%

San Francisco 161.5 9.0 5.5%

Washington, D.C. 364.1 8.8 2.4%

Manhattan 482.8 8.5 1.8%

Los Angeles 303.2 7.0 2.3%

Chicago 291.7 6.9 2.4%

Denver 137.3 6.4 4.6%

Philadelphia 172.3 6.3 3.7%

Seattle 125.1 6.1 4.9%

Atlanta 177.4 5.7 3.2%

Boston 211.2 5.5 2.6%

Houston 230.1 5.1 2.2%

Austin 62.0 4.9 8.0%

Phoenix 113.6 4.1 3.6%

Top 15 Markets 2017-2018 New Supply as % of Stock

*Top supply markets are out of 114 Matrix office marketsSource: Yardi®Matrix

Market2017 Inventory

(Millions of Sq. Ft.)2017-2018 Completions

(Millions of Sq. Ft.)New Supply as a% of 2017 Stock

Brooklyn 30.2 4.1 13.7%

Austin 62.0 4.9 8.0%

Nashville 44.1 3.3 7.6%

Bay Area 191.8 14.4 7.5%

Memphis 26.7 1.9 7.0%

Miami 57.8 3.7 6.4%

Charlotte 61.2 3.8 6.2%

Raleigh - Durham 54.6 3.1 5.7%

San Francisco 161.5 9.0 5.5%

Milwaukee 47.3 2.5 5.4%

Dallas - Fort Worth 261.3 13.3 5.1%

North Central Florida 7.4 0.4 5.1%

Seattle 125.1 6.1 4.9%

Denver 137.3 6.4 4.6%

Corpus Christi 6.2 0.3 4.5%

Office Asking Rates and Vacancy by Metro

$0

$10

$20

$30

$40

$50

$60

$70

$80

Man

hat

tan

Bro

okl

ynSa

n F

ran

cisc

oB

ay A

rea

San

Die

goM

iam

iA

ust

inSe

attl

eLo

s A

nge

les

Bo

sto

nO

ran

ge C

ou

nty

Ch

icag

oP

ort

lan

dH

ou

sto

nN

ash

ville

Ph

ilad

elp

hia

Den

ver

Ch

arlo

tte

DFW

Min

nea

po

lisP

ho

enix

Ral

eigh

San

An

ton

ioLa

s V

egas

Atl

anta

Tam

pa

Sacr

amen

toP

itts

bu

rgh

Orl

and

o

Average Asking Rate Per Square Foot

0%

5%

10%

15%

20%

25%

Ho

ust

on

DFW

Las

Veg

asP

ho

enix

Bay

Are

aC

hic

ago

Atl

anta

Ral

eigh

San

An

ton

ioD

enve

rLo

s A

nge

les

Ch

arlo

tte

Mia

mi

Sacr

amen

toP

itts

bu

rgh

San

Die

goM

inn

eap

ols

Ora

nge

Co

un

tyP

hila

del

ph

iaTa

mp

aO

rlan

do

Po

rtla

nd

Au

stin

Nas

hvi

lleB

ost

on

Seat

tle

Bro

okl

ynSa

n F

ran

cisc

oM

anh

atta

n

Average Vacancy Rate

Source: Yardi®Matrix

Coworking Space by Market

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0

50

100

150

200

250

300

350

400

450

500M

iam

i

Man

hat

tan

Los

An

gele

s

Wes

t P

alm

Bea

ch

Ora

nge

Co

un

ty

San

Die

go

San

Fra

nci

sco

Fort

Lau

der

dal

e

Sou

th B

ay A

rea

Atl

anta

Seat

tle

Den

ver

Sacr

amen

to

Ph

oen

ix

Inla

nd

Em

pir

e

Po

rtla

nd

Au

stin

Dal

las

- Fo

rt W

ort

h

Ho

ust

on

San

An

ton

io

% C

ow

ork

ing

Squ

are

Foo

tage

(in

mill

ion

s)

Total Office Space vs. Percent Coworking

Total Office Space % Coworking

Market Total # of Tenants Square Feet

Manhattan 245 7,650,722

Los Angeles 158 3,702,972Dallas-Fort Worth 88 1,565,144

Atlanta 76 1,519,969

Bay Area 48 1,485,882San Francisco 50 1,416,292

Miami 59 1,379,098Houston 71 1,295,804Denver 67 1,164,063Orange County 55 1,032,568Seattle 40 1,004,705

