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Annual Forecast for Charleston commercial Real Estate Market

Annual Forecast for Charleston commercial Real Estate Market

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  • 1. Our Professionals Jeremy Chris Jon Johnny Willits Fraser, CCIM Chalfie Bevon Todd Mike Gregg BillGarrett, CCIM Ferrer, CCIM Legerton Goodwin
  • 2. Our StaffCharlene Taylor CourtneyAydelotte Massey Ray
  • 3. Robert BachSenior Vice PresidentChief EconomistGrubb&Ellis
  • 4. 2012 Commercial RE ForecastRobert BachSVP, Chief Economist
  • 5. Gross Domestic Product, Historic & ForecastAnnualized Percent Change 4% 2% Historic Wells Fargo 0% PNC Goldman -2% -4% 03 04 05 06 07 08 09 10 11 12- 13- F F Source: BEA, Goldman Sachs, PNC, Wells Fargo 8
  • 6. Consumer Price Index, Historic & ForecastAnnual Percent Change 6% 4% Historic Wells Fargo 2% PNC Goldman 0% -2% 03 04 05 06 07 08 09 10 11 12- 13- F F Source: BLS, Goldman Sachs, PNC, Wells Fargo 9
  • 7. 10 Year Treasury Yield, Historic & ForecastEnd of Quarter 5% 4% Historic Wells Fargo 3% PNC Goldman 2% 1% 2008 2009 2010 2011 2012 Source: Federal Reserve, Goldman Sachs, PNC, Wells Fargo 10
  • 8. Payroll Job ChangeAnnual 3 Millions 2 1 0 Historic -1 Wells Fargo -2 PNC -3 Grubb & Ellis -4 -5 -6 03 04 05 06 07 08 09 10 11 12- 13- F F Source: BLS, PNC, Wells Fargo, Grubb & Ellis 11
  • 9. Job Losses Since Recession Began 12/2007U.S. vs. Selected South Carolina Metros 2% 0% -2% -4% U.S. -6% Gville Columbia -8% Charleston -10% Myrtle Bch -12% Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Source: BLS, Grubb & Ellis 12
  • 10. Office Vacancy & Class A Rent*National Forecast % Vacant Rent* 19% $38 18% $36 17% $34 16% $32 15% $30 % Vacant 14% $28 $ Rent* 13% $26 12% $24 11% $22 10% 02 03 04 05 06 07 08 09 10 11 12-F $20 % Vacant 17.4% 17.7% 16.8% 14.6% 13.6% 13.0% 14.8% 17.4% 17.7% 17.3% 16.0% * Weighted average $ Rent* 28.72 30.09 30.32 33.91 35.95 36.69 35.74 32.50 32.93 33.49 34.16 asking rent $/SF/year gross Source: Grubb & Ellis 13
  • 11. Industrial Demand Drivers ISM Manufacturing Index DOT Freight Index Values > 50 = Expansion 2000 = 100 65 115 60 110 55 50 105 45 100 40 95 35 30 90 00 02 04 06 08 10 00 02 04 06 08 10 Source: ISM, DOT, Grubb & Ellis 14
  • 12. Industrial Vacancy & Warehouse Rent*National Forecast % Vacant Rent* 11% $5.00 10% $4.75 9% % Vacant 8% $4.50 $ Rent* 7% $4.25 6% 5% 02 03 04 05 06 07 08 09 10 11 12-F $4.00 * Weighted average % Vacant 9.5% 9.8% 9.4% 8.1% 7.7% 7.7% 8.8% 10.7% 10.4% 9.7% 8.7% asking rent $/SF/year $ Rent* 4.33 4.21 4.38 4.54 4.67 4.79 4.68 4.36 4.33 4.26 4.47 NNN Source: Grubb & Ellis 15
