The document presents the 2015 investment outlook for commercial real estate, discussing economic trends, investment sales, GDP growth, and monetary policies influenced by the Federal Reserve. Key topics include commercial sales statistics, challenges in the real estate market such as inventory shortages, and projections for various property types, including office, industrial, retail, and multi-family sectors. Additionally, it highlights the increasing value of commercial member incomes and anticipated job and inflation growth in the coming years.

1. COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM
COMMERCIAL REAL ESTATE:
2015 INVESTMENT OUTLOOK
LAWRENCE YUN, PhD
Chief Economist, Sr. VP
National Association
of REALTORS®
DONALD E. HUFFNER
Managing Director,
Head of Americas
AIG Global Real Estate
RICHARD M. GATTO
Executive Vice
President
The Alter Group
ANDREW H. TROTTER, III
Chief Investment
Officer
Centennial Holding
Company

3. Commercial Real Estate Trends
and Outlook
Lawrence Yun, Ph.D.
Chief Economist
NATIONAL ASSOCIATION OF REALTORS®
Presentation at:
NAR Annual Commercial Real Estate Forum
New Orleans, LA
November 7, 2014

4. Commercial Investment Sales of Large
Properties
(Properties valued at $2.5 million and over)
130
212
362
423
Commercial Sales in $Billions
571
174
67
147
233
299
355
400 420 430
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

5. Federal Reserve Commercial Property
Price Index
0
50
100
150
200
250
300
2000 - Q1
2000 - Q4
2001 - Q3
2002 - Q2
2003 - Q1
2003 - Q4
2004 - Q3
2005 - Q2
2006 - Q1
2006 - Q4
2007 - Q3
2008 - Q2
2009 - Q1
2009 - Q4
2010 - Q3
2011 - Q2
2012 - Q1
2012 - Q4
2013 - Q3

6. GDP Rebound
in 2014 Q2 and Q3
6
4
2
0
-2
-4
-6
-8
-10
2007
- Q1
2007
- Q3
2008
- Q1
2008
- Q3
2009
- Q1
2009
- Q3
2010
- Q1
2010
- Q3
2011
- Q1
2011
- Q3
2012
- Q1
2012
- Q3
2013
- Q1
2013
- Q3
2014
- Q1
2014
- Q3
GDP Annualized Growth Rate

7. GDP Still not Robust …
Below 3% for 9 straight years
-4
-2
0
2
4
6
8
10
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
GDP Annual Growth Rate

8. Household Net Worth at All-Time High
85000
80000
75000
70000
65000
60000
55000
50000
45000
40000
$ billion

9. Monetary Policy by Federal Reserve
(zero rate policy for 6 years!)
6
5
4
3
2
1
0
Fed Funds
%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

10. Federal Reserve Balance Sheet from
Quantitative Easing
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
4000000
2005 - Jan
2005 - Jun
2005 - Nov
2006 - Apr
2006 - Sep
2007 - Feb
2007 - Jul
2007 - Dec
2008 - May
2008 - Oct
2009 - Mar
2009 - Aug
2010 - Jan
2010 - Jun
2010 - Nov
2011 - Apr
2011 - Sep
2012 - Feb
2012 - Jul
2012 - Dec
2013 - May
Total Asset Purchase
$ million

11. 10-year Treasury Yield
7
6
5
4
3
2
1
0
2000
- Jan
2001
- Jan
2002
- Jan
2003
- Jan
2004
- Jan
2005
- Jan
2006
- Jan
2007
- Jan
2008
- Jan
2009
- Jan
2010
- Jan
2011
- Jan
2012
- Jan
2013
- Jan
2014
- Jan

12. Non-worrisome CPI Inflation – Yet
COLA of 1.7% in 2015
-3
-2
-1
0
1
2
3
4
5
6
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug

13. Rising Renters’ and Homeowners’ Rent
Growth
(Above 3%)
-1
0
1
2
3
4
5
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - Jul
2014 - Jan
2014 - Jul
Owners' Equivalent Rent Renters' Rent

14. REALTOR® Rent Survey –
Shows Rent Pressure
0
10
20
30
40
50
60
2010 - Dec
2011 - Feb
2011 - Apr
2011 - Jun
2011 - Aug
2011 - Oct
2011 - Dec
2012 - Feb
2012 - Apr
2012 - Jun
2012 - Aug
2012 - Oct
2012 - Dec
2013 - Feb
2013 - Apr
2013 - Jun
2013 - Aug
2013 - Oct
2013 - Dec
2014 - Feb
2014 - Apr
2014 - Jun
Falling Rising

