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TrendLines Houston
 

TrendLines Houston

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Transwestern and its research affiliate, Delta Associates, held its annual Houston TrendLines event on November 15, 2012. Delta Associates CEO, Greg Leisch, gave an economic overview highlighting ...

Transwestern and its research affiliate, Delta Associates, held its annual Houston TrendLines event on November 15, 2012. Delta Associates CEO, Greg Leisch, gave an economic overview highlighting opportunities in the Houston commercial real estate market.

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    TrendLines Houston TrendLines Houston Presentation Transcript

    • 2012Houston
    • Presentation available to download: www.transwestern.net www.DeltaAssociates.com
    • AGENDA 1. MegaTrends 2. National Economy 3. Regional Economy 4. Houston’s Commercial Real Estate Markets • Office • Industrial • Apartment • Retail 5. Capital Markets 6. Finding OpportunitiesSource: Delta Associates, November 2012.
    • 2012Houston MEGATRENDS
    • MEGATRENDS AFFECTING HOUSTON’S COMMERCIAL REAL ESTATE MARKETS • Uncertainty • Drive to Efficiency • Flight to Quality • Houston’s Strong EconomySource: Delta Associates, November 2012.
    • The Fiscal Cliff and Projected U.S. Economic Growth MEGATREND: UNCERTAINTY 10% Assuming No Fiscal Cliff 9% 8.0% 8% 7% 6%Percentage 5% 4% 3% 2% 1.7% 1% 0% -1% GDP Change in 2013 Unemployment Rate at Year-End 2013 -2% Source: Congressional Budget Office, Delta Associates; November 2012.
    • The Fiscal Cliff and Projected U.S. Economic Growth MEGATREND: UNCERTAINTY 10% Assuming No Fiscal Cliff 9.0% 9% Assuming Fiscal Cliff 8.0% 8% 7% 6%Percentage 5% 4% 3% 2% 1.7% 1% -0.5% 0% -1% GDP Change in 2013 Unemployment Rate at Year-End 2013 -2% Source: Congressional Budget Office, Delta Associates; November 2012.
    • Doing More With Less | U.S. Corporate Profits | 2000 - 2012 MEGATREND: DRIVE TO EFFICIENCY $2.5 $2.0 Corporate Profits in Trillions $1.5 $1.0 $0.5 $0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*Source: Bureau of Economic Analysis, Delta Associates; November 2012. *12 months ending June 2012.
    • Metro Houston Office Absorption: YTD 2012 MEGATREND: FLIGHT TO QUALITY 3 Class AMillions of SF Absorbed 2 1 Class B 0Source: Delta Associates’ analysis of CoStar data; November 2012.
    • Payroll Job Growth: Houston #1 Since 2000 MEGATREND: HOUSTON’S STRONG ECONOMY 600 505 500Payroll Jobs in Thousands 400 300 200 100 0 Hou Was NY Phx DFW Den Atl S. Fla Bos LA Basin SF Bay Chi -100 -200 Source: Bureau of Labor Statistics, Delta Associates; November 2012.
    • 2012Houston NATIONAL ECONOMY
    • U.S. ECONOMIC TRENDS AND FORECAST 15% 51 months: 32 months: 32 months: 72 months: Recession + Recession + Recession + Recession +Unemployment Rate and Annualized GDP Change Recovery Recovery Recovery Recovery 10% 5% 0% 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -5% Percent Change in GDP Unemployment Rate Recession Recovery -10%Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.
    • Recovery Patterns of GDP | Past Four Recessions NATIONAL ECONOMY 20% 18% 16% 1982Cumulative % Change in GDP 14% 12% 10% 8% 1991 6% 4% 2001 2% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 Quarters After Trough / Year Recovery StartedSource: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.
    • Recovery Patterns of GDP | Past Four Recessions NATIONAL ECONOMY 20% 18% 16% 1982Cumulative % Change in GDP 14% 12% 10% 8% 1991 6% 2009 4% 2001 2% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 Quarters After Trough / Year Recovery StartedSource: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.
    • CONTRIBUTORS TO THE NATIONAL ECONOMY Business/ Government 30% Consumers 70%Source: Bureau of Economic Analysis, Delta Associates; November 2012.
    • U.S. MEDIAN HOUSEHOLD INCOME $50,831 Dropped $777 in 2011 $50,054Source: Census Bureau, Delta Associates; November 2012.
    • CHANGE IN U.S. HOUSEHOLD NET WORTH Total Gained = $11.9 trillion $3 $2 Change in Net Worth (in trillions) $1 $0 -$1 -$2 -$3 -$4 Total Lost = $17.4 trillion -$5 -$6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2007 2008 2009 2010 2011 2012Source: Federal Reserve, Delta Associates; November 2012.