  • 13. Retail Demand Drivers Monthly Retail Sales Personal Saving Rate % Change Year Over Year, SA SAAR15% 14%10% 12% 10% 5% 8% 0% 6% -5% 4%-10% 2%-15% 0% 07 08 09 10 11 80 85 90 95 00 05 10 Total Core Source: Census, CoStar, Grubb & Ellis 16
  • 14. Retail Vacancy & Rent*National Forecast % Vacant Rent* 12% $20 11% $19 10% 9% $18 % Vacant 8% $ Rent* $17 7% $16 6% 5% 02 03 04 05 06 07 08 09 10 11-F 12-F $15 * Neighborhood & % Vacant 7.3% 7.2% 7.0% 6.8% 7.1% 7.5% 8.9% 10.6% 11.0% 11.1% 11.0% community centers, $ Rent* 16.68 17.14 17.62 18.22 18.92 19.46 19.52 19.13 18.99 18.96 19.10 asking rent $/SF/year NNN Source: Reis, Grubb & Ellis 17
  • 15. Apartment Demand Drivers 20-34 Year-Old Cohort Homeownership Rate Change by Decade By Quarter, Seasonally Adjusted Millions Percent 6 70% 4 4.7 68% 3.9 4.3 2 66% 0 64% -2 62% -3.5 -4 60% 1980s 1990s 2000s 2010s 80 90 00 10 Source: Census, Grubb & Ellis 18
  • 16. Apartment Vacancy & Rent*National Forecast % Vacant Rent* 9% $1,200 8% $1,100 7% % Vacant $1,000 $ Rent* 6% $900 5% 4% 02 03 04 05 06 07 08 09 10-F 11-F 12-F $800 * Projects w/ at least % Vacant 6.3% 6.9% 6.7% 5.7% 5.8% 5.7% 6.7% 8.0% 6.6% 5.3% 4.9% 50 units, asking rent $ Rent* 889.0 902.0 921.0 944.0 982.0 1,025 1,050 1,026 1,043 1,066 1,096 Source: Reis, Grubb & Ellis 19
  • 17. Investment Market Outlook CRE Investment by Quarter Moodys/REAL CPPI +75% in 2011, + 25% in 2012 2000-Q4 = 1.0Billions$600 2.0 1.9$500 1.8 514 1.7 1.6$400 1.5 363 1.4$300 312 1.3 250 1.2$200 232 1.1 200 1.0 146$100 127 126 0.9 104 0.8 55 $0 0.7 02 04 06 08 10 12-F 00 02 04 06 08 10 All 6-city Trophy Distress Source: Real Capital Analytics, Grubb & Ellis
  • 18. Average Cap RatesBy Property Type 9% 8.4% 8% 7.8% 7.8% 7.6% 7.5% 2010 7.4% 7.3% 7% 2011 6.6% 6.4% 6.3% 6% 5% Apartment Hotel Industrial Office Retail Source: Real Capital Analytics, Grubb & Ellis
  • 19. Distressed Assets Total Outstanding Distress Monthly Additions &Billions Billions Reductions to Distress$400 $25,000 $20,000$300 $15,000 $10,000$200 $5,000 $0$100 -$5,000 -$10,000 $0 -$15,000 2008 2009 2010 2011 2008 2009 2010 2011 Troubled REO Restructured Resolved Additions Workouts Source: Real Capital Analytics, Grubb & Ellis
  • 20. Avg. Cap Rate vs. 10-year Treasury YieldQuarterly Cap Rate & 10-year Yield 10% 500 8% 400 Spread (basis points) 6% 300 4% 200 2% 100 0% 0 01 03 05 07 09 11 10-yr. Yield Cap Rate Spread Source: Real Capital Analytics 23
  • 21. 2012 Commercial RE ForecastRobert BachSVP, Chief Economist
  • 22. Mary GrahamSenior Vice PresidentCharleston Metro Chamber of Commerce
  • 23. The Charleston Region: 2012 and Beyond Grubb&Ellis|WRS February 15, 2012char l est on m r o cham et ber of com er ce m
  • 24. Top Three Globally• Building wide-body commercial aircraft• R&D wind turbines• Tourism Destination
  • 25. Charleston Has Biggest Brain Gain in U.S.
