Quarterly Market Trends: Fourth Quarter 2013

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Transcript of Quarterly Market Trends: Fourth Quarter 2013

  • 1. Foreword January 2014 Dear CCIM Institute members, Welcome to the fourth-quarter 2013 edition of CCIM Institutes Quarterly Market Trends. The report provides timely insight into major commercial real estate indicators for core income-producing properties. It is produced by the National Association of Realtors in conjunction with and for members of the CCIM Institute, the commercial real estate industrys global standard for professional achievement. The fourth-quarter 2013 report features commentary from Lawrence Yun, Ph.D., NAR chief economist, and George Ratiu, director of NARs quantitative and commercial research. It also includes market data collected from CCIM members that illustrate regional economic and transactional trends across the U.S. Id like to thank the CCIM members who participated in the survey and shared insights on their local markets. I hope that the information provided in CCIMs Quarterly Market Trends report provides both economic and commercial real estate market information that will assist you in your business strategies in 2014 and beyond. Sincerely, Karl Landreneau, CCIM 2014 CCIM Institute President klandreneau@latterblum.com CCIM QUARTERLY MARKET TRENDS NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 2
  • 2. Table of Contents U.S. Economic Overviewp. 4 Commercial Real Estate Forecast p. 8 CCIM Market and Transaction Highlights p. 16 Commercial Property Sector Analysis p. 17 CCIM Survey Resultsp. 20 U.S. Metropolitan Economic Outlook p. 24 Sponsorsp. 29 Contributorsp. 30 CCIM QUARTERLY MARKET TRENDS NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 3
  • 3. U.S. Economic Overview The U.S. economy is expected to continue its slow upward trajectory through 2015. A wide variety of economic variables can impact commercial real estate sales, but trends in three key variables gross domestic product, employment, and interest rates generally summarize the outlook for commercial real estate in the near term. GDP and employment are in coupled with a normal economic slowdown, a slow growth mode, and interest rates are projected resulting in a sharp recession, significantly lower to continue to be favorable to sales. Accordingly, the levels of consumer confidence, and high levels commercial real estate sales outlook is positive, but of unemployment. Annual real GDP growth has at the same time mediocre. averaged 2.3 percent since the end of the Great Recession in second-quarter 2009, and historically The slower than expected economic expansion and growth above 3 percent has followed recessions lingering uncertainties from the Great Recession in the 1970s-2000s. Lower than normal levels of are slowing job creation. The real level of economic household formation, decreased state and local expansion continues to be forecasted at less than 3 government expenditures, a mediocre level of percent, a rate that would signify a normal expansion consumer confidence, and significant losses in economy. household wealth have contributed to the relatively low level of economic growth. GDP Growth The Great Recession appears to have been caused Wealth effects initially held back the economic by the confluence of excessive financial speculation expansion: Approximately $6.5 trillion of housing CCIM QUARTERLY MARKET TRENDS NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 4
  • 4. U.S. Economic Overview wealth was eliminated from fourth-quarter 2006 Job Growth to fourth-quarter 2011 as home prices declined, The economy needs to create an average of 125,000 according to Federal Reserve Bank data. Coupled additional jobs per month just to stay even with with major declines in the stock markets, this population growth. Since the end of the Great deleveraging consumer Recession job growth has averaged 124,000 new confidence and spending decisions by corporations, jobs per month, according to the Bureau of Labor consumers, and governments. Statistics. As of October 2013, approximately 20 negatively impacted million people were unemployed or employed part Uncertainties about the economy were also illustrated time for economic reasons, according to a BLS by unusually low levels of consumer confidence. The Household Survey, and the monthly job creation rate Economic Policy Uncertainty Index, which measures reported through October 2013 was 186,000 per the level of economic uncertainty, reached historical month. highs in August 2011. At current job creation rates, it will take 58 months Finally, weak consumer demand, increasing economic to get unemployment down to 5 percent with no inequality, and the growth of low-pay part-time jobs improvement in part-time workers who would continue to be causative factors in the economys like full-time jobs. In addition, the labor force has slowness. Income flows are circular in the economy. dropped from 65.7 percent in January 2009 to 62.8 As such, the significant growth of the number of percent in 2013, which accounts for the elimination consumers with lower incomes has been cited as a of approximately 7 million jobs. Some of the labor major negative impact on consumer expenditures. force dropouts probably represent discouraged workers leaving the labor force. CCIM QUARTERLY MARKET TRENDS NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 5
  • 5. U.S. Economic Overview Job creation is a major driver of the demand for debt solvency issues can be resolved at the national commercial real estate, and currently this driver is level, that major European economies will continue weaker than it should be under normal conditions. to improve, and that major political risks do not As such, slow job creation appears to be the result of generate economic disasters. The current forecast is a weak recovery from the Great Recession coupled based on a continuation of current economic trends with ongoing economic uncertainty. absent exceptional economic drama. Interest Rates Assuming that there are no surprises or shocks Most economists expect the Federal Reserve to the economy, no major tax increases, and that System to end quantitative easing at some point government spending continues at current levels, in 2014. Interest rates are expected to rise, but the economy is projected to grow moderately for the are projected to continue to be relatively low by next three years. Both monetary and fiscal policy have historic standards. In addition, the Fed is expected been relatively expansionary, although tempered to continue to support an expanding economy by sequestration and modestly rising interest through relatively easy monetary policy. This rates. Despite sequestration and government belt is good news for commercial sales prospects. tightening, the federal government continues to run at a substantial deficit. State and local governments Subpar Expansion Is It the New Normal? as a whole do not appear to be in a mode for All forecasts are based on a myriad of economic additional cutbacks. assumptions, i.e., that there will be no unforeseen changes in Federal budgets, that a monetary crisis The economic forecast is based largely on the will not freeze financial markets, that taxation and assumption of repeated historical relationships in CCIM QUARTERLY MARKET TRENDS NATIONAL ASSOCIATION OF REALTORS AND CCIM INSTITUTE 6
  • 6. U.S. Economic Overview terms of consumer behavior, asset prices, and domestic consumer confidence is well below the 100 level that and international transactions. Trends in asset prices (e.g., one would expect during an expanding economy stocks, housing prices, oil prices, international exchange and the monthly economic policy uncertainty index, rates) are essentially unpredictable, but are assumed to which is based on newspaper coverage, federal tax be favorable. The assumption of the absence of surprises code provisions, and disagreements among economic or shocks to the economy means that the economy will forecasters, continues to be relatively unfavorable. continue to grow. The bottom line is: There continues to be substantial economic uncertainty. Both economic and non-economic factors coupled with the lingering wealth effects from the Great Recession In short, the combination of uncertainties and the appear to be holding the economy back. The National lingering effects of the Great Recession appear to Federation of Independent Businesses has reported both continue to hold back GDP and job growth potential. demand/poor sales (the economic factor) and government Consequently, both a recession and robust growth regulatory requirements (the non-economic factor) as appear to be unlikely in the next few years. While the problems holding back the economy. outlook is positive, it remains mediocre as it is strongly influenced by uncertainties and perceptions about Uncertainties about quantitative easing, fundamental current government policies. If these exogenous budgetary and sequestration disagreements in Congress, factors were to change unexpectedly (and this is a hiring concerns reported to be a result of changes in medical distinct upside possibility given that we are dealing to insurance programs, and general business concerns appear a significant degree with political and psychological to be keeping business optimism at lower than normal issues), the forecast could become significantly more levels and negatively impacting hiring decisio