Commercial Real Estate Outlook February 2013

7/29/2019 Commercial Real Estate Outlook February 2013

1/9

COMMERCIAL REAL ESTATEOUTLOOKByLawrence YunChief Economist & Sr. Vice President

George RatiuManager, Quantitative & Commercial Research

Based on early estimates, economic activityclosed 2012 on a mixed note. Though gross

domestic product grew at 2.2 percent for thewhole year, the fourth quarter results weredisappointing, showing a 0.1 percentdecline. A large 22.2 percent cut in defensespending at the federal level (coming after asurprisingly high defense spending growthin the prior quarter) and a large negativechange in private business inventories werekey reasons for the mild contraction in theeconomy.

The year-end brought closure to severalsources of uncertainty while opening newones. The presidential election is over andthe fiscal cliff uncertainty was partially

solved by allowing some provisions to revertto normal (the payroll tax returning to 6.2percent), while kicking the can down theroad on others (sequestration). Thehousing market continued to firm up nicelywith housing starts recording 27 percentgain for the year while new home sales rose

20.0 percent from the prior year. Existinghome sales grew by 9.0 percent during theyear, with shrinking inventories driving upprices of existing homes. Rising homesprices elevated homeowners housing

equity by $1.5 trillion over the past twoyears. The housing wealth gain is helpingconsumers to hum along at around 2percent growth. In light of these factors,SIOR members recorded a positive fourthquarter.

Looking at the yearly economic activity asmeasured by gross domestic product(GDP), most major components postedpositive growth. Based on the Bureau ofEconomic Analysiss first estimate, both

consumers and businesses increased theispending over 2012. Consumer spendingrose 1.9 percent during the year, driven by7.8 percent rise in expenditures on durablegoods. Consumers spent more in 2012 oncars (up 7.7%), furnishings and householdequipment (up 5.8%), as well asrecreational goods and vehicles (up 10.9%Consumers spending on services alsoincreased, by a more modest 1.3 percent.

Private businesses, while maintaining acautious attitude given the uncertaintiespresent during 2012, upped their spendingby 7.7 percent over the year, the secondhighest annual rate since the recession.This increase was welcoming given thepossibility of stalling from the fiscal cliffnews headlines throughout the quarter.

(continued on page 2)

Economy Advances 2.2 Percent in 2012

NATIONAL ASSOCIATION OF REALTORS | RESEARCH DIVISIO

1.9

-0.3

-3.1

2.41.8 2.2

2007 2008 2009 2010 2011 2012

GDP (% Annual Chg.)

Source: B


2/9

2

ntinued from page 1)

ending on commercial structures rose 9.6 percent, in asitive turn for commercial real estate. Companies alsoent more on equipment and software, especiallynsportation equipment, which increased 17.8 percentring the year. Spending on industrial equipmentvanced 7.0 percent, while on information processing itew by 3.8 percent.

e winds of international trade blew favorably for U.S.mpanies during 2012. Both exports and imports

reased during the year, by 3.2 percent and 2.5 percent,pectively. Benefitting from a competitive exchangee, U.S. companies increased their exports of goods bypercent and services by 1.3 percent. In addition,

port of goods also rose, by 2.2 percent, providingong demand for the industrial sector. The net exportsure was a positive $2.5 billion for the year.

vernment spending declined 1.7 percent, driven bydget cuts at federal, state and local levels. At theeral level, both defense and nondefense cuts added to

.2 percent decrease in spending. Still working throughwer revenues, state and local governments continued tosh spending by 1.3 percent.

the employment front, despite a midyear slump, theerall picture was positivethe economy recorded a net

million new jobs, the strongest yearly growth in thest three years. Added to the totals from 2010 and11, there have been 4.9 million new jobs added post-ession. Given the 8.7 million jobs lost during theession, it is obvious that we still have a large gap

maining. However, the trend is encouraging.

e forecast is for GDP growth of 2.3 percent in 2013h another 2 million jobs added to the economy.ough improving, the sub-par recovery performance willep the unemployment rate well above 7.0 percentoughout this year.

ntinued on page 3)

COMMERCIAL REAL ESTAT

OUTLOOK

NATIONAL 2.54%

OFFICE 2.17%

INDUSTRIAL 2.37%

RETAIL 2.97%

APARTMENT 2.81%

Source: National Council of Real Estate Investment Fiduciaries

ATIONAL ASSOCIATION of REALTORS | RESEARCH DIVISION | www.realtors.org/research-and-statistics

-200 0 200 400 6

Mining/Logging

Construction

Manufacturing

Trade/Transp./Utilities

Information

Financial activities

rof. & Business Svcs.