    • U.S. CONSUMER SENTIMENT 110 20-Year Average = 88.2 100 90 Index 80 70 60 50 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*Source: University of Michigan, Delta Associates; November 2012. *Preliminary data for September 2012.
    • U.S. PERSONAL SAVINGS RATE 7% 6% 6% 5% Personal Savings Rate 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009 2010 2011 2012Source: Bureau of Economic Analysis, Delta Associates; November 2012.
    • Compared to CD Interest Rates U.S. PERSONAL SAVINGS RATE 7% 7% 6% 6% Personal Savings Rate 5% 5% CD Interest Rates 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2006 2007 2008 2009 2010 2011 2012Source: Bureau of Economic Analysis, Delta Associates; November 2012.
    • U.S. ECONOMIC TRENDS AND FORECAST 15% 51 months: 32 months: 32 months: 72 months: Recession + Recession + Recession + Recession +Unemployment Rate and Annualized GDP Change Recovery Recovery Recovery Recovery 10% 5% 0% 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -5% Percent Change in GDP Unemployment Rate Recession Recovery -10%Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.
    • 2012Houston HOUSTON ECONOMY
    • Large Metro Areas | 12 Months Ending September 2012 PAYROLL JOB GROWTH: HOUSTON A LEADER 140 120 100 96.6 Payroll Jobs in 000’s 80 60 40 20 0 NY LA Basin Hou SF Bay DFW Bos Phx Was Chi Denver Atl S. FlaSource: Bureau of Labor Statistics, Delta Associates; November 2012.
    • INCREASING PRESENCE IN HOUSTON
    • Houston Metro Area | 2011 CORE INDUSTRIES Core Industries $ (Bil) % GRP Energy $108 27% Financial, Professional, Tech $52 13% Construction $36 9% Federal & State Government $32 8% Manufacturing $24 6% Medical/Educational $16 4% Trade/Transportation $16 4% Total Core Industries: $283 71% Other $116 29% Total GRP: $399 100%Source: BEA, BLS, GMU Center for Regional Analysis, Delta Associates; November 2012. GRP = Gross Regional Product.
    • U.S. Rotary Rig Count | 1990 – 2012 CORE INDUSTRY: ENERGY 2,000 1,800 1,600 Annual Average Working Rigs 1,400 1,200 1,000 800 600 400 200 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*Source: Baker Hughes, Delta Associates; November 2012. *Count as of 10/26/12.
    • Top Wind Energy Producing States | September 2012 CORE INDUSTRY: ENERGY 12,000 10,929 10,000 Wind Capacity (Megawatts) 8,000 6,000 4,570 4,536 4,000 3,153 3,055 2,717 2,699 2,000 0 Texas California Iowa Oregon Illinois Minnesota WashingtonSource: American Wind Energy Association, Delta Associates; November 2012.
    • Houston Health And Medical Sector Employment | 2005-2012 CORE INDUSTRY: MEDICAL/EDUCATIONAL 530 Up 5.9% 510 in 2012 Metro Area Employment (Thousands) 490 470 450 430 410 390 370 350 2005 2006 2007 2008 2009 2010 2011 2012*Source: BLS, Delta Associates; November 2012. *Through September
    • Top Planned Port Infrastructure Investments to Prepare for Canal Expansion CORE INDUSTRY: TRADE/TRANSPORTATION $5.0 $4.5 $4.0 $3.5 $3.0Billions $2.5 $2.0 $1.5 $1.0 $0.5 $0.0 Houston Tampa Charleston Norfolk* Savannah Everglades Gulfport Mobile Miami JacksonvilleSource: National Real Estate Investor, Delta Associates; November 2012. *Includes ports of Portsmouth and Newport News.
    • Houston Metro Area | 1991 –2012 PAYROLL JOB GROWTH 120 100 22-Year Average Job Growth = Annual Job Growth (in 000’s) 80 39,600/Year 60 40 20 0 -20 -40 -60 -80Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.
    • Houston Metro Area | 1991 –2012 PAYROLL JOB GROWTH 120 100 22-Year Average Job Growth = Annual Job Growth (in 000’s) 80 39,600/Year 60 40 20 0 -20 -40 -60 -80Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.
    • Houston Metro Area | 2012 – 2014 JOB FORECAST Projected Avg. Annual Growth 2012-14 = 120,000 89,000/annum 22-Year Annual Growth 100,000 = 39,600/annum 80,000 60,000 Annual Job Growth 40,000 20,000 0 -20,000 -40,000 -60,000 -80,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Source: Bureau of Labor Statistics, Delta Associates; November 2012.
