Presentation at the Leadership Summit Chicago, IL  --  August 18, 2005 Lawrence Yun, Ph.D., Senior Economist NATIONAL ASSO...
Economy Growing % Source: BEA
Decent Job Additions  Source: BLS
Job Gains/Losses  2005 vs 2001  Source: BLS In thousands
Job Gains/Losses in the Recent 12 months Source: BLS In thousands
Resilient Consumer Spending  Source: BEA
Stable Consumer Confidence
Despite High Oil Prices  Source: Department of Energy
Corporate Profits are Strong Source: BEA
Business Spending Rising at Double-Digit Pace Source: BEA
Stock Market at 3-year High
Trade Deficit in Bad Shape Source: BEA
Overall Trade Increasing  Source: BEA $ millions
Dollar Recovering – A Bit  Source: Federal Reserve
Inflation Building but Still Contained % change from a year ago Source: BLS
Fed Nervous About Inflation –  Forced to Tighten Credit   Forecast to 4.00% by  Dec. 2005
Narrow Spreads Suggest Further Short-term Fed Rate Hikes Pushing up Long-term Rates
Economic Outlook 2.2 million 2.0 million Job Additions 5.0% 4.4% 10-year Treasury 4.0% 3.2% 3-month Treasury 2.7% 3.0% CPI...
Commercial Real Estate Market
Commercial Outlook <ul><li>Good economic fundamentals </li></ul><ul><li>Capital flow into commercial real estate at record...
Commercial Market Highlights <ul><li>Significant investment in office buildings (30% increase in 2005) </li></ul><ul><li>P...
Commercial Real Estate Loans Performing  Source: Federal Reserve %
Commercial Property Rate of Return (Return = net operating income + capital appreciation)   Source: Haver Analytics, NCREIF
Commercial Property Rates of Return by Sectors  Source: Haver Analytics, NCREIF Best performer
Commercial Construction Disciplined Source: BEA
Office Market  <ul><li>Vacancy falling, slowdown in new supply </li></ul><ul><li>Rental growth gaining traction </li></ul>...
Office Job Creation Growth  Source: NAR/Torto-Wheaton In thousands
Office Market Fundamentals  In thousand square feet Source: NAR/Torto-Wheaton
Vacancy Rate Falling  % Source: NAR/Torto-Wheaton
Office Rent -  Gaining Traction  Source: NAR/Torto-Wheaton %
Industrial Market  <ul><li>Markets bifurcated by age and location  </li></ul><ul><li>But the pace of restocking barely kee...
Business Inventory Change % Source: BEA Negative ???
Inventory-to-Sales Ratio Source: Department of Commerce
Industrial Market Fundamentals  In thousand square feet Source: NAR/Torto-Wheaton Research
Industrial Vacancy Rate  % Source: NAR/Torto-Wheaton Research
Industrial Rent Growth  Source: NAR/Torto-Wheaton Research %
Retail Market  <ul><li>Consumer spending holding steady despite modest interest rate increases and higher oil prices </li>...
Retail Rent Growth Source: NAR/Torto-Wheaton Research %
Multi-Family Market <ul><li>Rising mortgage rates will boost renter demand </li></ul><ul><li>Local concentrated job growth...
Multi-family Market Fundamentals  In number of units Source: NAR/Torto-Wheaton Research
Multi-family Vacancy Rate  % Source: NAR/Torto-Wheaton Research
Multi-family Rent Growth  % Source: NAR/Torto-Wheaton Research
Housing Affordability Slipping  Source: NAR
Commercial Market Outlook Net Absorption  (Based on 57 markets) Source: NAR Forecast 262,000 237,000 Multi-Family  (units)...
Commercial Market Outlook Vacancy Rate  Source: NAR Forecast 5.2% 6.2% Multi-Family 6.3% 6.3% Retail 9.8% 10.3% Industrial...
Commercial Market Outlook Rent Growth  Source: NAR Forecast 3.0% 2.5% Multi-Family 4.0% 4.4% Retail 1.8% 0.7% Industrial 3...
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Economic Commercial RE Outlook

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Economic Commercial RE Outlook

