succeeding in a competitive market · 2016. 7. 16. · succeeding in a competitive market r u.s....

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.


-$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


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


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.


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.


VULNERABILITY


-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.


$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


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


PRIVATE SECTOR GROWTH


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.


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


$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.


CHANGING DEMAND PATTERNS


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.


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



-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


Class B Units Class A Units


-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


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


-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.


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


Note: Totals may not add to 100% due to rounding.


MORE DEVELOPMENT-

FRIENDLY ENVIRONMENT


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.


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


Pipeline (under construction) Demand (3-year trailing average)


A MORE COMPETITIVE

MARKETPLACE


-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



-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



CAPITAL MARKETS


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%


$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


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



THE WASHINGTON AREA

OFFICE 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


The Washington Area Office Market Office Space Net Absorption – Washington Metro Area


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


Mill

ion

s o

f SF


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


13.4%

10.6%


-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: 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


THE WASHINGTON/BALTIMORE

FLEX/INDUSTRIAL 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



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



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


9.5%


-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


Ask

ing

Re

nt

Ch

ange

The Washington/Baltimore Flex/Industrial Market Asking Rent Change




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


THE WASHINGTON AREA

APARTMENT 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.


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


5.8% 5.4% 5.1%


-4%

-2%

0%

2%

4%

6%

8%

10%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16


The Washington Area Apartment Market Class A Apartment Rent Growth – 2001-2016


Effe

ctiv

e R

en

t G

row

th


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


THE WASHINGTON AREA

CONDOMINIUM 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


The Washington Area Condominium Market Condominiums Actively Marketing or Under Construction at Each Year-End


-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


The Washington Area Condominium Market New Condominium Effective Price Change


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


The Washington Area Condominium Market Past and Projected New Condominium Sales

2,046


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


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



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


$37,900


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



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: 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


OPPORTUNITIES


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



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.


succeeding in a competitive market · 2016. 7. 16. · succeeding in a competitive market r u.s....

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