    • 2012Houston THE HOUSTON OFFICE MARKET
    • Select Metro Areas | 3rd Quarter 2012 OFFICE VACANCY RATES 25% 20.3% 20% National Vacancy Rate: 13.7% 16.9% 16.1% Overall Vacancy Rate 14.7% 15% 13.1% 13.4% 13.6% 12.5% 12.9% 11.6% 10.6% 10.9% 11.2% 10% 5% 0% Bos Hou NY SF Bay Den LA Was OC Chi S Fla Atl DFW PhxSource: Delta Associates’ analysis of CoStar data; November 2012.
    • Select Metro Areas | January Through September 2012 NET ABSORPTION OF OFFICE SPACE 6 5 4 3 2.9 2 1 0 -1 -2 -3 SF Bay Atl Hou LA/OC Bos Phx Den Chi DFW S Fla NY WasSource: Delta Associates’ analysis of CoStar data; November 2012.
    • Select Metro Areas | 3rd Quarter 2012OFFICE SPACE UNDER CONSTRUCTION 14 12 SF Available Nation: 64.8 million SF at SF Pre-Leased 10 62% pre-leased Millions of SF 8 6 4 3.6 2 0 NY Was Bos Hou SF Bay LA Atl DFW Den OC Chi PhxSource: Delta Associates’ analysis of CoStar data; November 2012.
    • Houston Metro Area | Two Years Ending September 2014 OFFICE SPACE DEMAND AND DELIVERIES 10 = Demand 8 8.0 million SF = Deliveries 6 SF in Millions  Planned and may 4 deliver by 9/14: 0.6 million SF 2  U/C = 3.6 million SF 0 Total = 4.2 million SF Houston MetroSource: Delta Associates’ analysis of CoStar data; November 2012. Note: Excludes ExxonMobil‘s campus U/C in The Woodlands.
    • Houston Metro Area | 2000 – 3rd Quarter 2014 OFFICE VACANCY RATE 20% 18% 16% 14% Overall Vacancy Rate 12% 10% 10.9% 8% Rent Equilibrium Zone = 12% - 14% 9.3% 6% 4% 2% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2014Source: Delta Associates’ analysis of CoStar data; November 2012. *As of 3rd quarter 2012.
    • Houston Metro Area | All Classes And Submarkets | 1997 – 2014 CHANGE IN OFFICE ASKING RENTS 20% 15% 10% 15-Year Average Rent Growth = 3.9% 5% 0% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 -5%Source: Delta Associates’ analysis of CoStar data; November 2012.
    • Houston Metro Area OFFICE SUBMARKETS LIKELY TO OUTPERFORM Select Submarkets with Declining Vacancy, Rising Rents During Remainder of 2012 and into 2013 • Energy Corridor • Westchase • West Loop/Galleria • CBD • Greenway Plaza • The WoodlandsSource: Delta Associates; November 2012.
    • 2012Houston THE HOUSTON INDUSTRIAL MARKET
    • Select Metro Areas | 3rd Quarter 2012 INDUSTRIAL VACANCY RATES 12% 10% 8% 6% 4.6% 4% 2% 0% Hou LA Basin NY/NNJ Chi DFW Was/BalSource: Delta Associates’ analysis of CoStar data; October 2012.
    • Select Metro Areas | January – September 2012 NET ABSORPTION OF INDUSTRIAL SPACE 13 12 11 10 9 8 7 6 5 4 3.3 3 2 1 0 -1 -2 Chi DFW Hou LA Basin NY/NNJ Was/BalSource: Delta Associates’ analysis of CoStar data; November 2012.
    • Houston Metro Area | One Year Ending September 2013 INDUSTRIAL SPACE DEMAND AND DELIVERIES 8 = Demand 6.5 million SF 6 = Deliveries SF in Millions 4  Planned and may deliver by 9/13: 1.3 million SF 2  U/C = 2.3 million SF 0 Total = 3.6 million SF Houston MetroSource: Delta Associates’ analysis of CoStar data; November 2012.
    • Houston Metro Area | 2001 – 3rd Quarter 2013 INDUSTRIAL VACANCY RATES 14% 12% Overall Vacancy Rate 10% 8% 6% 4.6% 4.1% 4% 2% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Delta Associates’ analysis of CoStar data; November 2012.
    • Houston Metro Area | 1997 – 2013 ANNUAL INDUSTRIAL RENT CHANGE 15-Year AverageAnnual Change in Asking Rent (per SF, NNN) 6% Rent Growth = 1.7% 4% 2% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2% -4% -6% -8% Source: Delta Associates’ analysis of CoStar and REIS data; November 2012.
