trendlines houston
DESCRIPTION
Transwestern and its research affiliate, Delta Associates, held its annual Houston TrendLines event on November 15, 2012. Delta Associates CEO, Greg Leisch, gave an economic overview highlighting opportunities in the Houston commercial real estate market.TRANSCRIPT
2012
Houston
Presentation available to download:
www.transwestern.net
www.DeltaAssociates.com
AGENDA 1. MegaTrends
2. National Economy
3. Regional Economy
4. Houston’s Commercial Real Estate Markets • Office • Industrial • Apartment • Retail
5. Capital Markets
6. Finding Opportunities
Source: Delta Associates, November 2012.
2012
MEGATRENDS Houston
MEGATRENDS AFFECTING HOUSTON’S COMMERCIAL REAL ESTATE MARKETS
• Uncertainty
• Drive to Efficiency
• Flight to Quality
• Houston’s Strong Economy
Source: Delta Associates, November 2012.
MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
GDP Change in 2013 Unemployment Rate at Year-End 2013
Assuming No Fiscal Cliff
Source: Congressional Budget Office, Delta Associates; November 2012.
Perc
enta
ge
1.7%
8.0%
MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
GDP Change in 2013 Unemployment Rate at Year-End 2013
Assuming No Fiscal Cliff
Assuming Fiscal Cliff
Source: Congressional Budget Office, Delta Associates; November 2012.
-0.5%
9.0%
Perc
enta
ge
1.7%
8.0%
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Corp
orat
e Pr
ofits
in T
rillio
ns
*12 months ending June 2012.
MEGATREND: DRIVE TO EFFICIENCY Doing More With Less | U.S. Corporate Profits | 2000 - 2012
Source: Bureau of Economic Analysis, Delta Associates; November 2012.
MEGATREND: FLIGHT TO QUALITY Metro Houston Office Absorption: YTD 2012
Source: Delta Associates’ analysis of CoStar data; November 2012.
0
1
2
3
Class A
Class B
Mill
ions
of S
F Ab
sorb
ed
MEGATREND: HOUSTON’S STRONG ECONOMY Payroll Job Growth: Houston #1 Since 2000
-200
-100
0
100
200
300
400
500
600
Hou Was NY Phx DFW Den Atl S. Fla Bos LA Basin SF Bay Chi
Payr
oll J
obs i
n Th
ousa
nds
Source: Bureau of Labor Statistics, Delta Associates; November 2012.
505
2012
NATIONAL ECONOMY
Houston
-10%
-5%
0%
5%
10%
15%
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Percent Change in GDP Unemployment Rate
Recession Une
mpl
oym
ent R
ate
and
Annu
alize
d G
DP C
hang
e
Recovery
32 months: Recession + Recovery
32 months: Recession + Recovery
51 months: Recession + Recovery
72 months: Recession + Recovery
U.S. ECONOMIC TRENDS AND FORECAST
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.
NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0 1 2 3 4 5 6 7 8 9 10 11 12
1982
1991
2001
Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.
Cum
ulat
ive
% C
hang
e in
GD
P
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0 1 2 3 4 5 6 7 8 9 10 11 12
1982
1991
2001
Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.
Cum
ulat
ive
% C
hang
e in
GD
P
2009
NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions
CONTRIBUTORS TO THE NATIONAL ECONOMY
Consumers 70%
Business/ Government
30%
Source: Bureau of Economic Analysis, Delta Associates; November 2012.
U.S. MEDIAN HOUSEHOLD INCOME
Dropped $777 in 2011
Source: Census Bureau, Delta Associates; November 2012.
$50,054
$50,831
CHANGE IN U.S. HOUSEHOLD NET WORTH
Source: Federal Reserve, Delta Associates; November 2012.
-$6
-$5
-$4
-$3
-$2
-$1
$0
$1
$2
$3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Chan
ge in
Net
Wor
th (i
n tr
illio
ns)
2007 2008 2009 2010 2011 2012
Total Lost = $17.4 trillion
Total Gained = $11.9 trillion
U.S. CONSUMER SENTIMENT
50
60
70
80
90
100
110
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
Inde
x
Source: University of Michigan, Delta Associates; November 2012. *Preliminary data for September 2012.
20-Year Average = 88.2
0%
1%
2%
3%
4%
5%
6%
0%
1%
2%
3%
4%
5%
6%
7%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Pers
onal
Sav
ings
Rat
e
2006 2007 2008 2009 2010
U.S. PERSONAL SAVINGS RATE
Source: Bureau of Economic Analysis, Delta Associates; November 2012.