Phoenix 42 789,644San Diego 41 749,735Austin 20 395,500West Palm Beach 25 376,975Sacramento 12 375,587

Portland 19 340,000Fort Lauderdale 22 305,927San Antonio 18 194,375Inland Empire 10 123,458

Source: Yardi®Matrix, as of January 2018

$130

$150

$170

$190

$210

$230

$250

$270

$290

$310

$330

20

00

20

01

20

02

20

03

20

04

20

05

20

07

20

08

20

09

20

10

20

11

20

12

20

14

20

15

20

16

20

17

Med

ian

Pri

ce (

Tho

usa

nd

s)

Median Single Family Home Price

New Homes (1-Yr Rolling Avg)

Existing Homes (1-Yr Rolling Avg)

0.0

0.5

1.0

1.5

2.0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

Mill

ion

s

Housing Completions vs. Household Formations

Multi-Family Completions

Single-Family Completions

Household Formations (4-Yr Rolling Avg)

Apt. Construction Just Catching Up to HH Formation; Builders Focusing on Higher Priced Homes

Source: Moody’s Analytics; National Association of Realtors (NAR); U.S. Census Bureau (BOC)

+29%

+7%

Multifamily Rent and Occupancy Leveling Off

93.5%

94.0%

94.5%

95.0%

95.5%

96.0%

96.5%

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Occupancy

Renter-by-Necessity Overall Lifestyle

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Year-Over-Year Rent Growth

Renter-by-Necessity Overall Lifestyle


New Multifamily Supply Robust, Held Back by Labor Shortage

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Un

its


Apt. Supply and Demand by Metro (2 Years)


-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

(10,000)

(5,000)

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Dal

las

Den

ver

Seat

tle

Atl

anta

Was

h D

C

Ph

oen

ix

Mia

mi

Ch

arlo

tte

Bo

sto

n

Kan

sas

Cit

y

Orl

and

o

Twin

Cit

ies

Ph

ila

Po

rtla

nd

San

An

ton

io

Bal

tim

ore

Pit

tsb

urg

h

San

Fra

n

St L

ou

is

Tam

pa

Ch

icag

o

Det

roit

Las

Veg

as

Cin

cin

nat

i

San

Die

go

Sacr

amen

to

New

Yo

rk

Inl E

mp

Ho

ust

on

Los

An

gele

s

Axi

s Ti

tle

Un

its

Excess Supply (Units) Excess Supply (%)

Secondary Tech Cities at Risk of Oversupply in the Next Two Years (Margin of Error +/- 1.0%)

*Demand is a function of renter households growth and apartments as a % of the rental marketSource: Moody’s Analytics; U.S. Bureau of Labor Statistics (BLS); Yardi®Matrix

Market

CurrentInventory

(000’s units)

2-YearSupply Growth

2-YearDemandGrowth

Net %

Excess Units

Denver 252 9.7% 4.5% (5.2%) 13,692

Seattle 231 9.0% 4.4% (4.6%) 11,192

Charlotte 163 7.0% 2.7% (4.3%) 7,190

Dallas 709 5.4% 2.2% (3.3%) 23,953

Phoenix 295 4.5% 1.9% (2.6%) 7,876

Miami 275 8.3% 5.7% (2.5%) 7,756

Kansas City 149 4.3% 2.3% (2.1%) 3,286

Atlanta 424 3.6% 1.6% (2.0%) 8,736

Pittsburgh 89 2.5% 0.8% (1.7%) 1,531

Boston 214 6.1% 4.5% (1.6%) 3,805

Portland 147 4.8% 3.4% (1.4%) 2,306

Washington DC 510 4.5% 3.3% (1.1%) 6,727

Twin Cities 199 3.3% 2.3% (1.0%) 2,095

Orlando 204 4.2% 3.3% (1.0%) 2,253

San Antonio 189 3.1% 2.3% (0.8%) 1,816

Market

Current Inventory

(000’s units)

2-YearSupply Growth

2-YearDemandGrowth

Net %

Excess Units

St Louis 120 2.5% 1.8% (0.7%) 978

Baltimore 217 1.9% 1.4% (0.4%) 1,114

Philadelphia 288 2.3% 2.0% (0.3%) 1,006

Tampa 206 3.2% 3.4% 0.2% 10

Cincinnati 108 1.6% 1.9% 0.2% (157)