Ed. & Health Svcs.

Leisure & Hospitality

Other Services

Government

2012 Payroll Employment Gains

Source: Bureau of Labor Statist


3/9

3

ntinued from page 2)

mmercial Real Estate

th modestly improving macroeconomic conditions,mmercial markets across the country notchediceable growth. As employment in office-centeredustries continued to rise, demand for office buildingsvanced. For office properties, net absorption ispected to total 33.9 million square feet this year,ding to a projected 15.9 percent vacancy rate at the

se of the year. The decline in vacancy is expected toaccompanied by a 2.6 percent rise in rents.

th growing trade, demand for industrial spacesmained strong, as leasing activity increased in therth quarter. Absorption in the industrial sector is

pected to reach 121.8 million square feet this year,ulting in a 9.5 percent vacancy rate and a 2.3 percentt rise.

th cautious consumers keeping spending on a

derate path, the retail sector is expected to absorb a11.9 million square feet this year. Retail availability likely decline to 10.6 percent for the year, and rent will

e 1.5 percent.

e apartment rental market continues to performongly and is expected to post good results for the year.t absorption is expected to exceed 270,000 units thisar, keeping the vacancy rate at 3.9 percent (from 5.2%2011). Rent is projected to rise 4.6 percent this yeard an additional 4.7 percent in 2014.


OUTLOOK


2011 2012 2013 20

Annual Growth Rate, %

Real GDP 1.8 2.1 2.2 3.

Nonfarm Payroll

Employment 1.2 1.4 1.3 1.Consumer Prices 3.1 2.1 2.6 3.

Level

Consumer Confidence 58.0 69.0 78.0 89

Percent

Unemployment 8.9 8.1 7.7 7.

Fed Funds Rate 0.1 0.1 0.1 0.

3-Month T-bill Rate 0.1 0.1 0.1 0.

Corporate Aaa Bond Yield 4.6 3.7 4.0 4.

10-Year Govt Bond 2.8 1.8 2.1 2.30-Year Govt Bond 3.9 2.9 3.2 4.

Source: National Association of REALTORS


4/9

4

2013 I 2013 II 2013 III 2013 IV 2014 I 2014 II 2014 III 2013 201

ncy Rate 16.0% 15.9% 15.7% 15.6% 15.6% 15.7% 15.6% 15.9% 15.7

Absorption

0 sq. ft.) 10,268 6,310 8,955 8,440 13,128 8,046 11,858 33,973 42,3

pletions ('000 sq. ft.) 7,220 7,275 6,030 5,494 8,598 8,663 7,181 26,019 30,9

ntory ('000,000 sq. ft.) 4,096 4,103 4,109 4,115 4,123 4,132 4,139 4,115 4,14

Growth 0.6% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7% 2.6% 2.8

2013 I 2013 II 2013 III 2013 IV 2014 I 2014 II 2014 III 2013 201

ncy Rate 9.6% 9.5% 9.5% 9.4% 9.2% 9.0% 9.0% 9.5% 9.0

Absorption

0 sq. ft.) 24,354 21,919 38,966 36,531 20,695 18,625 33,112 121,770 103,4

pletions ('000 sq. ft.) 12,643 13,448 8,787 8,362 18,849 20,050 13,101 43,241 64,4

ntory ('000,000 sq. ft.) 8,421 8,435 8,444 8,452 8,471 8,491 8,504 8,452 8,5

Growth 0.5% 0.6% 0.5% 0.7% 0.6% 0.7% 0.7% 2.3% 2.6

2013 I 2013 II 2013 III 2013 IV 2014 I 2014 II 2014 III 2013 201ncy Rate 10.7% 10.6% 10.6% 10.5% 10.4% 10.1% 10.0% 10.6% 10.1

