2010 California Commercial Real Estate Market ForecastOctober 7, 2009<br />Robert A. Kleinhenz, Ph.D.Deputy Chief Economis...
Overview<br /><ul><li>US and California Economies
California Housing Market
Commercial Markets
Industrial
Retail
Office
Multifamily
Forecasts</li></li></ul><li>www.car.org   Economics  Speeches<br />Speeches & Presentations<br />
US and California Economic Conditions<br />
QUARTERLY PERCENT CHANGE, ANNUAL RATE<br />Gross Domestic Product<br />2009 Q2: -0.74%<br />SOURCE:  US  Dept of Commerce,...
QUARTERLY PERCENT CHANGE<br />Personal Consumption<br />2009 Q2: -0.87%<br />SOURCE:  US  Dept of Commerce, <br />Bureau o...
INDEX, 100=1985<br />Consumer Confidence Index<br />August 2009: 54.5    September 2009: 53.1<br />
PERCENT CHANGE  FROM A YEAR AGO<br />Retail Sales<br />July 2009, Down 9.5% YTY; 2009 August Down 6.0% YTY<br />
PERCENT CHANGE  FROM A YEAR AGO<br />Industrial Production<br />August 2009: Down 10.3% YTY<br />SOURCE:  Federal Reserve ...
SA, PERCENT OF CAPACITY<br />Capacity Utilization Rate<br />July 2009: 68.5%<br />
Unemployment Rate<br />California vs. United States<br />SOURCE: CA Employment Development Division<br />
Employment Growth, California vs. U.S.<br />YEAR TO YEAR % CHANGE<br />SOURCE: CA Employment Development Division<br />
Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
Nonfarm Employment By Region<br />SOURCE: CA Employment Development Division<br />
Consumer Price Index<br />July 2009: All Items -1.89% YTY; Core 1.56% YTY<br />PERCENT CHANGE FROM A YEAR AGO, 100=1982-19...
DJI<br />Monthly Avg.<br />Dow Jones Stock Price and Consumer Confidence<br />30 Industrial Index vs. Consumer Confidence ...
SOURCE:  US  Dept of Commerce, <br />Bureau of Economic Analysis<br />Components of GDP<br />Percent Change from Quarter E...
Gross Domestic Product<br />2008: +0.44%; 2009 Q2: -0.74%<br />ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $<br />ANNUAL<br /...
Economy Through 2010<br /><ul><li>Recession through Q2-09
Growth tied to stimulus spending Q3-09 thru Q2-10
Weak job picture, u-rate stabilizes by mid-2010
Inflation a concern but in check
2009 Stimulus intended to prime the pump, but will another be needed?
Concerns about the value of the dollar</li></li></ul><li>California Housing Market<br />
Sales of Existing Detached Homes and Pacific West Consumer Confidence<br />California, August 2009 Sales: 526,970 Units, U...
Median Price of Existing Detached Homes<br />California, August 2009: $292,960, Down 16.9% YTY<br />SOURCE: California Ass...
Sales By Price RangeOctober 2004-Present<br />SOURCE: Mortgage Bankers Association, C.A.R.<br />
Peak vs Current Price - August 2009<br />
Distressed Sales to Total Sales Ratio<br />(Aug 2009)<br />
Unsold Inventory Index<br />California, August 2009: 4.3 Months<br />MONTHS<br />SOURCE: California Association of REALTOR...
Unsold Inventory By Price Range<br />California - Existing Homes August 2009 vs. August 2008<br />SOURCE: California Assoc...
Proportion of First-Time HomebuyersCalifornia<br />Q. Was the buyer a first-time buyer?<br />
First-time Buyer Housing Affordability Index<br />California Vs. U.S. 2000-2009<br />% OF HOUSEHOLDS THAT CAN BUY<br />SOU...
Median Price to Median HH Income Ratio<br />California<br />Average Over Years Shown: 6:1 Ratio<br />SOURCE: California As...
Asking Rents for Class A&B Apartments<br />California, 2009 Q2: $1,382, Down 4.5% YTY<br />Asking Rents<br />SOURCE: Calif...
