Economic & Commercial Real Estate Outlook
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Transcript of Economic & Commercial Real Estate Outlook
Economic and Commercial Real Estate Outlook
By Lawrence Yun, Ph.D.Chief Economist, National Association of REALTORS®
Presentation at NAR Annual Meetings
San Diego, CA November 13, 2015
Commercial Property Price Index
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
2013 - Q3
2014 - Q2
2015 - Q1
050
100150200250300
Source: Federal Reserve
Green Street Property Price Index – Even Higher
2000 - Jan2002 - Jan2004 - Jan2006 - Jan2008 - Jan2010 - Jan2012 - Jan2014 - Jan0
20
40
60
80
100
120
140
Dow Jones Industrial Average(Doubling since 2009)
2009 - Jan
2009 - May
2009 - Sep
2010 - Jan
2010 - May
2010 - Sep
2011 - Jan
2011 - May
2011 - Sep
2012 - Jan
2012 - May
2012 - Sep
2013 - Jan
2013 - May
2013 - Sep
2014 - Jan
2014 - May
2014 - Sep
2015 - Jan
2015 - May
2015 - Sep
0
4000
8000
12000
16000
20000
Lifetime Wealth at All-Time High
1990 - Q1 1993 - Q2 1996 - Q3 1999 - Q4 2003 - Q1 2006 - Q2 2009 - Q3 2012 - Q40
100002000030000400005000060000700008000090000
Consumer Confidence Index
2000 - Jan2002 - Jan2004 - Jan2006 - Jan2008 - Jan2010 - Jan2012 - Jan2014 - Jan0
20406080
100120140160
Median Household Income(Inflation Adjusted)
200020012002200320042005200620072008200920102011201220132014$50,000$51,000$52,000$53,000$54,000$55,000$56,000$57,000$58,000$59,000
Annual GDP … Below 3% for 10 straight years
19501953
19561959
19621965
19681971
19741977
19801983
19861989
19921995
19982001
20042007
20102013
-4-202468
10
GDP Annual Growth Rate
Sluggish Growth + Gap after Recession ($1.7 trillion gap … $5,000 per person)
1998 - Q1
1998 - Q3
1999 - Q1
1999 - Q3
2000 - Q1
2000 - Q3
2001 - Q1
2001 - Q3
2002 - Q1
2002 - Q3
2003 - Q1
2003 - Q3
2004 - Q1
2004 - Q3
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
10000
11000
12000
13000
14000
15000
16000
17000
18000
GDP in 2009 Dollars
Real GDP Real GDP W/O Recession
3% Growth Line
2.2% Growth Line
GDP Component on Commercial Construction and Sales
More inconsistent
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1
2015 - Q3
-40
-30
-20
-10
0
10
20
30
40
Jobs(8 million lost … 13 million gained)
2000 - Jan 2001 - Dec2003 - Nov2005 - Oct 2007 - Sep2009 - Aug 2011 - Jul 2013 - Jun2015 - Mar120,000
125,000
130,000
135,000
140,000
145,000In thousands
Fresh Unemployment Insurance Claims
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan250
300
350
400
450
500
550
600In thousands
Unemployment Rate Falling
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan 2015 - Oct0
2
4
6
8
10
12
But Employment Rate Not Rising
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan 2015 - Oct54
56
58
60
62
64
66
Part-time and Underemployment(in thousands)
2000 - Jan 2002 - Apr 2004 - Jul 2006 - Oct 2009 - Jan 2011 - Apr 2013 - Jul 2015 - Oct20000210002200023000240002500026000270002800029000
Which State is Hot in Jobs? Year-on-year Growth as of Sept 2015
Top and Bottom States for JobsThe Best % Gain in 12 months
Utah 3.9Idaho 3.2South Carolina 3.1Florida 3.0Washington 3.0California 2.9Nevada 2.8Oregon 2.7North Carolina 2.4
The Worst % Gain in 12 months
Louisiana 0.0Alaska -0.2Wyoming -0.9West Virginia -1.7North Dakota -1.8
Dallas Still Creating Jobs; Houston Not(job growth rate from a year ago)
2013 - Jan
2013 - Mar
2013 - May
2013 - Jul
2013 - Sep
2013 - Nov
2014 - Jan
2014 - Mar
2014 - May
2014 - Jul
2014 - Sep
2014 - Nov
2015 - Jan
2015 - Mar
2015 - May
2015 - Jul
2015 - Sep
0.01.02.03.04.05.0
Dallas Houston
Fed Rate Hike in December?