  • 26. Charleston’s Recognition & Rankings Best Cities for Job Growth Charleston region ranked 8th, up 17 spots from last year.2010 Best Performing Cities New Geography May 2011Charleston ranked among nation’s top20 “large cities” Americas Favorite CitiesMilken Institute Charleston ranks #1October 2010 Travel + Leisure Magazine November 2010Best Towns of 2011Charleston ranked 5th Worlds Best CityOutside Magazine Charleston ranked #3 inSeptember 2011 the world CNNGo October 2011Best Places for Business& Careers #1 in North AmericaCharleston MSA ranked in #3 in the worldtop 50 Tourist DestinationForbes July 2011 Conde’ Nast Traveler October 2011
  • 27. Significant Developments Boeing’s 2nd 787 Dreamliner assembly line • Est: 15,000 jobs (direct & indirect) $5.9 billion statewide impactWind Turbine Drive Train Testing Facility• $98 million DOE-backed facility – one of only three and largest in the world • Est: 20,000 jobs (direct & indirect) statewide• Opportunity to attract global manufacturing & R&D investments Southwest Airlines • Began service March 13, 2011
  • 28. Population Trends800,000700,000600,000500,000400,000300,000200,000100,000 0 1950 1960 1970 1980 1990 2000 2010 2020 est.
  • 29. Employment Growth 2000 - 2011350,000300,000250,000200,000 Labor Force150,000 Employment100,000 50,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  • 30. Employment By Sector Natural Resources, Mining, & Construction Manufacturing 5% 20% 8% Wholesale Trade 3% Retail Trade Transportation and Utilities 3% Information 13% Financial Activities12% Professional and Business Services 4% Education and Health Services 2% Leisure and Hospitality 4% 12% Other Services 14% Government
  • 31. Target Industries
  • 32. Target Tactics Advanced WindSecurity & IT Aerospace Biomedical Energy Recruit Recruit Recruit Recruit Retain/ Expand Retain/ Retain/ Expand Expand Retain/ Expand Startup Startup Startup Startup Immediate Immediate Mid- to Mid- to To Mid-Term Long-Term Long-Term
  • 33. AerospaceBoeing 787 Assembly Operation – 5,900 employees – $ 4.6 billion annual economic impact – One of three places in world – First delivery 2nd Qtr 2012
  • 34. The Port of Charleston$44.8 billion economic impact ($7 billion in the Charleston region)260,800 jobs (50,000+ in the Charleston region)Cargo Diversification Strategy – 1.4 million TEUs – BMW – RO/RO – Breakbulk CargoNew $500 million terminal
  • 35. Panama Canal Game Changer 33.5m (110’) Current Locks Vessel Max: 4,800 TEUs Draft 12.04 m (39.5’) 12.8m (42’) Draft 15.2 m (50’) 55m (180’) New Locks 18.3m (60’) Vessel Max : 12,600 TEUs*Courtesy of Panama Canal Authority
  • 36. MSC Northern Justice 8,440 TEU / 1090’ LOACharleston Harbor / May 12, 2010
  • 37. Medical Industry• 10 major medical centers• 2,000 physicians• Medical centers locally employ 20,000 +• 26,000 total workers in healthcare services industry• $243 million R&D at MUSC for fiscal year 2011, marking the 15th consecutive year of continuous growth
  • 38. Joint Base Charleston• $4.7 billion annual economic impact• 29,000 active, civilian and contract personnel• Airlift, Sealift and Prepositioning - One of top ranked military strategic ports - One of 12 Joint Base initiatives• SPAWAR Atlantic - 2,600 employees - 8,000 contract workers / 80+ defense contractors - 6,000 visitors per year
  • 39. Joint Base Charleston• Navy Nuclear Training Command / Training School - 3,200 students per year• Federal Law Enforcement Training Center - Maritime Law Enforcement Training - 12,500 annual graduates• State Department - 800 employees - Global Financial Services, Passport Office
  • 40. Key Challenges• Workforce Skills/Education• Infrastructure• International Business Location• Managing Growth
  • 41. Mary Graham, CCR, IOM, CCE Sr. Vice President Business Advocacy 843.805.3043 mgraham@charlestonchamber.orgchar l est on m r o cham et ber of com er ce m
  • 42. Chris Fraser, CCIMPresidentGrubb&Ellis|WRS
  • 43. How are we doing?