NODs & Trustees Deeds Filed in California<br />2005 - 2009<br />No. of Defaults or TDs<br />Source: DataQuick Information ...
Mortgage Rates <br />SOURCE: Federal Home Loan Mortgage Corporation<br />
California Foreclosure Activity<br />September 18, 2008:<br /> Paulson asks For TARP Funds<br />September 2008:<br /> Sena...
CA Mortgage Foreclosure & Delinquency Rates<br />California: Q2-2009, NSA<br />Delinquencies: Long Run Average: 4.1%<br />...
California Subprime & Alt A Loans<br />As of May 2009<br />SOURCE: FirstAmerican CoreLogic, LoanPerformance Data, U.S. Cen...
Market Summary<br /><ul><li>Sales - strong but off early-09 pace
Median Price – </li></ul>bottom at $245K in Feb 09<br />July at $285.5K<br />Have we hit bottom?<br /><ul><li>Inventory – ...
Affordability – Up dramatically in last 2 quarters; highest in dozen years</li></li></ul><li>Dollar Volume of Sales Peaked...
Commercial Sector<br />
Commercial Segments<br /><ul><li>Industrial
Retail
Office
Multi-Family</li></li></ul><li>Industrial Space<br />
Industrial Segment Drivers<br /><ul><li>Manufacturing
Transportation & Logistics
Wholesale/Retail Trade</li></li></ul><li>PERCENT CHANGE  FROM A YEAR AGO<br />Industrial Production<br />August 2009: Down...
SA, PERCENT OF CAPACITY<br />Capacity Utilization Rate<br />July 2009: 68.51%<br />
Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
Retail Space<br />
Retail Segment Drivers<br /><ul><li>Retail sales
Growth in economy & jobs
Consumer expenditures
Consumer credit</li></li></ul><li>QUARTERLY PERCENT CHANGE<br />Personal Consumption<br />2009 Q2: -0.87%<br />SOURCE:  US...
PERCENT CHANGE  FROM A YEAR AGO<br />Retail Sales<br />July 2009, Down 9.5% YTY; 2009 August Down 6.0% YTY<br />
Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Retail<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Retail<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Retail<br />Forecast<br />
Office Space<br />
Office Segment Drivers<br /><ul><li>Financial Services
Business Services
Government
Other Services</li></li></ul><li>Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE...
Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
Multi-Family<br />
Multi-Family Segment Drivers<br /><ul><li>Strong demographics
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2010 Commercial Real EstateForecast

  1. 1. 2010 California Commercial Real Estate Market ForecastOctober 7, 2009<br />Robert A. Kleinhenz, Ph.D.Deputy Chief EconomistCalifornia Association of REALTORS®<br />
  2. 2. Overview<br /><ul><li>US and California Economies
  3. 3. California Housing Market
  4. 4. Commercial Markets
  5. 5. Industrial
  6. 6. Retail
  7. 7. Office
  8. 8. Multifamily
  9. 9. Forecasts</li></li></ul><li>www.car.org  Economics  Speeches<br />Speeches & Presentations<br />
  10. 10. US and California Economic Conditions<br />
  11. 11. QUARTERLY PERCENT CHANGE, ANNUAL RATE<br />Gross Domestic Product<br />2009 Q2: -0.74%<br />SOURCE: US Dept of Commerce, <br />Bureau of Economic Analysis<br />
  12. 12. QUARTERLY PERCENT CHANGE<br />Personal Consumption<br />2009 Q2: -0.87%<br />SOURCE: US Dept of Commerce, <br />Bureau of Economic Analysis<br />
  13. 13. INDEX, 100=1985<br />Consumer Confidence Index<br />August 2009: 54.5 September 2009: 53.1<br />
  14. 14. PERCENT CHANGE FROM A YEAR AGO<br />Retail Sales<br />July 2009, Down 9.5% YTY; 2009 August Down 6.0% YTY<br />
  15. 15. PERCENT CHANGE FROM A YEAR AGO<br />Industrial Production<br />August 2009: Down 10.3% YTY<br />SOURCE: Federal Reserve Board<br />
  16. 16. SA, PERCENT OF CAPACITY<br />Capacity Utilization Rate<br />July 2009: 68.5%<br />
  17. 17. Unemployment Rate<br />California vs. United States<br />SOURCE: CA Employment Development Division<br />
