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2014 CALIFORNIA COMMERCIAL MARKET OUTLOOK Northern California Commercial Association January 24, 2014 Oscar Wei Senior Research Analyst.

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Presentation on theme: "2014 CALIFORNIA COMMERCIAL MARKET OUTLOOK Northern California Commercial Association January 24, 2014 Oscar Wei Senior Research Analyst."— Presentation transcript:

1 2014 CALIFORNIA COMMERCIAL MARKET OUTLOOK Northern California Commercial Association January 24, 2014 Oscar Wei Senior Research Analyst

2 Overview Economic Outlook California Housing Market Outlook Commercial Market Outlook Concluding Remarks

3 ECONOMIC OUTLOOK

4 So….what’s happening? Economy appears to be gaining strength Unemployment rate at 5 year low “Tapering” has begun : $85B /month bond- buying reduced by $10B/month Rates headed higher in 2014 Tax Reform: Mortgage Interest Deduction is on the table Future of Fannie and Freddie? Highly profitable today

5 Gross Domestic Product 2012: 2.2%; 2013 Q3: 4.1% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALLYQUARTERLY 2009 Largest Annual Drop since 1938 (-3.4%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

6 U.S. Non-farm Job Growth Recession Job Losses: 8.8 million Since Jan’10: +7.4 million MONTH TO MONTH CHANGE SERIES: Employment Growth SOURCE: US Bureau of Labor Statistics

7 Employment Growth, California vs. U.S. ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

8 Unemployment Rates Falling (Slowly) California (8.5%) vs. United States (7.0%) SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

9 Job Trends by California Metro Area SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division ANNUAL PERCENT CHANGE November 2013: CA +1.5%, +226,200

10 Consumer Confidence Index December 2013: 78.1 INDEX, 100=1985 SERIES: Consumer Confidence SOURCE: The Conference Board

11 Personal Consumption 2012: 1.9%; 2013 Q3: 2.0% ANNUAL PERCENT CHANGE ANNUALLYQUARTERLY SERIES: Personal Consumption SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

12 Retail Sales December 2013: Up 4.0% ANNUAL PERCENT CHANGE SERIES: Retail Trade Report SOURCE: US Census Bureau

13 U.S. Economic Outlook SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

14 California Economic Outlook SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

15 CALIFORNIA HOUSING MARKET OUTLOOK

16 Sales of Existing Detached Homes California, Dec. 2013 Sales: 361,890 Units, -5.9% YTD, -18.6% YTY *Sales are seasonally adjusted and annualizedSERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

17 Median Price of Existing Detached Homes California, December 2013: $438,040, Up 19.7% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

18 Unsold Inventory Index California, December 2013: 3.0 Months Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

19 California Housing Market Outlook SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

20 COMMERCIAL MARKETS OUTLOOK

21 Commercial Segments  Office  Industrial  Retail  Multi-Family

22 CRE Transactions volume up slightly SOURCE: Wells Fargo, Real Capital Analytics Billions of Dollars

23 Prices up sharply over the past year SOURCE: Wells Fargo, NCRIEF

24 CRE Cap Rate vs. 10-Year Treasury Yields SOURCE: Wells Fargo, Real Capital Analytics Percent Yield

25 Nonresidential construction spending bounced back in November… SOURCE: U.S. Dept. of Commerce

26 … but will it continue to rise in 2014? SOURCE: American Institute of Architects

27 OFFICE SPACE

28 Office Segment Drivers  Financial Services  Business Services  Government  Other Services

29 U.S. Outlook - Office SOURCE: National Association of REALTORS®, REIS

30 Increasing Workplace Density SOURCE: Cushman & Wakefield, Corenet Global 2013 Survey

31 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 2011-Q114.920.218.614.722.8 2011-Q214.919.818.314.823.0 2011-Q315.019.818.114.722.3 2011-Q415.220.618.014.821.9 2012-Q115.620.617.514.220.8 2012-Q215.520.917.313.919.9 2012-Q315.720.916.813.419.6 2012-Q415.721.016.413.819.0 2013-Q115.721.416.413.519.1 2013-Q216.021.416.313.618.8 2013-Q315.821.316.313.318.6 Vacancy Rates for the Office Segment SOURCE: National Association of REALTORS®, REIS

32 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 201115.220.618.014.821.9 201215.721.016.413.819.0 2013 P16.021.316.213.017.8 2014 F15.320.415.712.818.3 Vacancy Rates for the Office Segment SOURCE: National Association of REALTORS®, REIS

33 Average Asking Rents for the Office Segment SOURCE: National Association of REALTORS®, REIS

34 Average Asking Rents for the Office Segment SOURCE: National Association of REALTORS®, REIS

35 INDUSTRIAL SPACE

36 Industrial Segment Drivers  Manufacturing  Transportation & Logistics  Wholesale/Retail Trade

37 U.S. Outlook - Industrial SOURCE: National Association of REALTORS®, REIS

38 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 20115.114.29.013.117.9 20124.413.68.012.017.1 2013P4.012.67.111.116.8 2014F3.711.96.610.716.3 Vacancy Rates for the Industrial Segment SOURCE: National Association of REALTORS®, REIS

