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Time at a Step One

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Stock Market Pessimistic About Future Business. Jobs Added. But Not ... Imported Oil Soaking Up Dollars That Could ... activity continues (Sears/K-Mart, May ... – PowerPoint PPT presentation

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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

2
Economy Expanding but Losing Momentum

Source BEA
3
High Oil Price Sapping Confidence and Demand
Source Department of Energy
4
Consumer Confidence
5
Consumer Spending Weakening
Source BEA
6
Corporate Profits are Strong
Source BEA
7
But, Business Spending Hesitant
Source BEA
8
Durable Goods Orders Tumbling
change from a year ago
9
Stock Market Pessimistic About Future Business
10
Jobs AddedBut Not Consistently Robust
11
Accumulating Risks
  • Budget Deficit
  • Trade Deficit/Dollar
  • High Oil Price
  • Inflation
  • Social Security Reform/Non-Reform
  • Tax Reform
  • Recapture, Leasehold, Depreciation, 1030

12
Deficit Continuing
CBO assumes tax rates revert back to pre 2001
Source CBO
13
Trade Deficit Swelling
Source BEA
14
Overall Trade Increasing
millions
Source BEA
15
Dollar Under Pressure
Source Federal Reserve
16
Inflation Building
change from a year ago
Source BLS
17
Imported Oil Soaking Up Dollars That Could Be
Spent at Home
Value of energy-related Petro Products in million
18
Fed Nervous About Inflation Forced to Tighten
Credit
Forecast to 4.00 by Dec. 2005
19
Narrow Spreads Suggest Further Short-term Fed
Rate Hikes Pushing up Long-term Rates
20
Economic Outlook
21
Commercial Real Estate Market
22
Commercial 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

23
Commercial 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.

24
Commercial Mortgage Loan Originations
Total Year-to-Date Originations, As of 12/31/04
136.2 billion
Source Mortgage Bankers Association
25
Commercial Mortgage Loan Originations By Property
Type
Total Year-to-Date Originations, As of 12/31/04
136.2 billion
Source Mortgage Bankers Association
26
Whos 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
27
Commercial Real Estate Loans Performing

Source Federal Reserve
28
Commercial Property Rate of Return(Return net
operating income capital appreciation)
Source Haver Analytics, NCREIF
29
Commercial Property Rates of Return by Sectors
Best performer
Source Haver Analytics, NCREIF
30
Commercial Construction Stabilizing
Source BEA
31
Office Market
  • Vacancy falling, slowdown in new supply
  • Rental growth gaining traction
  • Strong investor interest (REITS and foreign
    investors)
  • Strongest investment
  • markets West
  • Northeast

32
Office Job Creation Growth
In thousands
Source NAR/Torto-Wheaton
33
Whos 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
34
Office Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton
35
Vacancy Rate Falling

Source NAR/Torto-Wheaton
36
Office Rent - Gaining Traction

Source NAR/Torto-Wheaton
37
Industrial 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

38
Industrial Market Fundamentals
In thousand square feet
Source NAR/Torto-Wheaton Research
39
Industrial Vacancy Rate

Source NAR/Torto-Wheaton Research
40
Industrial Rent Growth

Source NAR/Torto-Wheaton Research
41
Retail 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

42
Retail Rent Growth

Source NAR/Torto-Wheaton Research
43
Multi-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

44
Multi-family Market Fundamentals
In number of units
Source NAR/Torto-Wheaton Research
45
Multi-family Vacancy Rate

Source NAR/Torto-Wheaton Research
46
Multi-family Rent Growth

Source NAR/Torto-Wheaton Research
47
Commercial Market Outlook Net Absorption
(Based on 57 markets)
Source NAR/Torto-Wheaton Research
48
Commercial Market Outlook Vacancy Rate
Source NAR/Torto-Wheaton Research
49
Commercial 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
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