  • 44. Residential Inventory
  • 45. Employment
  • 46. Industrial Market
  • 47. Industrial Vacancy30%25%20%15%10% 5% 2008 2009 2010 2011 General Industrial R&D/Flex WH/Dist Combined
  • 48. Avg. Asking Rental Rates $10 $8 $6 $4 $2 2008 2009 2010 2011 General Industrial R&D/Flex WH/Dist Combined
  • 49. DOD to Ask for Two NewBRAC Rounds, Sources SayJanuary 25, 2012The Pentagon is planning to requestCongress authorize two new baseclosure rounds to help the departmentcut almost a half a trillion dollars inspending over the next decade, AirForce Times reported Wednesday.Officials would request one BRAC round in 2013 andthe next in 2015, one source told the publication. Thedepartment’s intention to conduct one or more BRACrounds is not unexpected given the current budgetenvironment. Many officials already believed the 2005round failed to eliminate all of the department’sexcess capacity. Also, the spending cuts imposed onthe military are expected to result in the eliminationof tens of thousands of troops and cuts in aircraftorders, further reducing the need for militaryinfrastructure.Closures likely woulddisproportionately fall on Army andAir Force installations due to thespecific cuts planned, the Timesreported.
  • 50. Panama Canal???
  • 51. Norfolk Southern Intermodal Terminal atCharlotte Douglas Airport planned…volume up!2006 – 58% of N&S freight moved from West Coast2011 – 61% of N&S freight moved from East Coast
  • 52. Four extra feet of depth is equal to 8600 extratons of wheat!
  • 53. Industrial Occupancy & TEU
  • 54. Charleston Source – Integra Realty Resources
  • 55. Industrial 2012 Vacancy Forecast 30% 25% 20% 15% 10% 5% 2008 2009 2010 2011 2012-F General Industrial R&D/Flex WH/Dist Combined
  • 56. Office Market
  • 57. Office Vacancy30%25%20%15%10%5%0% 2007 2008 2009 2010 2011 CBD Suburban Combined
  • 58. Avg. Asking Rental Rates $28 $26 $24 $22 $20 $18 2007 2008 2009 2010 2011 Class A Class B
  • 59. 22 Relevant Office Properties Changed Hands in 20113 (14% of total sales) Bank owned buildings • average of $96/sf in partial shell condition9 (41% of total sales) Bank owned condos • average of $129/sf in completed condition7 (32% of total sales) Market type buildings arms length transactions • average of $182/sf3 (14% of total sales) Market type condo transactions • averaging $130/sf
  • 60. Healthcare / Medical Sector
  • 61. Institutional Movement• Hospitals purchasing medical practices to control referral sources & income stream• Doctors selling for fixed income/security during uncertain times especially regarding possible future cuts in reimbursements
  • 62. Mt. Pleasant since 4/2010 • MUSC – Specialty Care 84,000 SF  Dr.’s will relocate in the 2nd and 3rd quarter of 2012  Vacancy will rise throughout Mt. Pleasant • East Cooper Hospital  250,000 SF  130 Beds • Roper Hospital  200,000 SF  85 Beds
  • 63. Carnes Crossroads / Moncks Corner Carnes Crossroads Plans Moncks Corner Plans  146,000 SF 145,000 SF  50 Beds  50 Beds * Appeals from both parties need to be worked out in the courts before final approval.
  • 64. Biomedical Research
  • 65. Horizon ProjectMUSC, SCRA and City of Charleston
  • 66. Business Incubators Thrive!•Over 61,000 SF•Assisted over 100 Companies•Notable •PeopleMatter •Avista Solutions
  • 67. Charleston
  • 68. Charleston
  • 69. Office 2012 Vacancy Forecast 30% 25% 20% 15% 10% 5% 0% 2007 2008 2009 2010 2011 2012-F CBD Suburban Combined
  • 70. Retail Market
  • 71. Retail Vacancy10%8%6%4% 2009 2010 2011 CBD Suburban Combined
  • 72. Avg. Asking Rental Rates $18 $16 $14 $12 2009 2010 2011
  • 73. Value Based Trend
  • 74. Charleston
  • 75. Retail 2012 Vacancy Forecast 10% 8% 6% 4% 2009 2010 2011 2012-F CBD Suburban Combined
  • 76. Investment Market
  • 77. What is the Outlook for 2012?
  • 78. Thank you!