Absorption

0 sq. ft.) 4,297 2,865 1,910 2,865 5,899 3,933 2,622 11,935 16,3

pletions ('000 sq. ft.) 1,981 1,712 1,923 1,964 3,328 2,876 3,231 7,580 12,7

ntory ('000,000 sq. ft.) 2,034 2,036 2,038 2,039 2,043 2,046 2,049 2,039 2,05

Growth 0.2% 0.3% 0.5% 0.5% 0.5% 0.5% 0.5% 1.5% 2.1

2013 I 2013 II 2013 III 2013 IV 2014 I 2014 II 2014 III 2013 201

ncy Rate 4.0% 3.9% 3.9% 3.8% 3.9% 4.0% 4.0% 3.9% 4.0

Absorption (Units) 64,954 67,661 56,835 81,193 60,759 63,290 53,164 270,643 253,

pletions (Units) 31,851 40,457 36,945 39,205 36,251 46,045 42,047 148,458 168,

ntory

ts in millions) 9.9 9.9 10.0 10.0 10.1 10.1 10.2 10.0 10

Growth 1.0% 1.1% 1.2% 1.3% 1.2% 1.2% 1.2% 4.6% 4.7

ce: National Association of REALTORS / Reis, Inc.


OUTLOOK



5/9

5ATIONAL ASSOCIATION of REALTORS | RESEARCH DIVISION | www.realtors.org/research-and-statistics

ce: NAR, Reis, Inc. Office Industrial Retail Multifamiquerque NM 17.2 10.9 3.8

nta GA 20.6 14.5 14.1 6.5

tin TX 16.4 12.5 6.9 4.7

more MD 16.7 12.6 6.7 3.7

mingham AL 12.3 14.6 5.6

on MA 14.2 19.1 6.8 3.3

alo NY 14.6 13.7 3.5

tral New Jersey NJ 22.5 9.8 2.7

rleston SC 16.3 11.6 5.1

rlotte NC 17.1 12.8 9.7 5.2

ttanooga TN 14.9 13.1 2.8

ago IL 18.5 8.9 11.2 3.8

innati OH 19.8 7.8 13.5 3.9

eland OH 20.6 8.3 14.6 3.2

rado Springs CO 19.3 15.2 4.7

mbia SC 17.4 11.2 6.9

mbus OH 17.5 8.9 15.5 5.0

as TX 23.2 12.3 13.4 5.5

ton OH 26.3 15.8 4.3ver CO 17.5 7.8 12.0 3.5

oit MI 25.7 11.6 11.6 3.9

rict of Columbia DC 9.4 3.9

field County CT 20.8 4.2 4.2

Lauderdale FL 19.6 9.2 10.5 3.9

Worth TX 16.8 10.6 12.5 5.1

ensboro/Winston-Salem NC 20.7 11.3 6.6

enville SC 19.4 13.8 4.9

ford CT 20.1 9.7 2.9ston TX 14.0 7.7 12.1 6.9

anapolis IN 19.8 9.0 15.0 4.9

sonville FL 20.7 7.3 12.3 7.0

sas City MO 17.7 10.2 11.3 4.5

xville TN 15.4 10.5 5.4

Vegas NV 25.9 12.9 5.9

ngton KY 14.7 8.5 5.2

e Rock AR 12.1 12.2 5.5

g Island NY 13.4 6.5 5.3 3.0


OUTLOOK


6/9

6

ce: NAR, Reis, Inc. Office Industrial Retail MultifamiAngeles CA 15.6 3.6 6.1 3.3