  18. 18. Employment Growth, California vs. U.S.<br />YEAR TO YEAR % CHANGE<br />SOURCE: CA Employment Development Division<br />
  19. 19. Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
  20. 20. Nonfarm Employment By Region<br />SOURCE: CA Employment Development Division<br />
  21. 21. Consumer Price Index<br />July 2009: All Items -1.89% YTY; Core 1.56% YTY<br />PERCENT CHANGE FROM A YEAR AGO, 100=1982-1984<br />
  22. 22. DJI<br />Monthly Avg.<br />Dow Jones Stock Price and Consumer Confidence<br />30 Industrial Index vs. Consumer Confidence Index 1987-2009<br />Cons.<br /> Conf.<br />
  23. 23. SOURCE: US Dept of Commerce, <br />Bureau of Economic Analysis<br />Components of GDP<br />Percent Change from Quarter Earlier<br />
  24. 24. Gross Domestic Product<br />2008: +0.44%; 2009 Q2: -0.74%<br />ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $<br />ANNUAL<br />QTRLY<br />
  25. 25. Economy Through 2010<br /><ul><li>Recession through Q2-09
  26. 26. Growth tied to stimulus spending Q3-09 thru Q2-10
  27. 27. Weak job picture, u-rate stabilizes by mid-2010
  28. 28. Inflation a concern but in check
  29. 29. 2009 Stimulus intended to prime the pump, but will another be needed?
  30. 30. Concerns about the value of the dollar</li></li></ul><li>California Housing Market<br />
  31. 31. Sales of Existing Detached Homes and Pacific West Consumer Confidence<br />California, August 2009 Sales: 526,970 Units, Up 38.2% YTD, Up 9.0% YTY<br />INDEX<br />UNITS<br />SOURCE: California Association of REALTORS®; The Conference Board<br />*Sales are seasonally adjusted and annualized <br />
  32. 32. Median Price of Existing Detached Homes<br />California, August 2009: $292,960, Down 16.9% YTY<br />SOURCE: California Association of REALTORS®<br />
  33. 33. Sales By Price RangeOctober 2004-Present<br />SOURCE: Mortgage Bankers Association, C.A.R.<br />
  34. 34. Peak vs Current Price - August 2009<br />
  35. 35. Distressed Sales to Total Sales Ratio<br />(Aug 2009)<br />
  36. 36. Unsold Inventory Index<br />California, August 2009: 4.3 Months<br />MONTHS<br />SOURCE: California Association of REALTORS®<br />
  37. 37. Unsold Inventory By Price Range<br />California - Existing Homes August 2009 vs. August 2008<br />SOURCE: California Association of REALTORS®<br />
  38. 38. Proportion of First-Time HomebuyersCalifornia<br />Q. Was the buyer a first-time buyer?<br />
  39. 39. First-time Buyer Housing Affordability Index<br />California Vs. U.S. 2000-2009<br />% OF HOUSEHOLDS THAT CAN BUY<br />SOURCE: California Association of REALTORS®<br />
  40. 40. Median Price to Median HH Income Ratio<br />California<br />Average Over Years Shown: 6:1 Ratio<br />SOURCE: California Association of REALTORS®<br />
  41. 41. Asking Rents for Class A&B Apartments<br />California, 2009 Q2: $1,382, Down 4.5% YTY<br />Asking Rents<br />SOURCE: California Association of REALTORS®; <br />REALFACTS<br />
  42. 42. NODs & Trustees Deeds Filed in California<br />2005 - 2009<br />No. of Defaults or TDs<br />Source: DataQuick Information Systems<br />
  43. 43. Mortgage Rates <br />SOURCE: Federal Home Loan Mortgage Corporation<br />
  44. 44. California Foreclosure Activity<br />September 18, 2008:<br /> Paulson asks For TARP Funds<br />September 2008:<br /> Senate Bill 1137 Takes Effect<br />Government Intervention<br />March 4, 2009:<br />HAMP<br />February 20, 2009:<br /> CA Foreclosure Prevention Act<br />February 11 2009:<br />Frank’s Moratorium Request<br />SOURCE: ForeclosureRadar.com<br />
  45. 45. CA Mortgage Foreclosure & Delinquency Rates<br />California: Q2-2009, NSA<br />Delinquencies: Long Run Average: 4.1%<br />Foreclosure Rate: Long Run Average: 1.0%<br />SOURCE: Mortgage Bankers Association<br />