Fed Rate Hike in December
then again in March
Fed Rate Hike in December
then again in March
then again in August
then again in …
Fed Policy and Mortgage Rate
2000 - Jan2002 - Jan2004 - Jan2006 - Jan2008 - Jan2010 - Jan2012 - Jan2014 - Jan0123456789
Mortgage Rate Fed Funds Rate
What Determines Bond Yields?
• Federal Reserve’s short-term rate changes• Inflation and erosion of purchasing power• Foreign capital flow and demand for dollar• Savings rate• U.S. budget deficit• Printing of money• …
Federal Deficit - Shrinking( $ million, 12 month total)
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan
-1600000-1400000-1200000-1000000
-800000-600000-400000-200000
0200000400000
Federal Debt … Cumulative ( $ million; debt held by public excluding intra-governmental holdings)
2001 - Jan 2002 - Dec 2004 - Nov 2006 - Oct 2008 - Sep 2010 - Aug 2012 - Jul 2014 - Jun0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
U.S. Dollar Reversing the Decline … Stronger and Stronger
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan8090
100110120130140
Dollar Strength Index – Trade Weighted
No CPI Inflation – Yet
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan
-3-2-10123456
Oil Price
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan0
20406080
100120140160
Supply and Demand: Oil in U.S.
19
21
5
9
Rents Rising at 7-year high
2000 - Jan 2001 - Oct 2003 - Jul 2005 - Apr 2007 - Jan 2008 - Oct 2010 - Jul 2012 - Apr 2014 - Jan-1012345
Renters' Rent
Rental Vacancy Rate(30-year low)
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
2013 - Q3
2014 - Q2
2015 - Q1
56789
101112
Multifamily Oversupply?
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan0
100
200
300
400
500
600
Renters(8 million more households)
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1
3032343638404244
Homeowners (2.5 million fewer households)
2005 - Q1
2005 - Q3
2006 - Q1
2006 - Q3
2007 - Q1
2007 - Q3
2008 - Q1
2008 - Q3
2009 - Q1
2009 - Q3
2010 - Q1
2010 - Q3
2011 - Q1
2011 - Q3
2012 - Q1
2012 - Q3
2013 - Q1
2013 - Q3
2014 - Q1
2014 - Q3
2015 - Q1
74.0
74.5
75.0
75.5
76.0
76.5
77.0
Commercial Real Estate
Commercial Investment Sales of Large Properties(Properties valued at $2.5 million and over)
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
130212
362423
571
174
67147
233299
355424
470 500
REALTOR® Deal Size(Not $2.5 million Properties)
Under $500K
$500K to $2 M
Over $2 M
49%
35%
16%
CRE Financing: Small vs. Large CRE Markets
2011 2012 2013 2014 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%REALTORS® - CRE Financing
Small Business AdministrationREITsRegional BanksPublic Cos.Private InvestorsOtherNational BanksLocal/Comm. BanksLife Insurance Cos.International banksCredit UnionsCMBS
2011 2012 2013 2014 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%Real Capital Analytics – CRE Financing
Pvt/OtherReg'l/Local BankNat'l BankInt'l BankInsuranceGov't AgencyFinancialCMBS
REALTORS® CRE Lending
2011 2012 2013 2014 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Change in Lending Conditions over Past Year
Eased SignificantlyEased SomewhatNot ChangedTightened SomewhatTightened Signif -icantly
2011 2012 2013 2014 20150%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Average Loan-to-Value for CRE Transactions
Other100% Cash50%55%60%65%70%75%80%85%90%
Administrator Maria Contreras-Sweet SBA Loan for Small Business and Commercial Real Estate
• New … streamlined process• Match.com concept
CRE Sales: Small vs. Large Markets
2008.Q4
2009.Q1
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
