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THE Economy and REAL ESTATE

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Title: THE Economy and REAL ESTATE


1
THE Economy and REAL ESTATE
  • GARY BARAGONA
  • DIRECTOR, RESEARCH ANALYSIS
  • JANUARY 2014

2
TOPICS COVERED
U.S. Economy Southern California
Economy Mega-Trend Workplace Strategy Mega-Tren
d E-Commerce U.S. Property Market
Fundamentals Los Angeles Market Fundamentals
3
U.S. ECONOMY
4
U.S. ECONOMY
  • Economic growth will strengthen in 2014
  • Jobs are everything
  • Industrial indicators are solid
  • Resurgent housing market

5
U.S. ECONOMIC EXPANSION OUTLOOK
Annual Change
FORECAST
Source HIS Global Insight
6
U.S. JOB GROWTH SLOW AND STEADY
U.S. Total Nonfarm Payroll, Annual Net Jobs
(1000s)
FORECAST
Source U.S. Bureau of Labor Statistics, Moodys
Analytics
7
Return to Previous peak in EARLY 2014
U.S. Total Nonfarm Payroll, (Millions of Jobs)
FORECAST
Source U.S. Bureau of Labor Statistics, Moodys
Analytics
8
recovery TRAILS PAST CYCLES
Monthly Job Growth Index (Business Cycle Peak100)
Source U.S. Bureau of Labor Statistics
9
GROWTH RATE VARIES BY REGION
Monthly Job Growth Index (Dec 2007100)
Source U.S. Bureau of Labor Statistics
10
Tech energy markets LEADING
Office-Using Employment Outlook, CAGR 2013-2018
Source U.S. Bureau of Labor Statistics (BLS)
Current Employment Statistics (CES), Quarterly
Census of Employment and Wages (QCEW) Moody's
Analytics (ECCA) Estimates
11
U.S. INDUSTRIAL PRODUCTION
Industrial production is just shy of
pre-recession levels
Source Federal Reserve
12
U.S. IMPORTS EXPORTS
Imports are stronger than they appear once oil is
excluded
Source U.S. Census Bureau
13
HOUSING PRICES CONTINUE TO GROW
SP/Case-Shiller Home Price Index
Source SP Case-Shiller Index
14
RETAIL SALES
Housing Recovery Boosts Retail Sales
Source U.S. Census Bureau
15
SOUTHERN CALIFORNIA ECONOMY
16
Positive but lackluster JOB GROWTH
Southern California Year-Over-Year Employment
Growth
FORECAST
Source CBRE Econometric Advisors, Economy.com
17
SOUTHERN CALIFORNIA ECONOMY
Total Employment Forecast (in Millions)
90 MONTHS TO REACH PREVIOUS PEAK WE ARE
ONLY HALF WAY THERE
Source CBRE Econometric Advisors, Economy.com
18
SOUTHERN CALIFORNIA ECONOMY
Hospitality leisure, construction, education
health services, professional business services
technology will lead the way
Source CBRE Econometric Advisors, Economy.com
19
MEGA-TRENDSWORKPLACE STRATEGY E-COMMERCE
20
MEGA-TREND WORKPLACE STRATEGY
Underutilized space and modern design slow
occupancy growth
Source CBRE Econometric Advisors, Moodys
Analytics
21
MEGA-TREND E-commerce
E-commerce will drive demand for industrial space
and continue to reshape the retail market
Source CBRE Econometric Advisors, Moodys
Analytics
22
U.S. PROPERTY MARKET FUNDAMENTALS
23
Property sector trajectory
    2013 Q4 Past Cyclic High Natural Rate Year Back to "Natural Rate"
Office Vacancy Rate 15.0 16.8 / 2010 13 to 15 2013
Industrial Availability Rate 11.5 14.5 / 2010 9 to 10 2015
Retail Availability Rate 12.0 13.2 / 2011 9 to 10 2016
Multifamily Vacancy Rate 5.3 7.4 / 2009 5 to 6 2010

Source CBRE Research, CBRE Econometric Advisors
24
PROPERTY sector trends
  • OFFICE
  • Urbanization densification
  • Impact of workplace strategy
  • Investor interest in suburban, non-gateway
    markets
  • Tech markets leading the way
  • INDUSTRIAL
  • Supply chain efficiencies
  • Peak manufacturing productivity
  • Impact of e-commerce
  • More speculative construction but still in check
  • RETAIL
  • High-street retail still strong
  • E-commerce growing impact
  • Omni channel strategies
  • Shrinking retail footprints

25
U.S. OFFICE RENT CYCLE Q4 2013
Atlanta
Dallas (Suburban)
Seattle
Boston
Orange County
San Diego
Source CBRE Research
26
RENT GROWTH LED BY TECH MARKETS
5-Year Annualized Rent Growth (), Largest 20
Office Markets
Source CBRE Econometric Advisors
27
OFFICE OUTLOOK
Completions, Net Absorption Vacancy Rate
FORECAST
Source CBRE Research, CBRE Econometric
Advisors
28
INDUSTRIAL OUTLOOK
Completions, Net Absorption Availability Rate
FORECAST
Source CBRE Research, CBRE Econometric
Advisors
29
RETAIL OUTLOOK
Completions, Net Absorption Availability Rate
FORECAST
Source CBRE Research, CBRE Econometric
Advisors
30
Real estate investment trends
  • Increased global interest in U.S. markets
  • 2013 saw the beginning of interest rate
    increases. In 2014, look for the end of cap rate
    compression and a new era of NOI growth.
  • Expect improved economic performance to
    correspond with interest rate increase
  • Expect spreads to between primary secondary
    markets to compress

31
NATIONAL INVESTMENT SALES
Sales Volume ( Billions)
Source Real Capital Analytics
32
INTEREST RATE
U.S. Ten Year Treasury Bonds
FORECAST
Source Federal Reserve
33
A RANGE OF OPINIONS
Q2 Survey of economists places the 10-year
treasury at 3.5 at the end of 2014
34
CAP RATE FORECAST
Average CAP rates in all product types will
remain flat in the near term
FORECAST
Source CBRE Econometric Advisors, NCREIF
35
LOS ANGELES MARKET FUNDAMENTALS
36
LOS ANGELES OFFICE OUTLOOK
Vacancy Rate Avg Asking Lease Rate
FORECAST
Source CBRE Research, CBRE Econometric Advisors
37
LOS ANGELES OFFICE
Market dynamics vary greatly on the submarket area
Source CBRE Research
38
LOS ANGELES OFFICE
Market dynamics vary greatly on the submarket area
Source CBRE Research
39
LOS ANGELES INDUSTRIAL OUTLOOK
Availability Rate Avg Asking Lease Rate
FORECAST
Source CBRE Research, CBRE Econometric Advisors
40
LOS ANGELES RETAIL OUTLOOK
Availability Rate Avg Asking Lease Rate
FORECAST
Source CBRE Research, CBRE Econometric Advisors
41
THE Economy and REAL ESTATE
  • GARY BARAGONA
  • DIRECTOR, RESEARCH ANALYSIS
  • JANUARY 2014
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