outlook for the u.s. commercial real estate markets · 2016-02-11 · 1992-2013 trend 2013 actual...
TRANSCRIPT
Outlook for the U.S. Commercial
Real Estate Markets
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
GDP Growth Across the Globe
2
1.000
1.033
1.067
1.102
1.139
1.176
17.6%
2015-17 Forecast Avg
Forecast Vs 92-13 Trend (RE*)
Source: Bloomberg; CoStar Portfolio Strategy As of October 2015
(1%)
0%
1%
2%
3%
4%
U.S. United Kingdom Eurozone Japan World
1992-2013 Trend 2013 Actual 2014 Actual 2015 Forecast 2016 Forecast 2017 Forecast
Real GDP Growth
2.3% 2.4% 1.1% 0.8% 3.3%
CONFIDENTIAL
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A Mild GDP Recovery
3
Source: NBER, Moody’s Analytics, USAA Real Estate Research
Recent Recessions
Peak to
Peak, Avg
Annual GDP
Growth
Peak to
Peak,
Cumulative
GDP
Growth
Trough to
Peak, Avg
Annual
GDP
Growth
Trough to
Peak,
Cumulative
GDP
Growth
December 1969 November 1970
November 1973 March 1975 3.4% 15.4% 4.3% 16.4%
January 1980 July 1980 2.9% 19.5% 4.5% 23.8%
July 1981 November 1982 1.3% 2.0% 4.2% 5.0%
July 1990 March 1991 3.4% 34.7% 4.0% 39.1%
March 2001 November 2001 3.4% 41.1% 3.8% 43.3%
December 2007 June 2009 2.4% 18.2% 2.6% 18.8%
Current Cycle - No Recession Yet 1.2% 10.1% 2.1% 15.1%
CONFIDENTIAL
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Sustained, Elevated Job Growth
4
Source: BLS, Moody’s Analytics, USAA Real Estate Research
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
Mar
-98
Sep
-98
Mar
-99
Sep
-99
Mar
-00
Sep
-00
Mar
-01
Sep
-01
Mar
-02
Sep
-02
Mar
-03
Sep
-03
Mar
-04
Sep
-04
Mar
-05
Sep
-05
Mar
-06
Sep
-06
Mar
-07
Sep
-07
Mar
-08
Sep
-08
Mar
-09
Sep
-09
Mar
-10
Sep
-10
Mar
-11
Sep
-11
Mar
-12
Sep
-12
Mar
-13
Sep
-13
Mar
-14
Sep
-14
Mar
-15
Sep
-15
UR3-Month Change
(000s)
Employment Growth Unemployment Rate
CONFIDENTIAL
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U.S. Demographics Still Trending Positive
5
Location
ChinaJapanBelgiumFranceGermanyIrelandItaly
PortugalSpain
United StatesChinaJapanWester EuropeUnited Kingdom
United StatesChinaJapanWestern EuropeUnited Kingdom
Source: Oxford Economics; CoStar Portfolio Strategy As of 15Q3
50
60
70
80
90
100
110
120
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 2024 2028 2032
United States Western Europe Japan China
Working-Age Population Growth
CONFIDENTIAL
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Direct CRE Acquisitions by Foreign Capital
6
Source: RCA, USAA Real Estate Research
-
10
20
30
40
50
60
70
80
90
100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Transaction Volume ($B)
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
U.S. CRE Transaction Activity
$-
$100
$200
$300
$400
$500
$600
$700
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Transaction Volume ($B)
Source: Real Capital Analytics
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
NCREIF-ODCE Market Value of Holdings
8
$-
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1995
199
6
1997
1998
1999
2000
200
1
2002
2003
2004
2005
200
6
2007
2008
2009
2010
2011
2012
2013
2014
2015
Market Value (Bil)
Source: NCREIF
CONFIDENTIAL
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Market Capitalization of U.S. REITS
9
Source: NAREIT
$-
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
201
4
Market Value (Bil)
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
Impact of U.S. Policy Tightening
10
Source: RCA, USAA Real Estate Research
CONFIDENTIAL
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Oil – Depth AND Duration Matter
11
Source: U.S. Energy Information Administration
0
20
40
60
80
100
120
140
160Oil Price (WTI)
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
Relative Pricing Advantage Has Disappeared
12
Source: RCA, USAA Real Estate Research
(500)
(400)
(300)
(200)
(100)
-
100
200
300
400
500
19
92
Q1
19
92
Q4
19
93
Q3
19
94
Q2
19
95
Q1
19
95
Q4
19
96
Q3
19
97
Q2
19
98
Q1
19
98
Q4
19
99
Q3
20
00
Q2
20
01
Q1
20
01
Q4
20
02
Q3
20
03
Q2
20
04
Q1
20
04
Q4
20
05
Q3
20
06
Q2
20
07
Q1
20
07
Q4
20
08
Q3
20
09
Q2
20
10
Q1
20
10
Q4
20
11
Q3
20
12
Q2
20
13
Q1
20
13
Q4
20
14
Q3
20
15
Q2
Spread (BPs)
Spread vs 10yr Spread vs BBB Corporate Avg Spread vs 10yr Avg Spread vs BBB
CONFIDENTIAL
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REIT Premium/Discount to NAV
13
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
OfficeAverage
Mall Average IndustrialAverage
ApartmentAverage
Health CareAverage
Strip CenterAverage
Premium/Discount to NAV
Source: Green Street, as of 2/1/2016