2011 2012
0%
1%
2%
3%
4%
5%
6%
7%
0%
1%
2%
3%
4%
5%
6%
7%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Pers
onal
Sav
ings
Rat
e
2006 2007 2008 2009 2010
U.S. PERSONAL SAVINGS RATE
Source: Bureau of Economic Analysis, Delta Associates; November 2012.
2011 2012
CD In
tere
st R
ates
Compared to CD Interest Rates
-10%
-5%
0%
5%
10%
15%
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Percent Change in GDP Unemployment Rate
Recession Une
mpl
oym
ent R
ate
and
Annu
alize
d G
DP C
hang
e
Recovery
32 months: Recession + Recovery
32 months: Recession + Recovery
51 months: Recession + Recovery
72 months: Recession + Recovery
U.S. ECONOMIC TRENDS AND FORECAST
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.
2012
HOUSTON ECONOMY
Houston
96.6
0
20
40
60
80
100
120
140
NY LA Basin Hou SF Bay DFW Bos Phx Was Chi Denver Atl S. Fla
Payr
oll J
obs i
n 00
0’s
PAYROLL JOB GROWTH: HOUSTON A LEADER Large Metro Areas | 12 Months Ending September 2012
Source: Bureau of Labor Statistics, Delta Associates; November 2012.
INCREASING PRESENCE IN HOUSTON
CORE INDUSTRIES Houston Metro Area | 2011
Source: BEA, BLS, GMU Center for Regional Analysis, Delta Associates; November 2012.
Total GRP: $399 100%
Energy $108 27% Financial, Professional, Tech $52 13% Construction $36 9% Federal & State Government $32 8% Manufacturing $24 6% Medical/Educational $16 4% Trade/Transportation $16 4%
Core Industries $ (Bil) % GRP
Total Core Industries: $283 71% Other $116 29%
GRP = Gross Regional Product.
CORE INDUSTRY: ENERGY U.S. Rotary Rig Count | 1990 – 2012
Source: Baker Hughes, Delta Associates; November 2012. *Count as of 10/26/12.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*
Annu
al A
vera
ge W
orki
ng R
igs
CORE INDUSTRY: ENERGY Top Wind Energy Producing States | September 2012
Source: American Wind Energy Association, Delta Associates; November 2012.
10,929
4,570 4,536
3,153 3,055 2,717 2,699
0
2,000
4,000
6,000
8,000
10,000
12,000
Texas California Iowa Oregon Illinois Minnesota Washington
Win
d Ca
paci
ty (M
egaw
atts
)
CORE INDUSTRY: MEDICAL/EDUCATIONAL Houston Health And Medical Sector Employment | 2005-2012
Source: BLS, Delta Associates; November 2012.
350
370
390
410
430
450
470
490
510
530
2005 2006 2007 2008 2009 2010 2011 2012*
Met
ro A
rea
Empl
oym
ent (
Thou
sand
s)
*Through September
Up 5.9% in 2012
CORE INDUSTRY: TRADE/TRANSPORTATION Top Planned Port Infrastructure Investments to Prepare for Canal Expansion
Source: National Real Estate Investor, Delta Associates; November 2012. *Includes ports of Portsmouth and Newport News.
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
Houston Tampa Charleston Norfolk* Savannah Everglades Gulfport Mobile Miami Jacksonville
Billi
ons
-80
-60
-40
-20
0
20
40
60
80
100
120
Annu
al Jo
b G
row
th (i
n 00
0’s)
PAYROLL JOB GROWTH Houston Metro Area | 1991 –2012
Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.
22-Year Average Job Growth = 39,600/Year
-80
-60
-40
-20
0
20
40
60
80
100
120
Annu
al Jo
b G
row
th (i
n 00
0’s)
PAYROLL JOB GROWTH Houston Metro Area | 1991 –2012
Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.
22-Year Average Job Growth = 39,600/Year
-80,000
-60,000
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Annu
al Jo
b G
row
th
JOB FORECAST Houston Metro Area | 2012 – 2014
Source: Bureau of Labor Statistics, Delta Associates; November 2012.
22-Year Annual Growth = 39,600/annum
Projected Avg. Annual Growth 2012-14 =
89,000/annum
2012 THE HOUSTON OFFICE MARKET
Houston
10.6% 10.9% 11.2% 11.6% 12.5% 12.9%
13.1% 13.4% 13.6% 14.7%
16.1% 16.9%
20.3%
0%
5%
10%
15%
20%
25%
Bos Hou NY SF Bay Den LA Was OC Chi S Fla Atl DFW Phx
Ove
rall
Vaca
ncy
Rate
OFFICE VACANCY RATES Select Metro Areas | 3rd Quarter 2012
Source: Delta Associates’ analysis of CoStar data; November 2012.