15. Oil Price
0
20
40
60
80
100
120
140
160
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug

16. U.S. Dollar Strength vs Euro
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
$US per One Euro

17. U.S. Dollar Weakness vs Chinese Yuan
6
6.5
7
7.5
8
8.5
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
Yuan per $1

18. Monetary Policy
• Quantitative Easing … Finished
• Fed Funds Rate … hike in 2015 Q1/Q2
• Earlier Move to Tighten because of
Inflation Pressure
• Long-term Steady State Rate (2016
onwards) .. 10 year Treasury at 5.0%
• Mortgage Rates reaching 6% by 2016

19. Jobs
(8 million lost … 10 million gained)
124000
126000
128000
130000
132000
134000
136000
138000
140000
142000
2000 - Jan
2000 - Jul
2001 - Jan
2001 - Jul
2002 - Jan
2002 - Jul
2003 - Jan
2003 - Jul
2004 - Jan
2004 - Jul
2005 - Jan
2005 - Jul
2006 - Jan
2006 - Jul
2007 - Jan
2007 - Jul
2008 - Jan
2008 - Jul
2009 - Jan
2009 - Jul
2010 - Jan
2010 - Jul
2011 - Jan
2011 - Jul
2012 - Jan
2012 - Jul
2013 - Jan
2013 - May
2013 - Nov
2014 - May
In thousands

20. Weekly New Unemployment Insurance
Claims
250
300
350
400
450
500
550
600
2000 - Jan
2000 - Aug
2001 - Mar
2001 - Oct
2002 - May
2002 - Dec
2003 - Jul
2004 - Feb
2004 - Sep
2005 - Apr
2005 - Nov
2006 - Jun
2007 - Jan
2007 - Aug
2008 - Mar
2008 - Oct
2009 - May
2009 - Dec
2010 - Jul
2011 - Feb
2011 - Sep
2012 - Apr
2012 - Nov
2013 - Jun
2014 - Jan
2014 - Aug
In thousands

21. Job Market Comparisons by State
Fast Growing
States
1-year Growth
Rate
North Dakota 4.5
Nevada 3.7
Texas 3.4
Florida 2.9
Utah 2.9
Colorado 2.8
Oregon 2.7
Delaware 2.6
West Virginia 2.5
California 2.2
Slow Moving
States
1-year Growth
Rate
Michigan 0.7
Alabama 0.6
Wyoming 0.6
South Dakota 0.3
Virginia 0.3
New Jersey 0.1
Illinois 0.0
Alaska 0.0
New Mexico -0.1
Vermont -0.2

22. REALTOR® Markets & Deal Size
(Not $2.5 million Properties)
2013 CRE Lending Survey: Value of most recent sales transaction
22%
21%
26%
17%
12%
2%
1%
> $10,000,000
$5,000,000 - $10,000,000
$2,000,000 - $5,000,000
$1,000,000 - $2,000,000
$500,000 - $1,000,000
$250,000 - $500,000
< $250,000
Source: NAR

23. Small Banks Important to REALTORS®
Current sources of financing for commercial deals
8%
17%
25%
7%
1% 11%
6%
18%
4%
3%
National banks (“Big four”)
Regional banks
Local banks
Credit unions
Life insurance companies
REITs
Private investors
Public companies
Small Business Administration
Other, please specify
Source: NAR

24. NAR Member Commercial Activity Survey
2nd Quarter, 2014
• Sales volume rose 7% YoY
• Sales prices increased 3% YoY
• Cap rates averaged 8.3%
Main market challenges:
• Inventory shortage
• Pricing gap between buyers and sellers
• Local economies

25. REALTORS® Help Small Businesses
Average Value of Sale Transaction
3%
4%
10%
17%
25%
25%
16%
$10,000,000 <
$5,000,000 - $10,000,000
$2,000,000 - $4,999,999
$1,000,000 - $1,999,999
$500,000 - $999,999
$250,000 - $499,999
< $250,000
80%
70%
60%
50%
40%
30%
20%
10%
0%
Did you close a sale in the past 12
months?
Yes No N/A
2011 2012 2013 2014