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Commercial Real Estate Debt Outstanding
14
Source: Federal Reserve, Moody’s Analytics, USAA Real Estate Research
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0%
5%
10%
15%
20%
25%
19
77
Q4
19
78
Q4
19
79
Q4
19
80
Q4
19
81
Q4
19
82
Q4
19
83
Q4
19
84
Q4
19
85
Q4
19
86
Q4
19
87
Q4
19
88
Q4
19
89
Q4
19
90
Q4
19
91
Q4
19
92
Q4
19
93
Q4
19
94
Q4
19
95
Q4
19
96
Q4
19
97
Q4
19
98
Q4
19
99
Q4
20
00
Q4
20
01
Q4
20
02
Q4
20
03
Q4
20
04
Q4
20
05
Q4
20
06
Q4
20
07
Q4
20
08
Q4
20
09
Q4
20
10
Q4
20
11
Q4
20
12
Q4
20
13
Q4
20
14
Q4
20
15
Q3
Outstanding ($B)Debt/GDP
CRE Debt Outstanding CRE Debt/GDP
CONFIDENTIAL
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CRE Construction Activity Muted in Many Markets
15
Source: REIS, CBRE-EA, CoStar Portfolio Strategy, USAA Real Estate Research
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-
50,000
100,000
150,000
200,000
250,000
19
99
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
% of StockUnits Apartment
Units % of Stock
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
19
99
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
% of StockSF (000s) Office
SF (000s) % of Stock
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
2.0%
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
19
99
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
% of StockSF (000s) Retail
SF (000s) % of Stock
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
-
50,000
100,000
150,000
200,000
250,000
300,000
19
99
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
% of StockSF (000s) Industrial
SF (000s) % of Stock
CONFIDENTIAL
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Sources: USAA Real Estate Company Research, Axiometrics, REIS, Moody’s Analytics
Multifamily Trends
16
• Demographic tailwinds have overcome increased supply thus far
• National vacancy rates are at 4.2%, near all-time lows
• Trailing four-quarter effective rent growth is over 5%, no signs of slowing down
• Average rent/SF for Class A in top six MSAs now over $3.00/SF
• Rent-to-median household income ratio on upward trend
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%Annual Effective Rent Growth
Top 6 MSAs - Class A National - Class A National - Class B/C
25.0%
27.0%
29.0%
31.0%
33.0%
35.0%
37.0%
Effective Rent to Median HH Income Ratio - Top 6 MSAs
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U.S. Births by Year
17
Average annual birth rate:
Silent generation – 2.6M
Baby boomer – 4.0M
Generation X – 3.4M
Millennial – 3.9M
Post-Millennial – 4.1M
Millennial Generation Still
Growing
Averaged immigration of
980K/year in 1990s,
1.04M in 2000s, 990K
this decade
Tailwind for both
multifamily and single-
family housing
Source: U.S. Census
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1910
1914
1918
1922
1926
1930
1934
1938
1942
1946
195
0
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
200
2
2006
2010
2014
Births (000s) Millennials
(66.1 million)
Baby Boomers
(76.2 million)
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U.S. Homeownership Rate
18
Source: U.S. Census
60
61
62
63
64
65
66
67
68
69
70
1965
1967
1969
1971
1973
1975
1977
197
9
1981
198
3
1985
198
7
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Homeownership Rate (%)
CONFIDENTIAL
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U.S. Homeownership Rate by Age Cohort
19
Source: U.S. Census
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Under 35 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years andover
Current Max Min Average
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Transition of the Millennials
20
Source: USAA Real Estate Company, Calculated Risk
CONFIDENTIAL
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U.S. Renter Households (Million)
21
Source: Harvard Joint Center for Housing Studies, U.S. Census, USAA Real Estate Research
2015 Households by Age
Under 35
years
35 to 44
years
45 to 54
years
55 to 64
years
65 years
and over Total Renters
26.9 21.2 23.6 23.9 29.7
HO Rate 34.7% 59.3% 70.1% 75.2% 79.3% 45.3
2020 Households by Age
Under 35
years
35 to 44
years
45 to 54
years
55 to 64
years
65 years
and over
27.6 22.2 22.1 25 34.8
Current 34.7% 59.3% 70.1% 75.2% 79.3% 47.1
Average 39.6% 65.7% 74.7% 79.6% 80.0% 41.9
Max 43.6% 70.1% 77.4% 82.4% 81.8% 37.9
CONFIDENTIAL
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Increased Attractiveness of Urban Living
22
CBD
Suburban
Sources: U.S. Census Bureau; CoStar Portfolio Strategy As of 15Q2
(10%)
