Commercial Real Estate and Economic Outlook
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This document discusses the current state of the U.S. economy and commercial real estate market based on a presentation given by Lawrence Yun of the National Association of Realtors. Some key points made are: - The U.S. economy has now seen 11 straight quarters of GDP growth and has added over 4 million jobs since the recession, though consumer confidence remains subpar. - Commercial real estate investment and construction have remained tepid compared to previous recoveries, with construction put in place well below pre-recession levels. - Overall the recovery has been supported by rising personal income, consumer spending, and stock market gains, but government spending has declined from stimulus programs.
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Commercial Real Estate and Economic Outlook
- 2. Commercial Real Estate and Economic Outlook LAWRENCE YUN REALTORS® Midyear Meetings Marriott Wardman Park Washington, DC May 17, 2012
- 3. 10 -10 -4 -2 0 2 4 6 8 -8 -6 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 GDP growth for 11 straight quarters 2010 - Q1 2010 - Q3 2011 - Q1 Economy out of Recession and Growing 2011 - Q3 2012 - Q1
- 4. 0 2 4 6 8 -6 -4 -2 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 Supported by Jobs and Income 2009 - Q3 Consumer Spending is Rising 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1
- 5. 124000 126000 128000 130000 132000 134000 136000 138000 140000 2000 - Jan 2000 - Jul 2001 - Jan In thousands 2001 - Jul In thousands 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 8 million job losses 2010 - Jan 2010 - Jul 2011 - Jan Total U.S. Payroll Jobs Increasing 2011 - Jul 4 million job gains 2012 - Jan
- 6. 8000 9000 11000 12000 13000 14000 10000 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul $ billion; not adjusted for inflation 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 Aggregate Personal Income Rising 2012 - Jan
- 7. 0 2 3 4 5 6 7 1 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul 2005 - Jan % of disposable personal income; 12-month average 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan 2007 - Jul 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan Savings Rate Rebounded 2010 - Jul 2011 - Jan 2011 - Jul 2012 - Jan
- 8. 0 20 40 60 80 100 140 160 120 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 Consumer Confidence … Subpar 2011 - Jul 100 needed to 2012 - Jan President victory assure incumbent
- 9. 300 320 360 380 400 420 340 2000 -… 2000 -… 2001 -… In thousands 2001 -… 2002 -… 2002 -… 2003 -… 2003 -… 2004 -… 2004 -… 2005 -… 2005 -… 2006 -… 2006 -… 2007 -… 2007 -… 2008 -… 2008 -… 2009 -… 2009 -… 2010 -… 2010 -… 2011 -… 2011 -… 2012 -… North Dakota … Jobs Everywhere
- 10. 3500 3700 3900 4100 4300 4500 4900 4700 2000 -… 2000 -… 2001 -… In thousands 2001 -… In thousands 2002 -… 2002 -… 2003 -… 2003 -… 2004 -… 2004 -… 2005 -… 2005 -… 2006 -… 2006 -… 2007 -… 2007 -… 2008 -… 2008 -… 2009 -… 2009 -… 2010 -… 2010 -… 2011 -… 2011 -… Michigan … Beginning to Smile 2012 -…
- 11. 1000000 1100000 1200000 400000 500000 600000 800000 900000 700000 2000 - Jan 2000 - Aug 2001 - Mar 12-month average 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 U.S. Car and Truck Production 2011 - Feb 2011 - Sep 2012 - Apr
- 12. 1000 1050 1100 1150 1200 1250 1350 1300 2000 -… 2000 -… 2001 -… In thousands 2001 -… In thousands 2002 -… 2002 -… 2003 -… 2003 -… 2004 -… 2004 -… 2005 -… 2005 -… 2006 -… 2006 -… 2007 -… 2007 -… 2008 -… 2008 -… 2009 -… 2009 -… the Big Housing Crash 2010 -… 2010 -… 2011 -… 2011 -… Nevada … Lagging for Now after 2012 -…
- 13. 10 20 30 -40 -30 -20 -10 0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 Non-residential fixed investment growth rate 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1 Business Spending … Grew, but now Pausing
- 14. -500 500 1000 1500 2000 2500 0 2000 - Q1 $ billion 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 Corporate Profits … Sky High 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1
- 15. 1000 1500 2000 2500 3000 3500 2005 - Jan 2005 - May 2005 - Sep 2006 - Jan 2006 - May 2006 - Sep 2007 - Jan 2007 - May 2007 - Sep 2008 - Jan 2008 - May NASDAQ 2008 - Sep 2009 - Jan 2009 - May 2009 - Sep 2010 - Jan 2010 - May 2010 - Sep S&P 500 (Almost 100% from low point) 2011 - Jan Strong Stock Market Recovery 2011 - May NASDAQ (More than 100% increase from low point) 2011 - Sep 2012 - Jan