2013.Q3
2013.Q4
2014.Q1
2014.Q2
2014.Q3
2014.Q4
2015.Q1
2015.Q2
2015.Q3
-100%
-50%
0%
50%
100%
150%
200%
Sales Volume (YoY % Chg)Real Capital Analytics CRE Markets REALTOR® CRE Markets
Sources: NAR, Real Capital Analytics
REALTORS® Vacancy Rates
201201
201201
201201
201201
201201
201201
201201
201201
201201
201201
201201
2010.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%REALTORS® Commercial Vacancy Rates
Office Industrial Retail Multifamily Hotel
Source: National Association of REALTORS®
REALTORS® CRE Construction Picks Up
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
2013.Q3
2013.Q4
2014.Q1
2014.Q2
2014.Q3
2014.Q4
2015.Q1
2015.Q2
2015.Q3
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%New Construction Leasing Volume
% C
hang
e, Q
uart
er-o
ver-
quar
ter
Source: National Association of REALTORS®
CRE Prices: Small vs. Large Markets
2008.Q4
2009.Q1
2009.Q2
2009.Q3
2009.Q4
2010.Q1
2010.Q2
2010.Q3
2010.Q4
2011.Q1
2011.Q2
2011.Q3
2011.Q4
2012.Q1
2012.Q2
2012.Q3
2012.Q4
2013.Q1
2013.Q2
2013.Q3
2013.Q4
2014.Q1
2014.Q2
2014.Q3
2014.Q4
2015.Q1
2015.Q2
2015.Q3
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
Sales Prices (YoY % Chg)Real Capital Analytics CRE Markets REALTOR® CRE Markets
Sources: NAR, Real Capital Analytics
CRE Spreads: Small vs. Large CRE Markets
10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q20
200
400
600
800
1000
1200CRE Spreads: Cap Rates to 10-Yr. T-Notes (bps)
RCA Cap Rates REALTORS Cap Rates
Sources: NAR, Real Capital Analytics
®
SIOR CRE Index
2005.Q3
2006.Q2
2007.Q1
2007.Q4
2008.Q3
2009.Q2
2010.Q1
2010.Q4
2011.Q3
2012.Q2
2013.Q1
2013.Q4
2014.Q3
2015.Q2
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
SIOR IndexNortheast Midwest South
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
SIOR IndexIndustrial Office
Source: SIOR, NAR
CCIM Quarterly Market Trends
CCIM Quarterly Market Trends
Forecast and Risks
Economic Forecast2013 2014 2015
Forecast2016
ForecastGDP Growth 2.2% 2.6% 2.3% 3.0%
Job Growth +2.3 million +3.0 million +2.4 million +2.7 million
CPI Inflation 1.5% 1.6% 0.3% 3.2%
Consumer Confidence
73 87 99 101
10-year Treasury 2.5% 2.6% 2.2% 3.3%
REALTORS® CRE Outlook
Commercial Real Estate Vacancy Forecast (%)2014.Q3 2014.Q4 2015.Q1 2015.Q2 2015.Q3 2015.Q4 2016.Q1 2016.Q2 2016.Q3 2016.Q4 2014 2015 2016
Office 15.7 14.9 15.1 15.9 15.8 15.5 15.3 15.1 14.9 14.8 16.0 15.6 15.0Industrial 9.9 11.6 11.3 10.8 10.3 9.8 9.4 9.0 8.5 8.4 12.0 11.7 8.8Retail 13.8 12.5 13.7 13.2 13.0 12.7 12.3 12.1 11.9 11.6 13.8 13.2 12.0Multifamily 6.1 6.8 8.4 6.6 6.7 6.6 6.6 6.6 6.6 6.7 6.6 7.1 7.1Source: NAR
Commercial Property Price Indices Forecast 2008 2009 2010 2011 2012 2013 2014 2015 2016NCREIF 215.2 165.1 168.2 186.5 195.2 211.9 224.9 249.8 249.0Green St. Advisors 86.1 63.5 74.4 87.1 92.2 99.4 106.7 117.5 115.5Sources: NAR, NCREIF, Green Street Advisors
2/3 of Members used 1031 Like-Kind Exchanges
40%
14%4%5%
37%
Exhibit 3-1: Number of LKE Transactions for All Members 2011-14
1 - 34 - 67 - 12More than 12None
1031 and Economic Impact
Less than 10%
10% to 24%
25% to 49%
50% to 100%
Greater than 100%
Not applicable
16%
55%
16%
5%
1%
7%
Exhibit 3-9: Average Capital Investment in Property Improvements (% of Property's Fair Market Value)
Like-Kind Exchanges: Potential RepealREALTORS® reported that 40% of 2011-14 transactions
would not have occurred, absent IRC Section 1031
Commercial Residential0%
20%
40%
60%
80%
100%
Likelihood of LKE Transactions NOT Occurring w/out Sec 1031100%75% - 99%50% - 74%25% - 49%1% - 24%