(5%)
0%
5%
10%
15%
20%
25%
30%
35%
Households Per Sq. Mile Real Median HH Income Per Sq. Mile
CBD Semi-Urban/Premier Suburban Suburban
Cumulative Change 2000-2015
CONFIDENTIAL
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Sources: USAA Real Estate Company Research, CBRE-EA, CoStar
Office Trends
23
• Projecting office-using job growth of over 900,000 in 2015 – highest since 1999
• Net absorption of 94 million SF over past 12 months, 64% in Class A product
• Only 30% of existing stock is Class A
• Average completions of 127 million SF annually from 1996 to 2008, 36 million SF from 2010-2014
• Vacancy rates are lower for modern (built since 2000), infill product
• Aging & increasingly obsolescent stock creates opportunity
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
(2,000,000)
(1,500,000)
(1,000,000)
(500,000)
-
500,000
1,000,000
1,500,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Office-Using Employment Growth
OUE Growth OUE Growth (%)
4%
6%
8%
10%
12%
14%
16%
18%Office Vacancy Rates by Product Type
CONFIDENTIAL
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Sources: USAA Real Estate Company Research, Moody’s Analytics
Office-Using Employment Change –
2007 to 2015
24
135.8 98.7
86.7 84.4
80.7 70.7
63.8 47.1
44.2 41.0 40.3
39.1 37.5 37.0
31.2 28.5 28.2
26.9 24.9
21.3 20.5 20.4
18.9 18.5
17.3 17.1
7.1 1.9
(0.1)(27.4)
(40.0) (20.0) - 20.0 40.0 60.0 80.0 100.0 120.0 140.0
DallasSan Francisco
San JoseNew York
AtlantaHouston
AustinNashville
BostonSan Antonio
SeattleWashington, DC
MinneapolisCharlotte
ColumbusPortland
RaleighDenver
BaltimoreIndianapolis
CincinnatiChicagoPhoenix
MiamiPittsburgh
TampaSan Diego
PhiladelphiaLas Vegas
Los Angeles
Office-Using Employment Change (000s)
Less is More
CONFIDENTIAL
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Sources: USAA Real Estate Company Research, RCA, CoStar. Transaction activity is trailing four quarter.
Industrial Trends
31
• Vacancy rates at lowest level since 2000
• Construction completions are rebounding
• Large Bulk Industrial (350K+ SF) makes up 22.4% of SF in U.S., yet has accounted for 58% of new construction deliveries since 2012
• Class A has outperformed
• Transaction activity and pricing have surpassed previous peaks
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
(150,000)
(100,000)
(50,000)
-
50,000
100,000
150,000
200,000
250,000
300,000
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
VacancySF (000s)
Completions Net Absorption Vacancy
$-
$10
$20
$30
$40
$50
$60
$70
$80
$-
$10
$20
$30
$40
$50
$60
$70
Dec
-00
Jun
-01
Dec
-01
Jun
-02
Dec
-02
Jun
-03
Dec
-03
Jun
-04
Dec
-04
Jun
-05
Dec
-05
Jun
-06
Dec
-06
Jun
-07
Dec
-07
Jun
-08
Dec
-08
Jun
-09
Dec
-09
Jun
-10
Dec
-10
Jun
-11
Dec
-11
Jun
-12
Dec
-12
Jun
-13
Dec
-13
Jun
-14
Price/SF ($)Volume ($B) Industrial Transaction Activity
Volume Price/SF
CONFIDENTIAL
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E-Commerce Continues to Gain Market Share
Sources: USAA Real Estate Company Research, IMS Worldwide
7%8% 8% 9% 10%
11% 12%14% 16%
18%20% 22% 23%
25%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
$ (Billions)
U.S. Retail Store Sales Total U.S. Online Sales
Forecast
CONFIDENTIAL
Must not be duplicated, shared or printed without the written consent of USAA Real Estate Company
Sources: USAA Real Estate Company Research, RCA, Moody’s Analytics, NCREIF. Superzip transaction activity is trailing four quarter.
Retail Trends
33
• Occupancy rates improving• Other subtypes finally catching up
to grocery-anchored centers
• National same-store NOI growth of 4.6% over the past 12 months
• “Superzips” screen for areas of the U.S. with strongest demographics (top zip codes by density, growth, income, education).
• Retail transaction activity increasingly focused in these
areas.
0
100
200
300
400
500
600
700
800
900
1000
-
5
10
15
20
25
20
02
Q4
20
03
Q2
20
03
Q4
20
04
Q2
20
04
Q4
20
05
Q2
20
05
Q4
20
06
Q2
20
06
Q4
20
07
Q2
20
07
Q4
20
08
Q2
20
08
Q4
20
09
Q2
20
09
Q4
20
10
Q2
20
10
Q4
20
11
Q2
20
11
Q4
20
12
Q2
20
12
Q4
20
13
Q2
20
13
Q4
20
14
Q2
20
14
Q4
20
15
Q2
Price/SF ($)Volume ($B) Superzip Transaction Activity
Transaction Volume Price/SF
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
96.0%
98.0%
100.0%
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Mar
-14
Sep-
14M
ar-1
5
Occupancy by Subtype
Mall Neighborhood/Community Power Center Grocery
CONFIDENTIAL
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CONFIDENTIAL
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