San Francisco 248 5.7% 6.1% 0.4% (274)

Detroit 208 0.9% 1.3% 0.4% (752)

Las Vegas 169 1.8% 2.3% 0.5% (661)

Chicago 333 3.9% 4.6% 0.7% (1,328)

San Diego 181 3.2% 4.2% 1.0% (1,516)

New York 1,000 4.3% 5.4% 1.1% (10,384)

Sacramento 128 1.3% 2.6% 1.3% (1,486)

Houston* 629 1.0% 2.6% 1.6% (8,974)

Inland Empire 150 1.5% 3.8% 2.3% (3,281)

Los Angeles 410 5.7% 9.2% 3.5% (13,047)

Apt. Supply and Demand by Metro (5 Years)


-8%

-6%

-4%

-2%

0%

2%

4%

6%

(30,000)

(25,000)

(20,000)

(15,000)

(10,000)

(5,000)

0

5,000

10,000

15,000

20,000

Dal

las

Seat

tle

Was

h D

C

Ch

arlo

tte

Mia

mi

Ph

oen

ix

Den

ver

St L

ou

is

Twin

Cit

ies

Bo

sto

n

Ph

ila

Atl

anta

Kan

sas

Cit

y

San

Fra

n

Pit

tsb

urg

h

Cin

cin

nat

i

San

An

ton

io

Po

rtla

nd

Bal

tim

ore

Orl

and

o

Sacr

amen

to

Las

Veg

as

Tam

pa

Det

roit

San

Die

go

Inl E

mp

Ch

icag

o

Ho

ust

on

Los

An

gele

s

New

Yo

rk

Axi

s Ti

tle

Un

its

Excess Units Excess Supply (%)

Risk of Oversupply Slightly Less Concerning Over 5 Years

*Demand is a function of renter households growth and apartments as a % of the rental marketSource: Moody’s Analytics; U.S. Bureau of Labor Statistics (BLS); Yardi®Matrix

Market

Current Inventory

(000’s units)

5-YearSupply Growth

5-YearDemandGrowth

Net %

Excess Units

Seattle 231 14.3% 10.0% (4.3%) 11,017

Charlotte 163 9.4% 6.4% (2.9%) 5,326

Dallas 709 6.6% 4.5% (2.2%) 17,247

St Louis 120 6.6% 4.6% (2.0%) 2,711

Phoenix 295 5.4% 3.9% (1.5%) 4,907

Miami 275 14.3% 13.0% (1.3%) 5,228

Twin Cities 199 6.9% 5.8% (1.1%) 2,533

Washington DC 510 8.6% 7.6% (1.0%) 6,860

Pittsburgh 89 3.0% 2.2% (0.8%) 815

Boston 214 11.6% 10.8% (0.7%) 2,409

Denver 252 10.9% 10.3% (0.6%) 2,912

Cincinnati 108 4.4% 3.9% (0.5%) 778

Philadelphia 288 5.2% 4.7% (0.5%) 2,047

Kansas City 149 5.9% 5.4% (0.5%) 1,108

Atlanta 424 4.1% 3.9% (0.2%) 1,887

Market

Current Inventory

(000’s units)

5-YearSupply Growth

5-YearDemandGrowth

Net %

Excess Units

San Francisco 248 14.0% 14.2% 0.2% 1,053

San Antonio 189 4.8% 5.1% 0.3% 197

Portland 147 6.8% 7.3% 0.5% (187)

Baltimore 217 2.7% 3.4% 0.7% (997)

Orlando 204 6.2% 7.4% 1.2% (1,860)

Detroit 208 1.3% 3.5% 2.2% (4,234)

Sacramento 128 3.8% 6.2% 2.3% (2,679)

Tampa 206 5.2% 7.6% 2.4% (4,131)

Las Vegas 169 2.9% 5.3% 2.4% (3,569)

New York 1,000 9.9% 13.1% 3.2% (30,173)

Chicago 333 7.8% 11.5% 3.7% (10,166)

Houston 629 1.6% 5.8% 4.1% (23,739)

San Diego 181 4.3% 9.9% 5.7% (9,586)