    • Houston Metro Area INDUSTRIAL SUBMARKETS LIKELY TO OUTPERFORM Select Submarkets with Declining Vacancy, Rising Rents During the Remainder of 2012 and into 2013 • North • Northwest • WestSource: Delta Associates; November 2012.
    • 2012Houston THE HOUSTON APARTMENT MARKET
    • Select Metro Areas | 2012* NET ABSORPTION OF APARTMENTS – ALL CLASSES 20 18 17.3 16 14 Thousands of Units 12 10 8 6 4 2 0 Hou LA DFW Chi Atl Phx Was *Washington = 12 months ending 9/12.Source: MPF, Delta Associates; November 2012. All other markets are estimated for 12 months ending 6/12.
    • Houston Metro Area | 2006 Through 2012 NET ABSORPTION OF APARTMENTS – ALL CLASSES 20 7-Year Average = 8,000 units 10Thousands of Units 0 -10 2006 2007 2008 2009 2010 2011 2012*Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.
    • Houston Metro Area | 2006 Through 2013 NET ABSORPTION OF APARTMENTS – ALL CLASSES 20 7-Year Average = 8,000 units 10Thousands of Units 0 -10 2006 2007 2008 2009 2010 2011 2012* 2013Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.
    • Houston Metro Area | 2005 Through 2013 APARTMENT VACANCY RATE – ALL CLASSES 14% 12% 10% Vacancy Rate 8% 7.4% 6% 6.8% 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012* 2013Source: MPF, Delta Associates; November 2012. * As of 2nd quarter 2012.
    • Houston Metro Area | 2006 Through 3rd Quarter 2012 AVERAGE APARTMENT RENTAL RATE $1.03 $0.98 Average Rental Rate/SF/Month $0.98 $0.93 $0.88 5.1% increase in the last 12 $0.83 months $0.78 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2006 2007 2008 2009 2010 2011 2012Source: MPF, ADS, Delta Associates; November 2012.
    • 2012Houston THE HOUSTON RETAIL MARKET
    • Select Metro Areas | 3rd Quarter 2012 VACANCY RATE: SHOPPING CENTERS 16% 13.8% 14% 12.7% National Average = 9.2% 12% 11.4% Overall Vacancy Rate 9.9% 10% 8.6% 8.9% 8% 7.5% 6.2% 6% 5.1% 5.4% 5.4% 4% 2% 0% Was SF Bos NY LA/OC Den Hou Chi DFW Atl PhxSource: Delta Associates’ analysis of CoStar data; November 2012. Note: Includes shopping centers of all types.
    • Houston Metro Area | 2000 – 2nd Quarter 2012 VACANCY RATE: ALL RETAIL 17% 16% 15% Vacancy Rate 14% 13% 12% 11.2% 11% 10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: O’Connor & Associates, Delta Associates; November 2012.
    • Houston Metro Area | 2002 – 2012 GROSS RETAIL SALES $109.7 $110 $101.4 $100Total Gross Retail Sales (in Billions of Dollars) $90 $87.9 $80 $70 $60 $55.3 $50 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Source: Texas Comptroller’s Office, Delta Associates; November 2012. *2012 figure is annualized.
    • Houston Metro Area RETAIL MARKET FORECAST • Growing population driving market expansion • Continued improvement in occupancy rates • Focus on grocery-anchored and mixed-use development • Increasing urban infill developmentSource: Delta Associates; November 2012.
    • 2012Houston CAPITAL MARKETS
    • Office Buildings | 2009 – 2012 COMPARATIVE INVESTMENT SALES VOLUME $3.5 Hou $3.0 Den DFW $2.5 Billions of $’s $2.0 $1.5 $1.0 $0.5 $0.0 2009 2010 2011 2012*Source: Real Capital Analytics, graphic by Delta Associates; November 2012. *YTD through September, annualized.
    • Houston Metro Area | 2002 Through 2012 INDUSTRIAL INVESTMENT SALES $1,000 $826 $800 Millions of $ $600 $400 $200 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*Sources: Real Capital Analytics, graphic by Delta Associates; November 2012. *YTD through August, annualized.
    • Houston Metro Area | 2005 – 2012 CORE CAP RATES 9% 8% 7%Average Cap Rate 6% 5% 4% Garden/Mid-Rise Office Industrial Shopping Centers Apartments 3%Source: Transwestern, Delta Associates; November 2012.
    • 2012Houston FINDING OPPORTUNITIES
    • Houston Metro Area MINING A GROWING MARKET: FINDING OPPORTUNITIES 1. Lock in interest rates while they remain low 2. Invest in renovation to compete and reposition 3. Buy / prepare land for this round of development 4. Narrow acquisition search to product that accommodates the modern tenantSource: Delta Associates; November 2012.
    • 2012Houston