ulifall17 16x9 - s3.amazonaws.com · • 2‐2.5 million annual job creation 2017 –economic...
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20172017Extended Growth Cycle, Extreme Weather,
Political Chaos, Fed “Normalization” –Now What?
Resilient Economy Faces Headwinds
Headwinds (and forecasting challenges) include…...
• 2‐2.5 Million Annual Job Creation
2017 – Economic Perspective
• 4.2% Unemployment Rate
• 1.4% Inflation Rate (PCE)
• 2.4% 10‐Yr. Treasury Yield
• 9.7 Million More Households Than 2007
• 8.2 Million More Jobs Than 2007
• 6.1 Million Current Job Openings
• $4.5 Trillion GDP Growth Since 2007
Employment Growth Durable and Remarkably Stable
-2.7
-1.8
-0.9
0.0
0.9
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Qua
rter
ly J
ob G
row
th (M
illio
ns)
+8.3 Million
+16.9 Million*
-8.7 Million
2016 Total: 2,240,0002017 Forecast: 2,000,000
* Through 3QSources: Marcus & Millichap Research Services, BLS
80
85
90
95
100
105
110
115
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
10
30
50
70
90
110
130Small Business Optimism Index Consumer Confidence
Smal
l Bus
ines
s O
ptim
ism
Inde
xSmall Business Optimism Index vs
Consumer Confidence Index
* Through SeptemberSources: Marcus & Millichap Research Services, National Federation of Independent Business, The Conference Board
Consum
er Confidence Index
Fed to Begin Balance Sheet Normalization
$0.0
$1.5
$3.0
$4.5
$6.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
TIPS/TIPS Inflation Compensation/Agencies/BillsMBSNotes & Bonds
Fed
Hol
ding
s (T
rillio
ns)
* Through October 18Sources: Marcus & Millichap Research Services, Federal Reserve
QE 1
QE 2
QE 3
10‐Year Treasury Rates by Country
Country 10‐Year Treasury Rate
Switzerland ‐0.01%
Japan 0.1%
Germany 0.5%
France 0.9%
United Kingdom 1.4%
Canada 2.0%
United States 2.4%
Australia 2.8%
China 3.8%
Russia 7.6%
Brazil 9.7%
As of October 25, 2017Sources: Marcus & Millichap Research Services, Trading Economics
eCommerce and the “Retail Apocalypse” Myth
The Headlines Capture Investor Attention…
0
15
30
45
60
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Retail Stores Closed Retail Stores Opened
Balancing Headlines With Data - Retail Store Closings Trend Lower
Retail Stores Ope
ning
/Closing
(000
s)
Sources: Marcus & Millichap Research Services, International Council of Shopping Centers
Off-Price Departmen
t StoreDiscount
Stores Fitness Warehouse Club
Quick-Serve
Restaurant
Home Improvement
Health and
Beauty
Grocery Fast Fashion
Wellness
Numerous eCommerce Resistant Retail Concepts
U.S. Commercial Real Estate Market Overview and Outlook
U.S. Construction Trends
0
100
200
300
400
Apartment
Com
plet
ions
(000
s of
Uni
ts)
Com
plet
ions
(Mil.
of S
q. F
t.)
0
75
150
225
300
Retail Office Industrial
2000-2014 2015 2016 2017*
* ForecastSources: Marcus & Millichap Research Services, MPF Research, CoStar Group, Inc.
Long‐TermAverage
0%
5%
10%
15%
20%
Apartment Retail Office Industrial
2000-2014 2015 2016 2017*
U.S. Vacancy Rate TrendsVa
canc
y R
ate
4.5%4.9%
14.0%
5.1%
* ForecastSources: Marcus & Millichap Research Services, MPF Research, CoStar Group, Inc.
-8%
-4%
0%
4%
8%
Apartment Retail Office Industrial
2008-2014 2015 2016 2017*
U.S. Rent Growth TrendsY-
O-Y
Per
cent
Cha
nge 3.8%
2.4%3.5%
7.3%
* ForecastEffective rent growth for apartment; asking rent growth for retail, office, and industrialSources: Marcus & Millichap Research Services, MPF Research, CoStar Group, Inc.