39 Average Asking Rents for the Industrial Segment SOURCE: National Association of REALTORS®, REIS

40 RETAIL SPACE

41 Retail Segment Drivers  Retail sales  Growth in economy & jobs  Consumer expenditures  Consumer credit

42 U.S. Outlook - Retail SOURCE: National Association of REALTORS®, REIS

43 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 2011-Q16.213.07.43.66.0 2011-Q26.212.77.33.86.1 2011-Q36.512.77.13.76.0 2011-Q46.512.46.73.76.0 2012-Q16.612.06.53.85.8 2012-Q26.311.96.43.95.9 2012-Q36.112.46.43.95.9 2012-Q46.212.76.33.76.0 2013 –Q16.112.96.43.65.9 2013-Q26.112.76.23.96.0 2013-Q36.012.56.23.95.8 Vacancy Rates for the Retail Segment SOURCE: National Association of REALTORS®, REIS

44 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 20116.512.46.73.76.0 20126.212.76.33.76.0 2013 P6.012.56.24.05.8 2014 F5.612.16.13.76.0 Vacancy Rates for the Retail Segment SOURCE: National Association of REALTORS®, REIS

45 Average Asking Rents for the Retail Segment SOURCE: National Association of REALTORS®, REIS

46 Average Asking Rents for the Retail Segment SOURCE: National Association of REALTORS®, REIS

47 MULTI-FAMILY

48 Pent-up demand continues to drive multifamily sector, while new supply still falls short Market conditions in multifamily rental housing have tightened since the housing crisis began; Renter share in California larger than US Sustained low household formation has caused unprecedented pent-up demand; New supply falls far short of potential demand; Key factor limiting rent growth: wages. Credit dings keep many households in the rental market and out of the housing market

49 Household formation plunged during the Great Recession, well below its trend pace Percent change over year ago Fitted Trend Source: U.S. Census Bureau, Haver Analytics.

50 Pent-Up Demand for Housing is Real Household Formation will Rebound with Jobs

51 U.S. Outlook – Multi-Family SOURCE: National Association of REALTORS®, REIS

52 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 2011-Q14.65.74.0 3.4 2011-Q24.45.43.73.83.2 2011-Q34.25.43.43.63.1 2011-Q43.94.83.13.42.9 2012-Q13.74.43.03.22.7 2012-Q23.64.33.03.12.5 2012-Q33.54.23.03.22.7 2012-Q43.33.82.73.32.8 2013-Q13.23.72.43.22.5 2013-Q23.23.62.53.13.0 2013-Q33.23.42.33.12.9 Vacancy Rates for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS

53 Los AngelesSacramentoSan DiegoSan FranciscoSan Jose 20113.94.83.13.42.9 20123.33.82.73.32.8 2013 P3.13.22.13.12.8 2014 F3.23.02.33.1 Vacancy Rates for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS

54 Average Asking Rents for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS

55 Average Asking Rents for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS

56 SERIES: New Housing Permits SOURCE: Construction Industry Research Board New Housing Permits California, Nov. 2013: 6,673 Units, Up 40.6% YTD

57 New Housing Permits Los Angeles County, November 2013: 1,683 Units, Up 37.9% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

58 New Housing Permits Sacramento County, Nov. 2013: 113 Units, +53.5% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

59 New Housing Permits San Diego County, Nov. 2013: 1,256 Units, +37.2% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

60 New Housing Permits San Francisco County, Nov. 2013: 466 Units, +103.4% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

61 New Housing Permits Santa Clara County, Nov. 2013: 365 Units, +4.7% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

62 CONCLUDING REMARKS

63 Commercial RE Outlook Office  Demand for office space increases, as employment rises, but is affected by firms’ decision to increase workplace density  Markets with high concentrations of energy or tech companies see stronger growth  Decline in vacancy rate accompanied with moderate growth in rents Industrial  Demand for industrial spaces remains strong as online shopping continues to grow  Vacancy rates low in LA and OC  Rents rising modestly in 2013 and 2014  Construction activity remains strong SOURCE: National Association of REALTORS®

64 Commercial RE Outlook Retail  The market remains in slow motion as retailers continue to be cautious  Growth has been uneven due to the increasing divide of the consumer base  Rent will inch up slightly Multi-Family  Pent-Up demand continues to fuel the apartment rental market  Vacancy rate dropped to 4.0% in 2014(from 5.2% in 2011)  Rent growth subdued in near term as wage and salary growth remain sluggish SOURCE: National Association of REALTORS®

65 http://www.car.org/marketdata/mapwww.car.org/marketdata/map

66 For more information: http://www.facebook.com/CARResearchgroup http://www.facebook.com/CARResearchgroup

67 C.A.R. Finance Helpline Finance.car.org (213) 739-8383 Get one-on-one assistance with short sales, funding, REOs, Deeds in Lieu, and closing transactions. NEW C.A.R. Member Benefit for 2013!

68 THANK YOU! WWW.CAR.ORG/MARKETDATA OSCARW@CAR.ORG


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