  1. 1. Presentation at the Leadership Summit Chicago, IL -- August 18, 2005 Lawrence Yun, Ph.D., Senior Economist NATIONAL ASSOCIATION OF REALTORS ® Economic and Commercial Real Estate Market Trends and Outlook
  2. 2. Economy Growing % Source: BEA
  3. 3. Decent Job Additions Source: BLS
  4. 4. Job Gains/Losses 2005 vs 2001 Source: BLS In thousands
  5. 5. Job Gains/Losses in the Recent 12 months Source: BLS In thousands
  6. 6. Resilient Consumer Spending Source: BEA
  7. 7. Stable Consumer Confidence
  8. 8. Despite High Oil Prices Source: Department of Energy
  9. 9. Corporate Profits are Strong Source: BEA
  10. 10. Business Spending Rising at Double-Digit Pace Source: BEA
  11. 11. Stock Market at 3-year High
  12. 12. Trade Deficit in Bad Shape Source: BEA
  13. 13. Overall Trade Increasing Source: BEA $ millions
  14. 14. Dollar Recovering – A Bit Source: Federal Reserve
  15. 15. Inflation Building but Still Contained % change from a year ago Source: BLS
  16. 16. Fed Nervous About Inflation – Forced to Tighten Credit Forecast to 4.00% by Dec. 2005
  17. 17. Narrow Spreads Suggest Further Short-term Fed Rate Hikes Pushing up Long-term Rates
  18. 18. Economic Outlook 2.2 million 2.0 million Job Additions 5.0% 4.4% 10-year Treasury 4.0% 3.2% 3-month Treasury 2.7% 3.0% CPI Inflation 5.1% 5.1% Unemployment Rate 3.5% 3.6% GDP 2006 2005
  19. 19. Commercial Real Estate Market
  20. 20. Commercial Outlook <ul><li>Good economic fundamentals </li></ul><ul><li>Capital flow into commercial real estate at record levels </li></ul><ul><li>Modest increase in interest rates not yet impacting long term investments </li></ul><ul><li>Job growth steady </li></ul>
  21. 21. Commercial Market Highlights <ul><li>Significant investment in office buildings (30% increase in 2005) </li></ul><ul><li>Port and major distribution hubs leading industrial sector </li></ul><ul><li>Commercial lending volume up, delinquencies down </li></ul><ul><li>Retail – conservative investment vehicle for </li></ul><ul><li>pension funds </li></ul>
  22. 22. Commercial Real Estate Loans Performing Source: Federal Reserve %
  23. 23. Commercial Property Rate of Return (Return = net operating income + capital appreciation) Source: Haver Analytics, NCREIF
  24. 24. Commercial Property Rates of Return by Sectors Source: Haver Analytics, NCREIF Best performer
  25. 25. Commercial Construction Disciplined Source: BEA
  26. 26. Office Market <ul><li>Vacancy falling, slowdown in new supply </li></ul><ul><li>Rental growth gaining traction </li></ul><ul><li>Strong investor interest (REITS and foreign investors) </li></ul><ul><li>Strongest investment markets in the West </li></ul><ul><li>& Northeast </li></ul>
  27. 27. Office Job Creation Growth Source: NAR/Torto-Wheaton In thousands
  28. 28. Office Market Fundamentals In thousand square feet Source: NAR/Torto-Wheaton
  29. 29. Vacancy Rate Falling % Source: NAR/Torto-Wheaton
  30. 30. Office Rent - Gaining Traction Source: NAR/Torto-Wheaton %
  31. 31. Industrial Market <ul><li>Markets bifurcated by age and location </li></ul><ul><li>But the pace of restocking barely keeping with shipments </li></ul><ul><li>Level of obsolesce in some markets cause for high vacancy </li></ul><ul><li>Rents struggling to gain traction in some markets – rising in others (Southern California) </li></ul><ul><li>Port markets (both traditional and inland) are outperforming </li></ul>
  32. 32. Business Inventory Change % Source: BEA Negative ???
  33. 33. Inventory-to-Sales Ratio Source: Department of Commerce
  34. 34. Industrial Market Fundamentals In thousand square feet Source: NAR/Torto-Wheaton Research
  35. 35. Industrial Vacancy Rate % Source: NAR/Torto-Wheaton Research
  36. 36. Industrial Rent Growth Source: NAR/Torto-Wheaton Research %
  37. 37. Retail Market <ul><li>Consumer spending holding steady despite modest interest rate increases and higher oil prices </li></ul><ul><li>Sizable housing wealth additions in coastal markets </li></ul><ul><li>Most new construction is strip malls and power centers. </li></ul><ul><li>Very active REIT market – best long term investment return (in recent year) </li></ul>
  38. 38. Retail Rent Growth Source: NAR/Torto-Wheaton Research %
  39. 39. Multi-Family Market <ul><li>Rising mortgage rates will boost renter demand </li></ul><ul><li>Local concentrated job growth raises demand for rental apartments </li></ul><ul><li>Condo Conversions (70,800 units in 2004 and higher pace in 2005) </li></ul><ul><ul><li>More prevalent in Miami, Northern Virginia, Las Vegas, and San Diego </li></ul></ul>
  40. 40. Multi-family Market Fundamentals In number of units Source: NAR/Torto-Wheaton Research
  41. 41. Multi-family Vacancy Rate % Source: NAR/Torto-Wheaton Research
  42. 42. Multi-family Rent Growth % Source: NAR/Torto-Wheaton Research
  43. 43. Housing Affordability Slipping Source: NAR
  44. 44. Commercial Market Outlook Net Absorption (Based on 57 markets) Source: NAR Forecast 262,000 237,000 Multi-Family (units) 29,000 34,000 Retail ( x 1,000 sq ft) 153,000 133,000 Industrial ( x 1,000 sq ft) 56,000 61,000 Office ( x 1,000 sq ft) 2006 2005
  45. 45. Commercial Market Outlook Vacancy Rate Source: NAR Forecast 5.2% 6.2% Multi-Family 6.3% 6.3% Retail 9.8% 10.3% Industrial 13.2% 14.1% Office 2006 2005
  46. 46. Commercial Market Outlook Rent Growth Source: NAR Forecast 3.0% 2.5% Multi-Family 4.0% 4.4% Retail 1.8% 0.7% Industrial 3.4% 2.3% Office 2006 2005

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