U.S. Average Price Trends
* Preliminary estimate through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
$0
$40
$80
$120
$160
Apartment
Avg.
Pric
e pe
r Uni
t (00
0s)
$0
$75
$150
$225
$300
Retail Office Industrial
2004-2014 2015 2016 2017*
Avg.
Pric
e pe
r Sq.
Ft.
+40%
+9%
+2%
+14%
U.S. Cap Rate Trends
0%
3%
6%
9%
12%
Apartment Retail Office Industrial
2004-2014 2015 2016 2017*
Aver
age
Cap
Rat
e
5.2%
6.3%6.9% 7.1%
* Preliminary estimate through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
Commercial Real Estate Cap Rate Trends by Market Type
5%
6%
7%
8%
9%
10%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Primary Secondary Tertiary
Aver
age
Cap
Rat
e
* Preliminary estimate through 3QIncludes apartment, retail, office, and industrial sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
60 bps
220 bps
130 bps
Commercial Real Estate Avg. Yield vs.10‐Yr. Treasury – Spread Remains “Balanced”
Aver
age
Rat
e
0%
3%
6%
9%
12%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Commercial Real Estate Cap Rate 10-Year Treasury Rate
* Through October 24Includes apartment, retail, office, and industrial sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
430
bps
440
bps
480
bps
480
bps
200 bps
580
bps
390
bps
Cap Rate Long-Term Avg.
10-Yr Treasury Long-Term Avg.
U.S. Commercial Real Estate Investor Sentiment
Investor Sentiment Settling Near Long‐Term Average
0
50
100
150
200
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*In
vest
or S
entim
ent
* Through 3QSources: Marcus & Millichap Research Services, M&M/NREI Investor Survey
Long-Term Average: 144 150
Investor Transactional Outlook Favors Industrial
0%
25%
50%
75%
100%
Apartment Industrial Office Retail
Buy Hold Sell
Perc
enta
ge o
f Inv
esto
rs
As of 3Q 2017Base: respondents invested in each property type; (n varies for 3Q17)Sources: Marcus & Millichap Research Services, U.S. Census Bureau, M&M/NREI Investor Survey
27%
63%
27%
27%
46%
47%
24%
17%
43%
40%
46%
35%
46%
27% 18
%
30%
Majority of Apartment and Industrial Investors Expect Values to Rise
0%
25%
50%
75%
100%
Apartment Industrial Office Retail
Increase Remain the same Decrease
Perc
enta
ge o
f Inv
esto
rs
As of 3Q 2017Base: respondents invested in each property type; (n varies for 3Q17)Sources: Marcus & Millichap Research Services, U.S. Census Bureau, M&M/NREI Investor Survey
Retail
Office
Industrial
Apartment
Average percentage change expected:
31%
58%
31%
11%
64%
32%
41%
45%
14%
30%
44%
25% 3.8%
5.1%
1.6%
0.3%
National Apartment Market Overviewand Outlook
Housing Construction Has Fallen Short of Demand
0.0
0.5
1.0
1.5
2.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Single-Family Completions Multifamily Completions Household Growth
2000‐2007 Oversupply: 2.6M2008‐2017* Undersupply: 1.8M
Com
plet
ions
/ H
ouse
hold
Gro
wth
(Mil.
)
* ForecastTrailing 24-month average for household growthSources: Marcus & Millichap Research Services, U.S. Census Bureau
National Apartment Vacancy vs. Construction
0
100
200
300
400
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*
2%
4%
6%
8%
10%Completions Vacancy Rate
Completions (0
00s of Units)
Vacancy Rate
* ForecastSources: Marcus & Millichap Research Services, MPF Research
Apartment Development Following The Jobs
Top 10Metros
2017 Completions*
Completions as % Inv.
