the aging economic expansion - nmhc · fewer high-paying blue collar jobs means weak overall job...
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9/26/16
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THE AGING ECONOMIC EXPANSIONImplications for Multifamily and Student Housing
Andrew J. NelsonChief Economist | USA Colliers International
Slide Title
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How Does This Economy Rate?
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What’s Not to Like?2nd highest 5-year real returns in last 30 years
Real Rolling Four-Quarter NPI Returns: 1985-2Q16
Sources: NCREIF, BLS, and Colliers International
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Real All Prop Returns Real MF Returns
10.8%12.3%
10.5%10.7% 11.5%10.9%
...and #1 formultifamily!
Sources: REIS and Colliers International
= Average Vacancy 1990-2007
Multifamily Industrial
Office Retail
6.0%6.5%7.0%7.5%8.0%8.5%9.0%9.5%
10.0%10.5%11.0%11.5%
Markets Mostly Near “Normal” or Getting ThereMF and industrial vacancies below avg.; office and retail still elevated
3.0%3.5%4.0%4.5%5.0%5.5%6.0%6.5%7.0%7.5%8.0%
8.0%9.0%
10.0%11.0%12.0%13.0%14.0%15.0%16.0%17.0%18.0%19.0%20.0%
7.0%7.5%8.0%8.5%9.0%9.5%
10.0%10.5%11.0%11.5%12.0%
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U.S. CRE Transaction Volume Back to Prior Peak in 2015But more balanced now
Sources: Real Capital Analytics and Colliers International
U.S. Commercial Real Estate Transaction Volume > $2.5MM
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Billi
ons
Multifamily Industrial Office Retail
$460 B
23%
13%
47%
17% 19%
32%
17%
33%
$461B
2007 2015
Deserves more respectThe Uneven, Moderate
Expansion Continues
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The Uneven, Moderate Recovery ContinuesNot perfect but good enough for property markets
• Strong enough to drive tenant demand and property investment and yet . . .
• Not strong enough to overheat (most) markets or encourage excessive supply
Home prices back to prior peak and home starts rising
Employment well past prior peak and still going strong
Consumers happier, stronger, confident
Credit markets still benign
THEGOOD
Skewed expansion; weak wage growth
Slower global growth; strong dollar
Weak mfg / exports; falling corporate profits and CAPEX
Election uncertainty
THEBAD
The Uneven, Moderate Expansion Continues (1)Still no breakout, but private domestic economy better
Note: * Final Sales to Private Domestic Purchasers = GDP less Net Exports, Net Inventory Adjustments, and Government Spending and Investment. Sources: BEA, BLS, Macroeconomic Advisors via Haver Analytics and Colliers International.
Quarterly GDP Growth at Annualized Rate Quarterly Annualized Growth of Final Private Sales*
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%Avg. 1960+
= 3.1%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0% Avg. 1960+= 3.4%
Avg. 2010+ = 2.8%
Avg. 2010+ = 2.0%
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The Uneven, Moderate Expansion Continues (2)Job growth is the standout
Sources: BEA, BLS, Macroeconomic Advisors via Haver Analytics and Colliers International.
Quarterly Nonfarm Jobs Growth at Annualized Rate Nonfarm and Office-Using Jobs (Jan. 2008 = 1)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Job Growth Unemployment Rate
Avg.1960+ AND2011+ =1.8%
0.90
0.92
0.94
0.96
0.98
1.00
1.02
1.04
1.06
1.08
Non-Office Office-Based
Leading Economic Indicators Still Quite PositiveU.S. and almost all states expanding
Source: Federal Reserve Bank of Philadelphia and Colliers International. Data as of July 2016.
U.S. Leading Economic Indicator IndexState Leading Indexes: Expected Six-Month Change
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
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What, me worry?
Economic Concerns: Fewer, Less Productive WorkersDeclining long-term productivity growth limits wage and GDP growth
* Three-year moving average. Sources: Bureau of Labor Statistics and Colliers International.
Quarterly Productivity Growth (Annualized)*
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 201560%
61%
62%
63%
64%
65%
66%
67%
68%
1985 1990 1995 2000 2005 2010 2015
Labor Force Participation Rate* (1984–2016)
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Economic Concerns: Job Polarization and Weak WagesFewer high-paying blue collar jobs means weak overall job growth
* 3-month moving average. ** For private sector production and nonsupervisory workers, indexed.Sources: Bureau of Labor Statistics and Colliers International.