National Vacancy Rate: 13.7%
-3
-2
-1
0
1
2
3
4
5
6
SF Bay Atl Hou LA/OC Bos Phx Den Chi DFW S Fla NY Was
NET ABSORPTION OF OFFICE SPACE Select Metro Areas | January Through September 2012
Source: Delta Associates’ analysis of CoStar data; November 2012.
2.9
0
2
4
6
8
10
12
14
NY Was Bos Hou SF Bay LA Atl DFW Den OC Chi Phx
SF Available
SF Pre-Leased
3.6
Mill
ions
of S
F
Nation: 64.8 million SF at 62% pre-leased
OFFICE SPACE UNDER CONSTRUCTION Select Metro Areas | 3rd Quarter 2012
Source: Delta Associates’ analysis of CoStar data; November 2012.
0
2
4
6
8
10
OFFICE SPACE DEMAND AND DELIVERIES Houston Metro Area | Two Years Ending September 2014
Source: Delta Associates’ analysis of CoStar data; November 2012.
SF in
Mill
ions
Houston Metro
8.0 million SF
= Deliveries
= Demand
Total = 4.2 million SF
U/C = 3.6 million SF
Planned and may deliver by 9/14: 0.6 million SF
Note: Excludes ExxonMobil‘s campus U/C in The Woodlands.
Rent Equilibrium Zone = 12% - 14%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2014
Ove
rall
Vaca
ncy
Rate
OFFICE VACANCY RATE Houston Metro Area | 2000 – 3rd Quarter 2014
Source: Delta Associates’ analysis of CoStar data; November 2012. *As of 3rd quarter 2012.
10.9%
9.3%
-5%
0%
5%
10%
15%
20%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
CHANGE IN OFFICE ASKING RENTS Houston Metro Area | All Classes And Submarkets | 1997 – 2014
Source: Delta Associates’ analysis of CoStar data; November 2012.
15-Year Average Rent Growth = 3.9%
OFFICE SUBMARKETS LIKELY TO OUTPERFORM
Source: Delta Associates; November 2012.
• Energy Corridor
• Westchase
• West Loop/Galleria
• CBD
• Greenway Plaza
• The Woodlands
Houston Metro Area
Select Submarkets with Declining Vacancy, Rising Rents During Remainder of 2012 and into 2013
2012 THE HOUSTON INDUSTRIAL MARKET
Houston
0%
2%
4%
6%
8%
10%
12%
Hou LA Basin NY/NNJ Chi DFW Was/Bal
INDUSTRIAL VACANCY RATES Select Metro Areas | 3rd Quarter 2012
Source: Delta Associates’ analysis of CoStar data; October 2012.
4.6%
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
Chi DFW Hou LA Basin NY/NNJ Was/Bal
NET ABSORPTION OF INDUSTRIAL SPACE Select Metro Areas | January – September 2012
Source: Delta Associates’ analysis of CoStar data; November 2012.
3.3
0
2
4
6
8
INDUSTRIAL SPACE DEMAND AND DELIVERIES Houston Metro Area | One Year Ending September 2013
Source: Delta Associates’ analysis of CoStar data; November 2012.
SF in
Mill
ions
6.5 million SF
= Deliveries
= Demand
Total = 3.6 million SF
U/C = 2.3 million SF
Planned and may deliver by 9/13: 1.3 million SF
Houston Metro
INDUSTRIAL VACANCY RATES Houston Metro Area | 2001 – 3rd Quarter 2013
2%
4%
6%
8%
10%
12%
14%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ove
rall
Vaca
ncy
Rate
Source: Delta Associates’ analysis of CoStar data; November 2012.
4.6% 4.1%
ANNUAL INDUSTRIAL RENT CHANGE Houston Metro Area | 1997 – 2013
-8%
-6%
-4%
-2%
0%
2%
4%
6%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Annu
al C
hang
e in
Ask
ing
Rent
(per
SF,
NN
N)
Source: Delta Associates’ analysis of CoStar and REIS data; November 2012.
15-Year Average Rent Growth = 1.7%
INDUSTRIAL SUBMARKETS LIKELY TO OUTPERFORM
Source: Delta Associates; November 2012.
• North
• Northwest
• West
Houston Metro Area
Select Submarkets with Declining Vacancy, Rising Rents During the Remainder of 2012 and into 2013
2012 THE HOUSTON APARTMENT MARKET
Houston
Source: MPF, Delta Associates; November 2012.