Dallas‐Fort Worth 31,800 4.4%
New York 29,700 1.6%
Houston 22,000 3.4%
Atlanta 17,300 3.7%
Washington, D.C. 16,400 2.8%
Seattle‐Tacoma 14,300 3.5%
Austin 12,800 5.7%
Denver 12,500 4.5%
Los Angeles 11,900 1.1%
Nashville 9,700 7.3%
U.S. Total 365,000 2.3%
Top 10Metros
Absolute Change**
Percent Change**
Dallas‐Fort Worth 99,800 2.8%
Atlanta 62,200 2.3%
Washington, D.C. 53,600 1.7%
Boston 52,500 1.9%
Los Angeles 49,600 1.1%
New York 49,100 1.1%
Philadelphia 48,300 1.7%
Seattle‐Tacoma 47,100 2.4%
Inland Empire 38,700 2.7%
Minneapolis 38,500 2.0%
U.S. Total 1,777,000 1.2%
* Forecast** Trailing 12-months through SeptemberSources: Marcus & Millichap Research Services, MPF Research, CoStar Group, Inc., BLS
Apartment Construction Employment Growth
0%
8%
16%
24%
32%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Shar
e of
Uni
ts C
ompl
eted
Share of U.S. Apartment Completions in Downtown
* Trailing 12‐months through 3QIncludes downtown and suburban submarkets for 46 major metrosSources: Marcus & Millichap Research Services, MPF Research
28.2%
Long‐Term Average: 15.0%
Recent Apartment Construction as a Percent of Existing Class A Stock
0%
15%
30%
45%
60%
Denve
rHou
ston
Seattle
DFW
Atlanta
Wash., D
.C.
South FL
Bay Area
New York
Los A
ngele
s
U.S.
Perc
ent o
f Inv
ento
ry
Recent construction: 2015 to 2017 forecastSouth Florida includes Miami, Fort Lauderdale and West Palm Beach; Bay Area includes San Francisco, San Jose and OaklandSources: Marcus & Millichap Research Services, MPF Research
2%
4%
6%
8%
10%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*Class A Class B Class C
Vaca
ncy
Rat
eU.S. Apartment Vacancy Trends by Class
* Through 3QTrailing 12‐month averageSources: Marcus & Millichap Research Services, MPF Research
-8%
-4%
0%
4%
8%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*Class A Class B Class C
Y-O
-Y P
erce
nt C
hang
eU.S. Apartment Rent Growth Trends by Class
* Through 3QSources: Marcus & Millichap Research Services, MPF Research
Class Change Since 2009
Class A +38.8%
Class B +34.5%
Class C +24.2%
+2.3%
+3.8%+5.2%
0
4
8
12
16
01 03 05 07 09 11 13 15 17*
$1M-$10M $10M-$20M $20M+
* Preliminary estimate for trailing 12-months through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
Tota
l Tra
nsac
tions
(000
s)U.S. Apartment Investment Trends by Price Tranche
+6.9% ‐5.5%
$0
$45
$90
$135
$180
01 03 05 07 09 11 13 15 17*
$1M-$10M $10M-$20M $20M+
Dol
lar V
olum
e (B
il.)
+36%‐12%
Transaction Activity Dollar Volume
U.S. Apartment Price and Cap Rate Trends
$50
$75
$100
$125
$150
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
5%
6%
7%
8%
9%Average Price Cap Rates
+40%
Aver
age
Pric
e pe
r Uni
t (00
0s)
Average Cap R
ate
* Preliminary estimate through 3QIncludes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
U.S. Apartment Cap Rates by Class
4%
5%
6%
7%
8%
9%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*
Class A Preferred MarketsClass AClass B/C
Aver
age
Cap
Rat
e
* Preliminary estimate through 3QIncludes sales $1 million and greaterAssumes properties less than 10 years old at time of sales to be Class A, properties older than 10 years assumed to be Class B/CPreferred Markets Include: NY, DC, BOS, SD, LA, OC, SJ, SF, SEASources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
140 bps220 bps70 bps
120 bps
170 bps
U.S. Apartment Cap Rate Trends Average Cap Rates vs. 10‐Year Treasury
0%
2%
4%
6%
8%
10%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
*
Apartment Cap Rate 10-Year Treasury Rate
Aver
age
Rat
e
10-Yr Treasury Long-Term Avg.
Cap Rate Long-Term Avg.
380
bps
430
bps
390
bps
100 bps
280
bps
390
bps
450
bps
* Through October 24Includes sales $1 million and greaterSources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics, Federal Reserve
National Apartment Market Overviewand Outlook