26. Credit Difficulty
80%
70%
60%
50%
40%
30%
20%
10%
0%
Sales transaction fail during the past 12
months due to lack of financing
Yes No N/A
2011 2012 2013 2014
If answered "Yes," the reason was:
17%
63%
20%
Financing
availability
Loan
underwriting /
lender
requirements
Appraisal /
valuation

27. A Typical Commercial REALTOR®
BUSINESS REVENUE AND FIRM AFFILIATION
• The median gross annual income of commercial members was $96,200 in
2013, an increase from $90,200 in 2012. The median gross annual income
of commercial members has increased for the past four years.
• Eighty percent of commercial members work at least 40 hours a week.
• Sixty-two percent of commercial members of NAR derived 50 percent or
more of their income from all commercial real estate in 2013.
• Fifty-seven percent of members work for a local commercial real estate
firm.
BUSINESS ACTIVITIES OF NAR COMMERCIAL MEMBERS
• Commercial members completed a median of eight transactions in 2013.
• The median sales transaction volume in 2013 for members who had a
transaction was $2,554,700 – an increase from $2,507,700 in 2012.
• The median gross leasing volume was $431,600 in 2013– a decrease from
the $476,400 in 2012.

28. CCIM Member Survey on Cap Rates

29. 140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
SIOR Index
Industrial Office
Sources: SIOR, NAR
SIOR Member Survey on Activity

30. Economic Forecast
2013 2014
Likely
2015
Forecast
2016
Forecast
GDP Growth 2.2% 2.2% 2.7% 2.9%
Job Growth +2.3 million +2.5 million +2.5 million +2.6 million
CPI Inflation 1.5% 1.6% 2.7% 3.3%
Consumer
Confidence
73 87 95 98
10-year
Treasury
2.5% 2.6% 3.2% 4.3%

31. Commercial Real Estate Forecast
OFFICE 2014 2015 2016
Vacancy Rate 16.2% 15.8% 15.6%
Net Absorption ('000 sq. ft.) 36,192 50,678 57,782
Completions ('000 sq. ft.) 26,450 41,799 44,862
Rent Growth 2.6% 3.2% 3.6%
INDUSTRIAL 2014 2015 2016
Vacancy Rate 8.9% 8.5% 8.1%
Net Absorption ('000 sq. ft.) 107,580 104,948 105,044
Completions ('000 sq. ft.) 83,424 68,755 61,720
Inventory ('000,000 sq. ft.) 8,468 8,537 8,598
Rent Growth 2.4% 2.8% 2.9%
RETAIL 2014 2015 2016
Vacancy Rate 9.8% 9.7% 9.4%
Net Absorption ('000 sq. ft.) 11,214 19,314 24,313
Completions ('000 sq. ft.) 7,275 12,196 16,342
Rent Growth 2.0% 2.4% 3.0%
MULTI-FAMILY 2014 2015 2016
Vacancy Rate 4.0% 4.0% 4.2%
Net Absorption (Units) 223,421 170,065 140,128
Completions (Units) 191,481 146,461 122,381
Rent Growth 4.0% 3.9% 3.5%
Sources: National Association of REALTORS® / Reis, Inc.

32. Washington Policy Watch on
Commercial Real Estate
• Facilitate Covered Bonds to help credit flow
• Raise cap on holding of commercial RE loans
by credit unions
• Preserve Like-Kind Exchanges
• Preserve Terrorism Insurance
• Preserve capital gains status on carried interest
• Depreciation Rules should match economic life
• Oppose lease-accounting changes

34. Richard M. Gatto
Executive Vice President
The Alter Group

35. Donald E. Huffner
Managing Director, Head of the
Americas
AIG Global Real Estate

36. Andrew H. Trotter, III
Chief Investment Officer
Centennial Holding Company

37. COMMERCIAL ECONOMIC ISSUES & TRENDS FORUM
COMMERCIAL REAL ESTATE:
2015 INVESTMENT OUTLOOK
LAWRENCE YUN, PhD
Chief Economist, Sr. VP
National Association
of REALTORS®
DONALD E. HUFFNER
Managing Director,
Head of Americas
AIG Global Real Estate
RICHARD M. GATTO
Executive Vice
President
The Alter Group
ANDREW H. TROTTER, III
Chief Investment
Officer
Centennial Holding
Company