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GLOBAL RESEARCH AND CONSULTING THE ECONOMY AND REAL ESTATE GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014
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2 GLOBAL RESEARCH AND CONSULTING TOPICS COVERED U.S. Economy Southern California Economy Mega-Trend: Workplace Strategy Mega-Trend: E-Commerce U.S. Property Market Fundamentals Los Angeles Market Fundamentals
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GLOBAL RESEARCH AND CONSULTING U.S. ECONOMY
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4 GLOBAL RESEARCH AND CONSULTING U.S. ECONOMY Economic growth will strengthen in 2014 Jobs are everything Industrial indicators are solid Resurgent housing market
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5 GLOBAL RESEARCH AND CONSULTING FORECAST U.S. ECONOMIC EXPANSION OUTLOOK Annual % Change Source: HIS Global Insight
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6 GLOBAL RESEARCH AND CONSULTING FORECAST U.S. JOB GROWTH SLOW AND STEADY U.S. Total Nonfarm Payroll, Annual Net Jobs (1000s) Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
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7 GLOBAL RESEARCH AND CONSULTING FORECAST RETURN TO PREVIOUS PEAK IN EARLY 2014 U.S. Total Nonfarm Payroll, (Millions of Jobs) Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
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8 GLOBAL RESEARCH AND CONSULTING RECOVERY TRAILS PAST CYCLES Monthly Job Growth Index (Business Cycle Peak=100) Source: U.S. Bureau of Labor Statistics
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9 GLOBAL RESEARCH AND CONSULTING GROWTH RATE VARIES BY REGION Monthly Job Growth Index (Dec 2007=100) Source: U.S. Bureau of Labor Statistics
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10 GLOBAL RESEARCH AND CONSULTING 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
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11 GLOBAL RESEARCH AND CONSULTING U.S. INDUSTRIAL PRODUCTION Industrial production is just shy of pre-recession levels Source: Federal Reserve
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12 GLOBAL RESEARCH AND CONSULTING U.S. IMPORTS & EXPORTS Imports are stronger than they appear once oil is excluded Source: U.S. Census Bureau
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13 GLOBAL RESEARCH AND CONSULTING HOUSING PRICES CONTINUE TO GROW S&P/Case-Shiller Home Price Index Source: S&P Case-Shiller Index
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14 GLOBAL RESEARCH AND CONSULTING RETAIL SALES Housing Recovery Boosts Retail Sales Source: U.S. Census Bureau
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GLOBAL RESEARCH AND CONSULTING SOUTHERN CALIFORNIA ECONOMY
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16 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com POSITIVE BUT LACKLUSTER JOB GROWTH Southern California: Year-Over-Year Employment Growth FORECAST
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17 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com SOUTHERN CALIFORNIA ECONOMY Total Employment Forecast (in Millions) 90+ MONTHS TO REACH PREVIOUS PEAK WE ARE ONLY HALF WAY THERE
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18 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Economy.com SOUTHERN CALIFORNIA ECONOMY Hospitality & leisure, construction, education & health services, professional & business services & technology will lead the way
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GLOBAL RESEARCH AND CONSULTING MEGA-TRENDS: WORKPLACE STRATEGY & E-COMMERCE
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20 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Moody’s Analytics MEGA-TREND: WORKPLACE STRATEGY Underutilized space and modern design slow occupancy growth
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21 GLOBAL RESEARCH AND CONSULTING Source: CBRE Econometric Advisors, Moody’s Analytics MEGA-TREND: E-COMMERCE E-commerce will drive demand for industrial space and continue to reshape the retail market
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GLOBAL RESEARCH AND CONSULTING U.S. PROPERTY MARKET FUNDAMENTALS
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23 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors PROPERTY SECTOR TRAJECTORY 2013 Q4 Past Cyclic High “Natural Rate” Year Back to "Natural Rate" Office Vacancy Rate15.016.8 / 2010 13 to 15 2013 Industrial Availability Rate11.514.5 / 2010 9 to 10 2015 Retail Availability Rate12.013.2 / 2011 9 to 10 2016 Multifamily Vacancy Rate5.37.4 / 2009 5 to 6 2010
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24 GLOBAL RESEARCH AND CONSULTING 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
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25 GLOBAL RESEARCH AND CONSULTING S L M N A C D D L P P S W A B D N S H San Diego Orange County O Atlanta Dallas (Suburban) Boston Seattle U.S. OFFICE RENT CYCLE Q4 2013 Source: CBRE Research
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26 GLOBAL RESEARCH AND CONSULTING RENT GROWTH LED BY TECH MARKETS 5-Year Annualized Rent Growth (%), Largest 20 Office Markets Source: CBRE Econometric Advisors
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27 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Completions, Net Absorption & Vacancy Rate OFFICE OUTLOOK FORECAST
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28 GLOBAL RESEARCH AND CONSULTING Completions, Net Absorption & Availability Rate FORECAST INDUSTRIAL OUTLOOK Source: CBRE Research, CBRE Econometric Advisors
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29 GLOBAL RESEARCH AND CONSULTING Completions, Net Absorption & Availability Rate FORECAST RETAIL OUTLOOK Source: CBRE Research, CBRE Econometric Advisors
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30 GLOBAL RESEARCH AND CONSULTING 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
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31 GLOBAL RESEARCH AND CONSULTING Sales Volume ($ Billions) NATIONAL INVESTMENT SALES Source: Real Capital Analytics
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32 GLOBAL RESEARCH AND CONSULTING U.S. Ten Year Treasury Bonds INTEREST RATE Source: Federal Reserve FORECAST
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33 GLOBAL RESEARCH AND CONSULTING Q2 Survey of economists places the 10-year treasury at 3.5% at the end of 2014 A RANGE OF OPINIONS
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34 GLOBAL RESEARCH AND CONSULTING Average CAP rates in all product types will remain flat in the near term FORECAST CAP RATE FORECAST Source: CBRE Econometric Advisors, NCREIF
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GLOBAL RESEARCH AND CONSULTING LOS ANGELES MARKET FUNDAMENTALS
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36 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Vacancy Rate & Avg Asking Lease Rate LOS ANGELES OFFICE OUTLOOK FORECAST
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37 GLOBAL RESEARCH AND CONSULTING LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research
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38 GLOBAL RESEARCH AND CONSULTING LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research
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39 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Availability Rate & Avg Asking Lease Rate LOS ANGELES INDUSTRIAL OUTLOOK FORECAST
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40 GLOBAL RESEARCH AND CONSULTING Source: CBRE Research, CBRE Econometric Advisors Availability Rate & Avg Asking Lease Rate LOS ANGELES RETAIL OUTLOOK FORECAST
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GLOBAL RESEARCH AND CONSULTING THE ECONOMY AND REAL ESTATE GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014
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