sville KY 15.4 10.0 4.3

mphis TN 23.0 14.8 12.5 8.6

mi FL 17.0 5.6 7.0 3.5

waukee WI 19.2 12.3 3.4

neapolis MN 17.8 7.6 11.2 2.5

hville TN 13.5 8.1 8.6 4.0

w Haven CT 18.1 12.6 2.0

w Orleans LA 12.7 10.9 6.4w York NY 9.6 2.1

folk/Hampton Roads VA 14.8 10.0 3.9

thern New Jersey NJ 19.5 5.4 3.3

and-East Bay CA 18.2 9.0 6.2 2.8

homa City OK 16.5 13.4 6.4

aha NE 15.4 8.4 3.7

nge County CA 17.5 3.6 5.2 3.3

ndo FL 18.3 11.2 13.5 4.9

m Beach FL 19.2 7.2 11.7 4.9adelphia PA 14.3 10.0 9.2 3.4

enix AZ 25.3 10.7 11.3 5.5

burgh PA 15.6 8.7 7.7 3.0

land OR 15.0 7.7 8.4 2.9

vidence RI 16.7 13.1 3.3

igh-Durham NC 15.2 16.5 9.2 4.5

mond VA 15.1 15.2 9.7 4.7

hester NY 16.4 12.7 2.9

amento CA 20.6 12.4 12.1 3.3Lake City UT 17.3 12.5 3.6

Antonio TX 18.5 7.6 11.3 6.2

Bernardino/Riverside CA 23.7 7.2 9.6 3.5

Diego CA 15.7 6.6 6.1 2.6

Francisco CA 13.6 11.1 3.5 3.0

Jose CA 18.2 16.0 6.1 3.2

tle WA 13.8 6.0 6.9 4.2

ouis MO 17.9 6.4 12.2 5.0


OUTLOOK



7/9

7

ce: NAR, Reis, Inc. Office Industrial Retail Multifamiurban Maryland MD 14.8 10.6 8.6 3.7

urban Virginia VA 15.9 10.1 6.8 3.6

cuse NY 15.5 15.2 2.5

oma WA 17.1 12.0 4.2

pa-St. Petersburg FL 20.5 7.9 11.2 5.1

on AZ 16.0 9.5 5.4

a OK 17.3 16.6 5.4

tura County CA 16.2 9.2 3.1

tchester NY 17.4 8.0 3.4hita KS 16.0 12.6 4.7


OUTLOOK



8/9

8

OFFICE

Region Average Cap Rate Average Price ($/Sq. FtMid-Atlantic 6.7% $236

Midwest 8.1% $123

Northeast 6.4% $332

Southeast 7.9% $138

Southwest 7.6% $162

West 6.6% $295

INDUSTRIALRegion Average Cap Rate Average Price ($/Sq. FtMid-Atlantic 7.9% $62

Midwest 8.4% $38

Northeast 7.9% $86

Southeast 8.0% $44

Southwest 7.9% $59

West 7.1% $90

RETAIL

Region Average Cap Rate Average Price ($/Sq. FtMid-Atlantic 7.2% $144

Midwest 7.5% $141

Northeast 6.9% $427

Southeast 7.7% $139

Southwest 7.4% $145

West 6.9% $214

MULTI-FAMILY

Region Average Cap Rate Average Price ($/Unit)Mid-Atlantic 6.6% $131,207Midwest 7.2% $78,763

Northeast 5.8% $218,357

Southeast 6.6% $73,659

Southwest 6.6% $83,135

West 5.6% $152,605

Note: Data as of 1/23/20Source: Real Capital Analyt


OUTLOOK

$-

$10

$20

$30

$40

11Q4 12Q1 12Q2 12Q3 12Q4

Office Sales

$-

$5

$10

$15

11Q4 12Q1 12Q2 12Q3 12Q4

Industrial Sales

$-

$5

$10

$15

$20

11Q4 12Q1 12Q2 12Q3 12Q4

Retail Sales

$-

$10

$20

$30

11Q4 12Q1 12Q2 12Q3 12Q4

Apartment Sales



9/9

9

The Research Division of the National Association of REALTORS monitors andanalyzes monthly and quarterly economic indicators, including retail sales,industrial production, producer price index, gross domestic product andemployment data which impact commercial markets over time. In addition, theResearch Division provides several products covering commercial real estate:

Commercial Real Estate Quarterly Market Survey

Commercial Real Estate Lending Survey

Commercial Member Profile

If you have questions or comments regarding this report or any other commercialreal estate research, please contact George Ratiu, Manager, Quantitative &Commercial Research, at [email protected].

Although the information presented in this report has been obtained from reliablesources, NAR does not guarantee its accuracy, and such information may beincomplete. This report is for information purposes only. All opinions, assumptionsand estimates constitute NARs judgment as of the date of this publication and are

subject to change and evolving events. Actual results may vary from forecastresults.

For more information, please visit us:

Copyright 2013 NATIONAL ASSOCIATION OF REALTORS. Reproduction,reprinting or retransmission in any form is prohibited without written permission. Forquestions regarding this matter please e-mail [email protected].

0 New Jersey Avenue, NW Washington, DC 200012020

0.874.6500 www.REALTOR.org


OUTLOOK

www.facebook.com/narresearchgroup

twitter.com/#!/NAR_Research

REALTOR.org/research-and-statistics

economistsoutlook.blogs.realtor.org

Commercial Real Estate Outlook February 2013

Documents

Transcript of Commercial Real Estate Outlook February 2013