- 16. 200000 250000 300000 400000 450000 350000 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan $ million; value of construction put in place 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 Tepid Commercial Construction 2011 - Jul 2012 - Jan
- 17. -4 -2 0 2 4 6 8 10 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 4-quarter moving average 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 State & Local 2010 - Q3 Federal 2011 - Q1 Government Spending/Investment 2011 - Q3 2012 - Q1
- 18. 2600 2650 2750 2800 2850 2900 2700 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 (excluding Census workers) 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan Federal Government Employees 2011 - Jul 2012 - Jan
- 19. 16500 17500 18000 18500 19000 19500 20000 17000 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 State & Local Government Employees 2012 - Jan
- 20. -1600000 -1400000 -1200000 -1000000 -800000 -600000 -400000 400000 -200000 200000 0 2000 - Jan 2000 - Aug 2001 - Mar 2001 - Oct 2002 - May 2002 - Dec 2003 - Jul 2004 - Feb $ million; 12-month Total 2004 - Sep 2005 - Apr 2005 - Nov 2006 - Jun 2007 - Jan 2007 - Aug (Standard & Poor’s Downgrade) 2008 - Mar 2008 - Oct 2009 - May 2009 - Dec U.S. Federal Budget Deficit 2010 - Jul 2011 - Feb 2011 - Sep 2012 - Apr
- 21. World Report Card Country 10-Year Borrowing Rate Germany 1.5% Singapore 1.5% United States 1.8% United Kingdom 2.0% Canada 2.0% France 2.8% Brazil 3.4% Italy 5.5% Spain 6.0% Greece 24.0% Source: Bloomberg
- 22. State Report Card State 10-year Borrowing Rate above Benchmark (% points) Average Benchmark Around 3.5% Rhode Island Benchmark + 0.5% Michigan Benchmark + 0.7% Nevada Benchmark + 0.7% California Benchmark + 0.9% Illinois Benchmark + 1.6% Source: WSJ
- 23. 800 1300 1800 2300 2800 3300 2000 - Q1 $ billion 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 (International Trade always falls during recessions) 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 Imports and Exports … Expanding Briskly 2012 - Q1
- 24. Consumer Price Inflation (Above Fed’s preferred 2% core inflation rate) Rent All Items Core % 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 -1 forecast forecast
- 25. 10 15 20 -20 -15 -10 -5 0 5 % 2000 - Jan 2000 - Jul 2001 - Jan 2001 - Jul 2002 - Jan 2002 - Jul 2003 - Jan 2003 - Jul 2004 - Jan 2004 - Jul Finished 2005 - Jan 2005 - Jul 2006 - Jan 2006 - Jul 2007 - Jan Diminishing 2007 - Jul Intermediate 2008 - Jan 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul 2011 - Jan 2011 - Jul Producer Price Inflationary Pressure … 2012 - Jan
- 26. Fed Policy and Interest Rates Fed Funds 10-year Treasury % 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 forecast forecast forecast
- 27. 10 20 30 -40 -30 -20 -10 0 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 Home Buyer Tax Credit Residential Investment Spending Growth 2011 - Q3 2012 - Q1
- 28. Economic Forecast (GDP = C + I + G + ∆NX) 2011 2012 2013 History Forecast Forecast GDP Growth +1.8% +2.4% +3.1% Payroll Job +1.7 million +2.2 million +2.5 million Gains Fed Funds Rate 0.1% 0.1% 0.1% 10-yr Treasury 2.8% 2.1% 2.5%
- 29. Risks to Economic Forecast Fiscal Cliff on January 1, 2013 … if no new compromised budget then … • Automatic deep cuts to military and domestic spending • Automatic higher taxes • 3% shaved off GDP growth, which is currently growing at 2%
- 31. Big Transactions Coming Back $2.5 million property and above Source: Real Capital Analytics, 4Q 2011.
- 32. REALTOR® Business Deals (Majority are less than $1 million)
- 35. -200 -100 0 100 200 300 400 500 2001 - Q1 $ billion 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 (excluding Federal Reserve) 2008 - Q3 2009 - Q1 2009 - Q3 Financial Industry Profits 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1
- 36. 25000 29000 31000 33000 35000 39000 41000 27000 37000 1980 - Q1 1981 - Q3 1983 - Q1 1984 - Q3 1986 - Q1 1987 - Q3 1989 - Q1 1990 - Q3 1992 - Q1 1993 - Q3 1995 - Q1 1996 - Q3 1998 - Q1 Rental Households 1999 - Q3 2001 - Q1 2002 - Q3 2004 - Q1 2005 - Q3 2007 - Q1 2008 - Q3 Rental Occupied Housing Units 2010 - Q1 2011 - Q3
- 37. Multifamily Vacancy Rate 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2001 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: REIS, Inc.