Inland Empire 150 2.1% 9.1% 6.9% (9,874)

Los Angeles 410 14.5% 21.9% 7.4% (27,171)

*Markets with severe shortages will elicit a greater supply response

YOY Change Commercial Bank Mortgage Holdings

Source: Yardi®Matrix, BankRegData

-4%

-2%

0%

2%

4%

6%

8%

10%

-$40

-$20

$0

$20

$40

$60

$80

$100

$120

$140

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Total YOY Change % YOY Change

Commercial Mortgage Holdings by Bank Size (Bil)

Source: BankRegData, Yardi®Matrix

$296.92 $227.49 $229.93

$306.78

$175.07 $212.81

$471.24

$315.88 $251.05

$720.10

$588.31

$484.29

$-

$100

$200

$300

$400

$500

$600

$700

$800

2017201620152014201320122011201020092008200720062005

$Trillion+ $100B-$1T $10B-$100B Under $10B

37.4% Growth Since 2012

75.2% - $100-$999B49.2% - $10-$99B30.5% - $1 Trillion+22.4% - Under $10B

CRE Loans as a % of Bank Assets, by Bank Size

Source: BankReg Data, Yardi®Matrix

4.1%

3.6%2.9%

6.4%6.4%6.1%

18.2%

12.2%

9.6%

25.3%

21.5%19.3%

0%

5%

10%

15%

20%

25%

30%

2017201620152014201320122011201020092008200720062005

$Trillion+ $100B-$1T $10B-$100B Under $10B

Bank Commercial Mortgages as a % of GDP

Source: BankRegData, Yardi®Matrix

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

20172016201520142013201220112010200920082007

Disclaimer

ALTHOUGH EVERY EFFORT IS MADE TO ENSURE THE ACCURACY, TIMELINESS AND COMPLETENESS OF THE INFORMATION PROVIDED IN THIS PUBLICATION, THE INFORMATION IS PROVIDED “AS IS” AND YARDI MATRIX DOES NOT GUARANTEE, WARRANT, REPRESENT OR UNDERTAKE THAT THE INFORMATION PROVIDED IS CORRECT, ACCURATE, CURRENT OR COMPLETE. YARDI MATRIX IS NOT LIABLE FOR ANY LOSS, CLAIM, OR DEMAND ARISING DIRECTLY OR INDIRECTLY FROM ANY USE OR RELIANCE UPON THE INFORMATION CONTAINED HEREIN.

Copyright Notice

This presentation is protected by copyright, trademark and other intellectual property laws. Use of this presentation is subject to the terms and conditions of an authorized Yardi Systems, Inc. software license or other agreement including, but not limited to, restrictions on its use, copying, disclosure, distribution and decompilation. No part of this presentation may be disclosed or reproduced in any form, by any means without the prior written authorization of Yardi Systems, Inc. This presentation contains proprietary information about software and service processes, algorithms, and data models which is confidential and constitutes trade secrets. This presentation is intended for utilization solely in connection with Yardi software licensees’ use of Yardi software and for no other purpose.

NOTICE: Information is subject to change without notice and does not represent a commitment on the part of Yardi Systems, Inc. The following list is not all-inclusive and the absence of a product or service name or logo from this list does not imply a waiver of Yardi’s trademark or other intellectual property rights concerning that name or logo. CHECKscan™, COLLECTplus™, COMMERCIALCafé™, Concierge™, CONDOCafé™, ENERGYplus™, GoodShield®, InvestorPlus™, LeasingKIOSK™, LOBOS®, Marketplace™, MILITARYCafé™, Optimus EMR®, Orion®, PAYplus™, PAYscan™, PopCard®, PowerShopping®, Pulse®, RENTCafé®, Connect™, Creative™, Reach™, TextPay™, Renter Reliability Index™, RentGrow®, RENTmaximizer™, ResidentShield®, ScreeningWorks®, SiteManager™, VENDORCafé®, Voyager®, WIPS®, Yardi Energy Solutions® and Yardi® are either registered trademarks or trademarks of Yardi Systems, Inc. in the United States and/or other countries. All other products mentioned herein may be trademarks of their respective companies.

Design and content © 2018 Yardi Systems, Inc. All Rights Reserved.

commercial real estate outlook - constant...

Documents