National Press Club: DCBIA DC Office Leasing Outlook
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National Press Club: DCBIA DC Office Leasing Outlook

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Leasing & economic update presented to DCBIA at the National Press Club 10/11/12

Leasing & economic update presented to DCBIA at the National Press Club 10/11/12

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National Press Club: DCBIA DC Office Leasing Outlook National Press Club: DCBIA DC Office Leasing Outlook Presentation Transcript

  • DCBIA Commercial RealEstate UpdateOctober 11, 2012 © Copyright 2012 Cassidy Turley. All rights reserved.
  • Big Pause in the Economy DC Metro: Total Nonfarm Employment, 000’s 2480 Office Trends: 2470 • No new demand for space 2460 • Vacancy inching up • Rents are flat to falling 2450 • Shift to short-term 2440 renewals Minimal job growth since February • Confidence is at a low 2430 • BRAC headwind is here 2420 1 M 2 A 2 A 1 O 1 Ja 1 A 2 Se 1 Ju 2 2 Fe 2 11 M 2 12 D 1 -1 -1 -1 l-1 1 -1 l-1 -1 -1 -1 -1 1 1 n- p- n- b- n- ct pr ar ay ug ug ec ov Ju Ju Ju N DC Metro Employment, 000sSources: BLS © Copyright 2012 Cassidy Turley. All rights reserved. 2
  • Employment Growth/Decline by Industry DC Metro, Aug 12 vs. Aug 11, Rolling 3 Month Av. (Industry Total Employment Level)Source: Bureau of Labor Statistics © Copyright 2012 Cassidy Turley. All rights reserved. 3 View slide
  • Fiscal Cliff Scenario Real GDP, Annualized % Under current law, the fiscal drag from spending cuts & tax increases will sink the US into recession in 2013Source: Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 4 View slide
  • Fed Expects NO Cliff Real GDP, Annualized % Under current law, the fiscal drag from spending cuts & tax increases will sink the 6% US into recession in 2013 4% 2% 0% -2% -4% -6% 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 Fiscal Cliff Fed BaselineSource: Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 5
  • Consensus Expects NO Cliff GDP, Annualized %Source: U.S. Bureau of Economic Analysis (BEA); National Association of Business Economics (NABE) © Copyright 2012 Cassidy Turley. All rights reserved. 6
  • Federal Spending Slows, but NO Cliff DC Metro: Federal Outlays, billions $ $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Reagan Bush I Clinton Bush II Obama Obama/Romney Republican Controlled House Democrat Controlled House Light Colored Bar = Opposite Party PresidentSources: Consolidated Federal Funds Report; GMU Center for Regional Analysis, Cassidy Turley © Copyright 2012 Cassidy Turley. All rights reserved. 7
  • Despite all of this… DC Metro share of US GDP DC Metro Rankings: #1 Lowest Unemployment #1 Educated Workforce #1 Real Estate Market by ULI #2 Job Growth Since 2000 #3 Population/Net MigrationSource: Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 8
  • There is Strength Household balance sheets looking much betterSource: U.S. Board of Governors of the Federal Reserve System, U.S. Bureau of Economic Analysis © Copyright 2012 Cassidy Turley. All rights reserved. 9
  • There is Strength Median Existing Home Prices: % Year-over-Year Change DC US Growth Growth 2.5 yrsSource: National Association of Realtors®, Moody’s © Copyright 2012 Cassidy Turley. All rights reserved. 10
  • There is StrengthJob Growth: % Chg. August 2012 over August 2011 Strong Growth Moderate Growth Below U.S. Growth © Copyright 2012 Cassidy Turley. All rights reserved. 11
  • DC Metro Job Growth Forecast 20 Year Historical AverageSource: Bureau of Labor Statistics, George Mason University, Moody’s, Cassidy Turley © Copyright 2012 Cassidy Turley. All rights reserved. 12
  • DC Metro Office Leasing © Copyright 2012 Cassidy Turley. All rights reserved. 13
  • Washington Metro Deliveries – Net Absorption – Vacancy 18 16% 16 14% 14 12% Square Feet (millions) 12 Vacancy Rate 10 10% 8 8% 6 4 6% 2 4% 0 2012f 2013f 2014f 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2% -2 -4 0% New Deliveries Net Absorption Vacancy Rate 10 Yr Avg. Deliveries 7.9m sq ft 10 Yr Avg. Net Abs 3.4m sq ftf= forecastSource: Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 14
  • Leasing Activity Slows DC Metro Gross Leasing Activity, millions sq. ft. 45 40 35 Square Feet (mill.) 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 YTD YTD 2011 2012 Annual Avg. Gross Absorption: 25.9 MSFSource: CoStar, Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 15
  • New Space Dominates 2007 – Q3 2012, millions sq. ft. 20 15 10Square Feet (mill.) 5 0 District Northern VA Suburban MD -5 -10 -15 Total New Delivered New Space Absorption Relet Space Absorption © Copyright 2012 Cassidy Turley. All rights reserved. 16
  • Office Vacancy: Winners/Losers Percentage point change, 3Q 12 vs 3Q 11 Clarendon/Courthouse -4.1 Fairfax Center -2.2 North Rockville -1.9 50/66 -1.3 Improved Route 28 South -1.2 Herndon 3.2 Deteriorated Ballston 3.5 Route 7 5.5 I-395 9.9 Crystal City 13.5 -5 0 5 10 15*submarkets >1.5m sq ft © Copyright 2012 Cassidy Turley. All rights reserved. 17
  • Effective Office Rents Per Square Foot, Full Service $45 $42.46 $40 $35 $30 $26.36 $25 $21.55 $20 2000 1Q 2001 1Q 2002 1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009 1Q 2010 1Q 2011 1Q 2012 1Q DC VA MDSource: REIS, Cassidy Turley Research © Copyright 2012 Cassidy Turley. All rights reserved. 18
  • Washington, DC Deliveries – Net Absorption – Vacancy 7 14% 6 12% Square Feet (million) 5 10% Vacancy Rate 4 8% 3 6% 2 4% 1 2% 0 0% f f f 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 New Deliveries Net Absorption Vacancy Ratef= forecast Annual 10 Yr Avg. Delivered: Annual 10 Yr Avg. Net Absorption:Source: Cassidy Turley Research 2.5 MSF 1.5 MSF © Copyright 2012 Cassidy Turley. All rights reserved. 19
  • Transaction DistributionDistrict of Columbia: # of Transactions © Copyright 2012 Cassidy Turley. All rights reserved. 20
  • Demand shifts back to the “Core” Net Absorption (sq. ft.) & Vacancy Rates 12.5% 9.8% 10.1% 4.1% 10.8% 6.9% 17.3% 7.4%500,000400,000300,000200,000100,000 0 CBD East End West End/ Capitol Hill NoMA SW Capitol Uptown-100,000 Georgetown Riverfront/ SE-200,000-300,000 2011 YTD 2012 © Copyright 2012 Cassidy Turley. All rights reserved. 21
  • DC Metro OutlookNext 18 Months• Weak job growth overall, though growth in – Lobbying, Corporate government relations – Healthcare – IT & Finance (suburbs)• Federal government & contractor reductions• Flat to falling effective rents• Strong demand/pricing for trophy properties2014 & Beyond• Return to normalcy: – 30-40k annual job growth – 4-5m sq ft annual office demand – Eroding vacancy – 3%+ rent growth © Copyright 2012 Cassidy Turley. All rights reserved. 22
  • © Copyright 2012 Cassidy Turley. All rights reserved. 23