- 38. 0 1 2 3 4 5 -1 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 Rent Growth 2008 - Jan % change from one year ago 2008 - Jul 2009 - Jan 2009 - Jul 2010 - Jan 2010 - Jul (Component from Consumer Price Index) 2011 - Jan 2011 - Jul 2012 - Jan
- 39. Multifamily Fundamentals Completions Net Absorption Vacancy 250,000 9.0 8.0 200,000 7.0 150,000 6.0 5.0 100,000 4.0 50,000 3.0 2.0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1.0 -50,000 Source: NAR/REIS 0.0
- 40. Apartment Deals and Pricing Source: RCA, 4Q 2011.
- 41. Multifamily Vacancy Rates 9 8 7 6 5 4 3 2 1 0 Source: NAR/REIS
- 42. Office Fundamentals Completions Net Absorption Vacancy 150 20.0 Millions 18.0 100 16.0 14.0 50 12.0 0 10.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 8.0 -50 6.0 4.0 -100 2.0 Source: NAR/REIS -150 0.0
- 43. Office Deals and Pricing • Source: RCA, 4Q 2011. Source: RCA, 4Q 2011.
- 44. Office Vacancy Rates 30 25 20 15 10 5 0 Source: NAR/REIS
- 45. Industrial Fundamentals Completions Net Absorption Vacancy 150 14.0 Millions 12.0 100 10.0 50 8.0 0 6.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 4.0 -50 2.0 Source: NAR/REIS -100 0.0
- 46. Industrial Deals and Pricing Source: RCA, 4Q 2011.
- 47. Industrial Vacancy Rates 25 20 15 10 5 0 Source: NAR/REIS
- 48. Retail Fundamentals Completions Net Absorption Vacancy 40 14.0 Millions 30 12.0 20 10.0 10 8.0 0 6.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -10 4.0 -20 2.0 Source: NAR/REIS -30 0.0
- 49. Retail Deals and Pricing Source: RCA, 4Q 2011.
- 50. Retail Vacancy Rates 16 14 12 10 8 6 4 2 0 Source: NAR/REIS
- 51. Commercial Market Forecast OFFICE 2011 2012 2013 Vacancy Rate 16.6% 16.3% 15.9% Net Absorption ('000 sq. ft.) 20,178 31,700 53,000 Completions ('000 sq. ft.) 11,659 25,474 37,847 Rent Growth 1.4% 1.7% 2.4% INDUSTRIAL 2011 2012 2013 Vacancy Rate 12.4% 11.9% 11.1% Net Absorption ('000 sq. ft.) 61,957 41,249 59,855 Completions ('000 sq. ft.) 20,462 26,947 54,881 Rent Growth -0.5% 1.8% 2.3% RETAIL 2011 2012 2013 Vacancy Rate 12.9% 12.2% 11.0% Net Absorption ('000 sq. ft.) 1,238 13,547 23,330 Completions ('000 sq. ft.) 4,207 12,677 19,878 Rent Growth -0.2% 0.7% 1.4% MULTI-FAMILY 2011 2012 2013 Vacancy Rate 5.4% 4.6% 4.5% Net Absorption (Units) 238,398 126,621 102,687 Completions (Units) 38,014 88,839 93,706 Rent Growth 2.5% 3.5% 3.8%
- 52. Commercial Real Estate and Economic Outlook LAWRENCE YUN REALTORS® Midyear Meetings Marriott Wardman Park Washington, DC May 17, 2012
Editor's Notes
- Currently, deal flow remains significantly below the 2007 peak, but sizable transactions have been reported recently, and there has been a year-over-year improvement in transaction volume. In 2010, commercial real estate deal volume rose 124.3 percent year-over-year, to $122.7 billion, compared to $54.7 billion in 2009. Gains were higher for high-quality core assets, especially in the office segment, where sales volume rose 156.6 percent YoY to $41.1 billion in 2010, from $16.0 billion in 2009. The growth has continued so far in 2011, with CRE deal volume rising 69.5 percent YoY in 1Q11 to $30.5 billion. While this improvement is a positive development, it has yet to be sustained for a long enough to confirm 2009 as the bottom for transactions in this cycle. Transaction levels remain below peak, but private investors continue to account for the largest share of the total. The recent increase, however, has been driven by public investors (including REITs) and foreign investors, with both categories surpassing 2009 totals in 2010.