  46. 46. California Subprime & Alt A Loans<br />As of May 2009<br />SOURCE: FirstAmerican CoreLogic, LoanPerformance Data, U.S. Census Bureau, and Federal Reserve Bank of New York, compiled by C.A.R.<br />
  47. 47. Market Summary<br /><ul><li>Sales - strong but off early-09 pace
  48. 48. Median Price – </li></ul>bottom at $245K in Feb 09<br />July at $285.5K<br />Have we hit bottom?<br /><ul><li>Inventory – Well below 7 month average at 3.9 months in July
  49. 49. Affordability – Up dramatically in last 2 quarters; highest in dozen years</li></li></ul><li>Dollar Volume of Sales Peaked in ’05Down 53% Thru ‘08<br />% Change<br />$ in Billion<br />-55%<br />SOURCE: California Association of REALTORS®<br />
  50. 50. Commercial Sector<br />
  51. 51. Commercial Segments<br /><ul><li>Industrial
  52. 52. Retail
  53. 53. Office
  54. 54. Multi-Family</li></li></ul><li>Industrial Space<br />
  55. 55. Industrial Segment Drivers<br /><ul><li>Manufacturing
  56. 56. Transportation & Logistics
  57. 57. Wholesale/Retail Trade</li></li></ul><li>PERCENT CHANGE FROM A YEAR AGO<br />Industrial Production<br />August 2009: Down 10.3% YTY<br />SOURCE: Federal Reserve Board<br />
  58. 58. SA, PERCENT OF CAPACITY<br />Capacity Utilization Rate<br />July 2009: 68.51%<br />
  59. 59. Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
  60. 60. Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
  61. 61. Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
  62. 62. Vacancy Rates for Industrial Segment<br />SOURCE: NAR<br />Forecast<br />
  63. 63. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
  64. 64. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
  65. 65. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Industrial<br />Forecast<br />
  66. 66. Retail Space<br />
  67. 67. Retail Segment Drivers<br /><ul><li>Retail sales
  68. 68. Growth in economy & jobs
  69. 69. Consumer expenditures
  70. 70. Consumer credit</li></li></ul><li>QUARTERLY PERCENT CHANGE<br />Personal Consumption<br />2009 Q2: -0.87%<br />SOURCE: US Dept of Commerce, <br />Bureau of Economic Analysis<br />
  71. 71. PERCENT CHANGE FROM A YEAR AGO<br />Retail Sales<br />July 2009, Down 9.5% YTY; 2009 August Down 6.0% YTY<br />
  72. 72. Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
  73. 73. Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
  74. 74. Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
  75. 75. Vacancy Rates for Retail Segment<br />SOURCE: NAR<br />Forecast<br />
  76. 76. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Retail<br />Forecast<br />
  77. 77. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Retail<br />Forecast<br />
  78. 78. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br /> Retail<br />Forecast<br />
  79. 79. Office Space<br />
  80. 80. Office Segment Drivers<br /><ul><li>Financial Services
  81. 81. Business Services
  82. 82. Government
  83. 83. Other Services</li></li></ul><li>Employment by Sector<br />YTY % Changes in California 2008-2010<br />% Change<br />SOURCE: CA EDD, LAEDC<br />
  84. 84. Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
  85. 85. Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
  86. 86. Vacancy Rates for Office Segment<br />SOURCE: NAR<br />Forecast<br />
  87. 87. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
  88. 88. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
  89. 89. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Office<br />Forecast<br />
  90. 90. Multi-Family<br />
  91. 91. Multi-Family Segment Drivers<br /><ul><li>Strong demographics
  92. 92. Renter share in California larger than US
  93. 93. Undersupply of units