Real Average Weekly Earnings** (1964 = 100)Share of Jobs by Type* (1984-2015)
10%
15%
20%
25%
30%
35%
40%
1985 1990 1995 2000 2005 2010 2015
Routine Office
RoutineManual
Non-RoutineService
80
85
90
95
100
105
110
115
120
1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Real 1964 Wages
The Multifamily and Student Housing Markets
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Sources: U.S. Census Bureau and Colliers International
15
Change in Homeownership Rates (2Q04 – 2Q16)
Homeownership Rate Still Falling SharplyEspecially among households under 35
-9.1%
-21.2%
-16.7%
-10.7%
-8.5%
-3.2%
-25%
-20%
-15%
-10%
-5%
0%Total
Under 35 Years 35-44 35-54 55-64 65+
Homeownership Rates 1Q 1965- 2Q 2016
59%
60%
61%
62%
63%
64%
65%
66%
67%
68%
69%
70%
Household FormationsAll gains in this cycle have been rental
Change in number of occupied housing units YoY
Sources: Bureau of the Census and Colliers International.
Change in occupied housing units since 2008
22%
-2%-5%
0%
5%
10%
15%
20%
25%
Renter Owner
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
Renter Owner
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University-Owned vs. Privately-Owned Student Housing* Private SH tracks all MF while university-owned maintains higher occupancy
Among the”Axio175” schools.Source: Axiometrics and Colliers International
90.0%
91.0%
92.0%
93.0%
94.0%
95.0%
96.0%
97.0%
98.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Private Student Housing University Student Housing All MF
Occupancy Rates in Student Housing and All Apartments
Student Housing Sales Analysis (1)Sales volume declined in 2013 and 2014 but surged in 2015
Source: Real Capital Analytics and Colliers International
Forecasted
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
2012 2013 2014 2015 2016 (thru 2Q16)
Milli
ons
Transaction Volumes > $2.5MM
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Student Housing Sales Analysis (2)Cap rates low and still falling but still at large spread to Treasuries
Sources: Real Capital Analytics and Colliers International
Capitalization Rates on MF and Student Housing Sales > $2.5MM
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q16
Student Housing Multi-Family 10-Yr Treasury
$25,000
$35,000
$45,000
$55,000
$65,000
$75,000
2012 2013 2014 2015 2016 YTD$100,000
$120,000
$140,000
$160,000
$180,000
$200,000
$220,000
2012 2013 2014 2015 2016 YTD
Student Housing Sales Analysis (3)Prices continue to rise
Source: Real Capital Analytics and Colliers International
Average Price Per BedAverage Price Per Unit
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“Mostly sunny with increasing clouds and a chance of rain”
Summary and 2016+ U.S. Forecast
An Aging Economic ExpansionAlready longer than most
8774
121
92
58
36
107
24
39
45
37
60
-
-
-
-
-
-
-
-
-
-
0 20 40 60 80 100 120 140
7/09 - now
11/01 - 12/07
3/91 - 3/2001
12/82 - 7/90
3/75 - 1/80
11/70 - 11/73
2/61 - 12/69
4/58 - 4/60
5/54 - 8/57
10/49 - 7/53
10/45 - 11/48
Post-WWII US Economic ExpansionsTotal Months in Recovery
Total = 147 months
Avg. = 63 months1945
Present
1970
1990
Sources: BEA via Haver Analytics and Colliers International.
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› We’re (much) closer to the end of the expansion than the beginning: • The uneven, moderate expansion continues.• Two to three good years left (probably) but . . .• The economy is cooling (though not cratering).
Summary and 2016+ U.S. Forecast“Mostly sunny with increasing clouds and a chance of chance of rain”
› Risks are weighted more to the downside and growing:• Global economic slowing, strong dollar strong headwinds.• Election jitters; corporate uncertainty.• Interest rates to rise very modestly and not material.
› Cyclical recovery is essentially complete:• Remaining weakness is structural.• Bifurcation more important than rising tide, especially in retail.• Structural changes favor multi-family, industrial over retail, CBD office over suburban
› We’re (much) closer to the top of the property market cycle than the bottom:• Financial returns easing as cap rates stabilize / rise . . .• But strong investor interest will maintain asset values.• Strong property fundamentals will drive income returns.• Leasing and investment sales volumes stay strong but below 2015.
colliers.com/Andrew.Nelson
http://knowledge-leader.colliers.com/author/andrew-nelson/