Title: Time at a Step One
1 Time at a StepOne
The Improving Commercial Real Estate Market
- Economic Issues Commercial
- Business Trends Forum
- Washington, DC -- May 2005
- David Lereah, Ph.D., Chief Economist
- NATIONAL ASSOCIATION OF REALTORS
2Economy Expanding but Losing Momentum
Source BEA
3High Oil Price Sapping Confidence and Demand
Source Department of Energy
4Consumer Confidence
5Consumer Spending Weakening
Source BEA
6Corporate Profits are Strong
Source BEA
7But, Business Spending Hesitant
Source BEA
8Durable Goods Orders Tumbling
change from a year ago
9Stock Market Pessimistic About Future Business
10Jobs AddedBut Not Consistently Robust
11Accumulating Risks
- Budget Deficit
- Trade Deficit/Dollar
- High Oil Price
- Inflation
- Social Security Reform/Non-Reform
- Tax Reform
- Recapture, Leasehold, Depreciation, 1030
12Deficit Continuing
CBO assumes tax rates revert back to pre 2001
Source CBO
13Trade Deficit Swelling
Source BEA
14Overall Trade Increasing
millions
Source BEA
15Dollar Under Pressure
Source Federal Reserve
16Inflation Building
change from a year ago
Source BLS
17Imported Oil Soaking Up Dollars That Could Be
Spent at Home
Value of energy-related Petro Products in million
18Fed Nervous About Inflation Forced to Tighten
Credit
Forecast to 4.00 by Dec. 2005
19Narrow Spreads Suggest Further Short-term Fed
Rate Hikes Pushing up Long-term Rates
20Economic Outlook
21Commercial Real Estate Market
22Commercial Outlook
- Commercial market indicators for all sectors
improving - Capital flow into commercial real estate at
record levels - Modest increase in interest rates not yet
impacting long term investments - Healthy restocking of business inventories
- Long-term economic fundamentals uncertain
- Job growth unsteady
23Commercial Market Highlights
- Upside potential fueling investment in office
buildings - - 30 increase in 2005
- Port and major distribution hubs leading
industrial sector - Commercial lending volume
- up, delinquencies down.
- Retail conservative
- investment vehicle for
- pension funds.
24Commercial Mortgage Loan Originations
Total Year-to-Date Originations, As of 12/31/04
136.2 billion
Source Mortgage Bankers Association
25Commercial Mortgage Loan Originations By Property
Type
Total Year-to-Date Originations, As of 12/31/04
136.2 billion
Source Mortgage Bankers Association
26Whos Buying What? Sales Transaction Volume
181.4 billion in 2004
- Private Local Investor 25
- Publicly Traded REIT 21
- Private National Investor 17
- Institutional Investors 14
- Foreign Investors 7
- Privately Held REIT/TIC 6
- Condo Converter 6
- End User/Other 4
Source Real Capital Analytics
27Commercial Real Estate Loans Performing
Source Federal Reserve
28Commercial Property Rate of Return(Return net
operating income capital appreciation)
Source Haver Analytics, NCREIF
29Commercial Property Rates of Return by Sectors
Best performer
Source Haver Analytics, NCREIF
30Commercial Construction Stabilizing
Source BEA
31Office Market
- Vacancy falling, slowdown in new supply
- Rental growth gaining traction
- Strong investor interest (REITS and foreign
investors) - Strongest investment
- markets West
- Northeast
32Office Job Creation Growth
In thousands
Source NAR/Torto-Wheaton
33Whos Buying What? Office Sales Transaction
Volume 73.5 billion in 2004
- Private Local Investor 20
- Publicly Traded REIT 18
- Private National Investor 20
- Institutional Investors 18
- Foreign Investors 13
- Privately Held REIT/TIC 7
- End User/Other 4
Source Real Capital Analytics
34Office Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton
35Vacancy Rate Falling
Source NAR/Torto-Wheaton
36Office Rent - Gaining Traction
Source NAR/Torto-Wheaton
37Industrial Market
- Markets bifurcated by age and location
- But the pace of restocking barely keeping with
shipments - Level of obsolesce in some markets cause for high
vacancy - Rents struggling to gain traction in some markets
rising in others (Southern California) - Port markets (both traditional and inland) are
outperforming
38Industrial Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton Research
39Industrial Vacancy Rate
Source NAR/Torto-Wheaton Research
40Industrial Rent Growth
Source NAR/Torto-Wheaton Research
41Retail Market
- Merger activity continues (Sears/K-Mart,
May/Federated) - Growth in retailers that target teens/young
adults. - Consumer spending holding steady despite modest
interest rate increases - Most new construction is strip malls and power
centers - Very active REIT market best long term
investment return
42Retail Rent Growth
Source NAR/Torto-Wheaton Research
43Multi-family Market
- Rising mortgage rates boosts renter demand
- Local concentrated job growth raises demand for
rental apartments - New construction focused in markets that supports
additions - Condo conversions big trend in Miami, Northern
Virginia and San Diego
44Multi-family Market Fundamentals
In number of units
Source NAR/Torto-Wheaton Research
45Multi-family Vacancy Rate
Source NAR/Torto-Wheaton Research
46Multi-family Rent Growth
Source NAR/Torto-Wheaton Research
47Commercial Market Outlook Net Absorption
(Based on 57 markets)
Source NAR/Torto-Wheaton Research
48Commercial Market Outlook Vacancy Rate
Source NAR/Torto-Wheaton Research
49Commercial Market Outlook Rent Growth
Source NAR/Torto-Wheaton Research
50 Time at a StepOne
The Improving Commercial Real Estate Market
- Economic Issues Commercial
- Business Trends Forum
- Washington, DC -- May 2005
- David Lereah, Ph.D., Chief Economist
- NATIONAL ASSOCIATION OF REALTORS