  94. 94. Low vacancies</li></li></ul><li>Homeownership Rates<br />California Vs. U.S.<br />SOURCE: U.S, Census Bureau<br />
  95. 95. Population Percent Changes<br />California (1971 - 2008)<br />SOURCE: U.S. Census Bureau; <br />California Department of Finance; <br />California Association of REALTORS®<br />
  96. 96. Sources of Population Growth<br />California (1981-2008)<br />THOUSANDS<br />SOURCE: CA Dept. of Finance<br />
  97. 97. New Housing Permits<br />California, August 2009: 2,911 Units, Down 48.8% YTD<br />SOURCE: Construction Industry Research Board<br />
  98. 98. Vacancy Rates for Multifamily Segment<br />SOURCE: NAR<br />Forecast<br />
  99. 99. Vacancy Rates for Multifamily Segment<br />SOURCE: NAR<br />Forecast<br />
  100. 100. Vacancy Rates for Multifamily Segment<br />SOURCE: NAR<br />Forecast<br />
  101. 101. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Multifamily<br />Forecast<br />
  102. 102. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Multifamily<br />Forecast<br />
  103. 103. Year-to-Year % Change in Lease Rates<br />SOURCE: NAR<br />Multifamily<br />Forecast<br />
  104. 104. Commercial R.E. Finance<br />Types of Financing<br /><ul><li>Cash is king
  105. 105. Moribund secondary markets for CMBS make financing scarce and difficult
  106. 106. Solutions: assumable mortgages, seller financing</li></ul>Sources of Financing<br /><ul><li>Major national banks
  107. 107. Community banks
  108. 108. Insurance and finance companies</li></li></ul><li>Commercial R.E. Finance<br />Secondary Markets<br /><ul><li>Major refinancing phase forthcoming with scarce funds
  109. 109. Trickle of new CMBS issuances (I’m not dead yet!)
  110. 110. Federal Reserve Bank Backstop: Term Asset-Backed Securities Loan Facility (TALF): $699 million so far, with authorization for more</li></li></ul><li>Forecasts<br />
  111. 111. U.S. Economy<br />Forecast Date: October 2009<br />SOURCE: California Association of REALTORS®<br />
  112. 112. California Economy<br />Forecast Date: October 2009<br />SOURCE: California Association of REALTORS®<br />
  113. 113. California Housing Market Outlook<br />Forecast Date: October 2009<br />Source: CALIFORNIA ASSOCIATION OF REALTORS®<br />SOURCE: California Association of REALTORS®<br />
  114. 114. Commercial Outlook<br />Industrial (earliest recovery in 2011)<br /><ul><li>US Vacancy Rate 2008-2010: 10.4%, 13.3%, 15.1%
  115. 115. Better in LA and San Francisco than elsewhere in US
  116. 116. Need improvement in trade and mfg to turn around</li></ul>Retail (earliest recovery in 2012)<br /><ul><li>US Vacancy Rate 2008-2010: 9.7%, 11.9%, 13.0%
  117. 117. Orange, San Francisco, San Jose, Los Angeles, and Ventura better than US
  118. 118. Fundamentals weak across markets of the state, need increased consumer spending to reverse trend</li></li></ul><li>Commercial Outlook<br />Office (Earliest recovery in 2011)<br /><ul><li>US Vacancy Rate 2008-2010: 13.4%, 16.0%, 18.9%
  119. 119. Weak markets because of job losses in bus svcs/fin svcs
  120. 120. Many CA markets still outperform US</li></ul>Multi-Family (Earliest recovery in 2010)<br /><ul><li>US Vacancy Rate 2008-2010: 5.7%, 7.3%, 6.9%
  121. 121. Favorable demographics in Southern Cal
  122. 122. Low vacancy rates in coastal markets</li></li></ul><li>Econ Panel: “The New Normal: What Recovery Means in 2010"<br />Panelists: Richard Green, Glenn E. Crellin, and Jack Kyser<br />Moderated by Leslie Appleton-Young <br />Thursday, October 8 2:30p – 4:00p<br />San Jose Convention Center, Exhibit Hall 3<br />
  123. 123. www.car.org  Economics  Speeches<br />Speeches & Presentations<br />The End - - Thank You<br />
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