the economy and real estate

GLOBAL RESEARCH AND CONSULTING

THE ECONOMY AND REAL ESTATE

GARY BARAGONADIRECTOR, RESEARCH & ANALYSISJANUARY 2014

2 GLOBAL RESEARCH AND CONSULTING

TOPICS COVERED

U.S. Economy

Southern California Economy

Mega-Trend: Workplace Strategy

Mega-Trend: E-Commerce

U.S. Property Market Fundamentals

Los Angeles Market Fundamentals


U.S. ECONOMY


U.S. ECONOMY

Economic growth will strengthen in 2014

Jobs are everything

Industrial indicators are solid

Resurgent housing market


FORECAST

U.S. ECONOMIC EXPANSION OUTLOOKAnnual % Change

Source: HIS Global Insight


FORECAST

U.S. JOB GROWTH SLOW AND STEADYU.S. Total Nonfarm Payroll, Annual Net Jobs (1000s)

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics


FORECAST

RETURN TO PREVIOUS PEAK IN EARLY 2014U.S. Total Nonfarm Payroll, (Millions of Jobs)

Source: U.S. Bureau of Labor Statistics, Moody’s Analytics


RECOVERY TRAILS PAST CYCLESMonthly Job Growth Index (Business Cycle Peak=100)

Source: U.S. Bureau of Labor Statistics


GROWTH RATE VARIES BY REGIONMonthly Job Growth Index (Dec 2007=100)

Source: U.S. Bureau of Labor Statistics


TECH & ENERGY MARKETS LEADINGOffice-Using Employment Outlook, CAGR 2013-2018

Source: U.S. Bureau of Labor Statistics (BLS): Current Employment Statistics (CES), Quarterly Census of Employment and Wages (QCEW); Moody's Analytics (ECCA) Estimates


U.S. INDUSTRIAL PRODUCTIONIndustrial production is just shy of pre-recession levels

Source: Federal Reserve


U.S. IMPORTS & EXPORTSImports are stronger than they appear once oil is excluded

Source: U.S. Census Bureau


HOUSING PRICES CONTINUE TO GROWS&P/Case-Shiller Home Price Index

Source: S&P Case-Shiller Index


RETAIL SALESHousing Recovery Boosts Retail Sales

Source: U.S. Census Bureau


SOUTHERN CALIFORNIA ECONOMY


Source: CBRE Econometric Advisors, Economy.com

POSITIVE BUT LACKLUSTER JOB GROWTHSouthern California: Year-Over-Year Employment Growth

FORECAST



SOUTHERN CALIFORNIA ECONOMYTotal Employment Forecast (in Millions)

90+ MONTHS TOREACH PREVIOUS PEAK

WE ARE ONLYHALF WAY THERE



SOUTHERN CALIFORNIA ECONOMYHospitality & leisure, construction, education & health services, professional & business services & technology will lead the way


MEGA-TRENDS:WORKPLACE STRATEGY & E-COMMERCE


Source: CBRE Econometric Advisors, Moody’s Analytics

MEGA-TREND: WORKPLACE STRATEGYUnderutilized space and modern design slow occupancy growth


Source: CBRE Econometric Advisors, Moody’s Analytics

MEGA-TREND: E-COMMERCEE-commerce will drive demand for industrial space and continue to reshape the retail market


U.S. PROPERTY MARKET FUNDAMENTALS


Source: CBRE Research, CBRE Econometric Advisors

PROPERTY SECTOR TRAJECTORY

2013 Q4Past Cyclic

High“Natural Rate”

Year Back to "Natural Rate"

Office Vacancy Rate 15.0 16.8 / 2010 13 to 15 2013

Industrial Availability Rate 11.5 14.5 / 2010 9 to 10 2015

Retail Availability Rate 12.0 13.2 / 2011 9 to 10 2016

Multifamily Vacancy Rate 5.3 7.4 / 2009 5 to 6 2010


PROPERTY SECTOR TRENDS

OFFICE• Urbanization & densification• Impact of workplace strategy• Investor interest in suburban, non-gateway markets• Tech markets leading the way

INDUSTRIAL• Supply chain efficiencies• Peak manufacturing productivity• Impact of e-commerce• More speculative construction but still in check

RETAIL• High-street retail still strong• E-commerce growing impact• Omni channel strategies• Shrinking retail footprints


S

L

M

N

AC

D

D

L

P

P

SW

A

B

D

N

S

H

San Diego

Orange County O

Atlanta

Dallas (Suburban)

Boston

Seattle

U.S. OFFICE RENT CYCLE Q4 2013

Source: CBRE Research


RENT GROWTH LED BY TECH MARKETS5-Year Annualized Rent Growth (%), Largest 20 Office Markets

Source: CBRE Econometric Advisors



Completions, Net Absorption & Vacancy Rate

OFFICE OUTLOOK

FORECAST


Completions, Net Absorption & Availability Rate

FORECAST

INDUSTRIAL OUTLOOK



Completions, Net Absorption & Availability Rate

FORECAST

RETAIL OUTLOOK



REAL ESTATE INVESTMENT TRENDS

Increased global interest in U.S. markets

2013 saw the beginning of interest rate increases. In 2014, look for the end of cap rate compression and a new era of NOI growth.

Expect improved economic performance to correspond with interest rate increase

Expect spreads to between primary & secondary markets to compress


Sales Volume ($ Billions)

NATIONAL INVESTMENT SALES

Source: Real Capital Analytics


U.S. Ten Year Treasury Bonds

INTEREST RATE

Source: Federal Reserve

FORECAST


Q2 Survey of economists places the 10-year treasury at 3.5% at the end of 2014

A RANGE OF OPINIONS

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

2013.3 2013.4 2014.1 2014.2 2014.3 2014.4 2015.1 2015.2 2015.3 2015.4

Ten Year Treasury, %


Average CAP rates in all product types will remain flat in the near term

FORECAST

CAP RATE FORECAST

Source: CBRE Econometric Advisors, NCREIF


LOS ANGELES MARKET FUNDAMENTALS



Vacancy Rate & Avg Asking Lease Rate

LOS ANGELES OFFICE OUTLOOK

FORECAST


LOS ANGELES OFFICEMarket dynamics vary greatly on the submarket area




Availability Rate & Avg Asking Lease Rate

LOS ANGELES INDUSTRIAL OUTLOOK

FORECAST



Availability Rate & Avg Asking Lease Rate

LOS ANGELES RETAIL OUTLOOK

FORECAST


THE ECONOMY AND REAL ESTATE

GARY BARAGONADIRECTOR, RESEARCH & ANALYSISJANUARY 2014

the economy and real estate

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