0
2
4
6
8
10
12
14
16
18
20
Hou LA DFW Chi Atl Phx Was
Thou
sand
s of
Uni
ts
NET ABSORPTION OF APARTMENTS – ALL CLASSES Select Metro Areas | 2012*
*Washington = 12 months ending 9/12. All other markets are estimated for 12 months ending 6/12.
17.3
-10
0
10
20
2006 2007 2008 2009 2010 2011 2012*
NET ABSORPTION OF APARTMENTS – ALL CLASSES Houston Metro Area | 2006 Through 2012
Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.
Thou
sand
s of
Uni
ts
7-Year Average = 8,000 units
-10
0
10
20
2006 2007 2008 2009 2010 2011 2012* 2013
NET ABSORPTION OF APARTMENTS – ALL CLASSES Houston Metro Area | 2006 Through 2013
Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.
Thou
sand
s of
Uni
ts
7-Year Average = 8,000 units
Source: MPF, Delta Associates; November 2012.
0%
2%
4%
6%
8%
10%
12%
14%
2005 2006 2007 2008 2009 2010 2011 2012* 2013
Vaca
ncy
Rate
APARTMENT VACANCY RATE – ALL CLASSES Houston Metro Area | 2005 Through 2013
7.4% 6.8%
* As of 2nd quarter 2012.
Source: MPF, ADS, Delta Associates; November 2012.
$0.78
$0.83
$0.88
$0.93
$0.98
$1.03
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Aver
age
Rent
al R
ate/
SF/M
onth
AVERAGE APARTMENT RENTAL RATE Houston Metro Area | 2006 Through 3rd Quarter 2012
2011 2010 2009 2008 2007 2006 2012
$0.98
5.1% increase in the last 12
months
2012 THE HOUSTON RETAIL MARKET
Houston
Ove
rall
Vaca
ncy
Rate
Source: Delta Associates’ analysis of CoStar data; November 2012.
VACANCY RATE: SHOPPING CENTERS Select Metro Areas | 3rd Quarter 2012
5.1% 5.4% 5.4% 6.2%
7.5%
8.6% 8.9% 9.9%
11.4%
12.7% 13.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Was SF Bos NY LA/OC Den Hou Chi DFW Atl Phx
National Average = 9.2%
Note: Includes shopping centers of all types.
10%
11%
12%
13%
14%
15%
16%
17%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Vaca
ncy
Rate
11.2%
VACANCY RATE: ALL RETAIL Houston Metro Area | 2000 – 2nd Quarter 2012
Source: O’Connor & Associates, Delta Associates; November 2012.
$50
$60
$70
$80
$90
$100
$110
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Tota
l Gro
ss R
etai
l Sal
es
(in B
illio
ns o
f Dol
lars
)
$109.7
$101.4
$87.9
$55.3
GROSS RETAIL SALES Houston Metro Area | 2002 – 2012
Source: Texas Comptroller’s Office, Delta Associates; November 2012. *2012 figure is annualized.
RETAIL MARKET FORECAST
Source: Delta Associates; November 2012.
• Growing population driving market expansion
• Continued improvement in occupancy rates
• Focus on grocery-anchored and mixed-use development
• Increasing urban infill development
Houston Metro Area
2012
CAPITAL MARKETS
Houston
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
2009 2010 2011 2012*
Billi
ons o
f $’s
Hou
Den
DFW
COMPARATIVE INVESTMENT SALES VOLUME Office Buildings | 2009 – 2012
Source: Real Capital Analytics, graphic by Delta Associates; November 2012. *YTD through September, annualized.
INDUSTRIAL INVESTMENT SALES Houston Metro Area | 2002 Through 2012
$0
$200
$400
$600
$800
$1,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*
Mill
ions
of $
*YTD through August, annualized. Sources: Real Capital Analytics, graphic by Delta Associates; November 2012.
$826
3%
4%
5%
6%
7%
8%
9%
Source: Transwestern, Delta Associates; November 2012.
Aver
age
Cap
Rate
CORE CAP RATES Houston Metro Area | 2005 – 2012
Office Industrial Garden/Mid-Rise Apartments
Shopping Centers
2012
FINDING OPPORTUNITIES
Houston
1. Lock in interest rates while they remain low
2. Invest in renovation to compete and reposition
3. Buy / prepare land for this round of development
4. Narrow acquisition search to product that accommodates the modern tenant
MINING A GROWING MARKET: FINDING OPPORTUNITIES Houston Metro Area
Source: Delta Associates; November 2012.
2012
Houston