2015 CALIFORNIA MARKET OUTLOOK

Transcription

1 2015 CALIFORNIA MARKET OUTLOOK December 16, 2014 SRAR Commercial Investment Meeting Leslie Appleton-Young, Chief Economist California Association of Realtors

2 Economic Outlook OVERVIEW Commercial Markets Outlook Office Space Industrial Space Retail Space Multifamily Concluding Remarks

3 ECONOMIC OUTLOOK

4 ECONOMIC OUTLOOK

5 Q1-10 Q2-10 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 GDP: PICKING UP THE PACE 2013: 1.9%; 2014 Q3: 3.9% ; 2014: 2.2%; 2015: 3% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ 5% ANNUALLY QUARTERLY 4% 3% 2% 1% 0% -1% -2% -3% 2009 Largest Annual Drop since 1938 (-3.4%) -4% SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

6 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 CONSUMER SPENDING: 70% OF GDP 2013: 2.0%; 2014 Q3: 2.2% ANNUAL PERCENT CHANGE 5% 4% ANNUALLY QUARTERLY 3% 2% 1% 0% -1% -2% -3% SERIES: Personal Consumption SOURCE: US Dept. of Commerce, Bureau of Economic Analysis

7 UNEMPLOYMENT RATE FALLING Oct 2014: US 5.8% & CA 7.3% 14% US-CA CA US 12% 10% 8% 6% 4% 2% 0% -2% -4% SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

8 U.S. NON-FARM JOB GROWTH Recession Job Losses: 8.8 million Since Jan 10: million MONTH TO MONTH CHANGE 800, , , , , , , ,000-1,000,000 SERIES: Employment Growth SOURCE: US Bureau of Labor Statistics

9 JOB LOSSES IN PRIOR RECESSIONS - RECENT CYCLE WORST BY FAR

10 CONSTRUCTION JOBS LEADING GROWTH October 2014: CA +2.1%, +319,500 ANNUAL PERCENT CHANGE 15% 10% 5% 0% -5% -10% -15% -20% -25% Construction Manufacturing Service SERIES: Total Nonfarm Employment By Industry SOURCE: CA Employment Development Division

11 NONFARM EMPLOYMENT Nonfarm Employment (Thousands) Oct 2014 Oct 2013 Change % Change Southern California 8, , % Bay Area 3, , % Central Valley 1, , % Central Coast % North Central % CALIFORNIA 15, , % SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

12 JOB TRENDS: BAY AREA LEADS October 2014: CA +2.1%, +319,500 ANNUAL PERCENT CHANGE San Jose San Francisco Fresno MSA San Diego Sacramento Ventura Bakersfield Orange County Oakland Modesto Stockton MSA Los Angeles 2.7% 2.6% 2.6% 2.4% 2.2% 2.1% 2.0% 1.8% 1.6% 1.4% 3.6% 3.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division

13 CALIFORNIA JOB CHANGES BY INDUSTRY October 2014: CA +2.1%, +319,500 ANNUAL PERCENT CHANGE Admistrative & Support & Waste Services Construction Information Professional, Scientific & Technical Services Health Care & Social Assistance Leisure & Hospitality Wholesale Trade Transportation, Warehousing & Utilities Educational Services Retail Trade Real Estate & Rental & Leasing Durable Goods Government Nondurable Goods Finance & Insurance -1.4% -1.1% 0.4% 2.7% 2.6% 2.1% 1.6% 1.4% 1.2% 1.2% 3.5% 3.4% 3.9% 5.9% 5.9% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% SERIES: Total Nonfarm Employment By Industry SOURCE: US Bureau of Labor Statistics, CA Employment Development Division

14 CPI REMAINS SUBDUED October 2014: All Items +1.7% YTY; Core +1.8% YTY ANNUAL PERCENT CHANGE 6% All Items Core 5% 4% 3% 2% 1% 0% -1% -2% -3% SERIES: Consumer Price Index SOURCE: US Bureau of Labor Statistics

15 CONSUMER CONFIDENCE INDEX November 2014: 88.6 INDEX, 100= SERIES: Consumer Confidence SOURCE: The Conference Board

16 2009/ / / / / / / / / / / / / / / / / / / / / / / / MORTGAGE RATES January 2009 November % 5% MONTHLY WEEKLY 4% 3% 2% FRM ARM 1% 0% SERIES: 30Yr FRM, 1Yr ARM SOURCE: Federal Home Loan Mortgage Corporation

17 RATES TO RISE??? Percent 6 6 Percent Actual 10-year Treasury yield (solid black line) Predictions out to five quarters ahead of professional forecasters (hatched lines) SERIES: Loan Officer Survey SOURCE: Philadelphia Federal Reserve Survey of Professional Forecasters, Bloomberg

18 MORTGAGE RATES + 1% SPRING 2013 ACTUAL TAPERING? WHAT IMPACT? 8% FRM ARM Federal Funds 7% 6% 5% 4% 3% 2% 1% 0% SERIES: 30Yr FRM, 1Yr ARM, Federal Funds SOURCE: Federal Home Loan Mortgage Corporation

19 $3,000 $ BILLIONS $2,500 U.S. DEPOSITORY INSTITUTIONS: HIGH LEVEL OF EXCESS RESERVES SINCE 9/08 $2,000 $1,500 $1,000 $500 $0 SERIES: Excess Reserves of Depository Institutions SOURCE: Federal Reserve Bank of Saint Louis

20 U.S. ECONOMIC FORECAST P 2015 F Gross Domestic Product 1.8% 2.8% 1.9% 2.2% 3.0% Nonfarm Job Growth 1.2% 1.7% 1.7% 1.8% 2.2% Unemployment Rate 8.9% 8.1% 7.4% 6.2% 5.8% Consumer Price Index 3.1% 2.1% 1.5% 2.0% 2.2% Real Disposable Income, % Change 1.3% 1.5% 0.7% 2.6% 2.6% SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

21 CALIFORNIA ECONOMIC FORECAST P 2015 F Nonfarm Job Growth 1.1% 2.4% 3.0% 2.2% 2.4% Unemployment Rate 11.8% 10.4% 8.9% 7.5% 6.7% Population Growth 0.7% 0.7% 0.9% 0.9% 0.9% Real Disposable Income, % Change 1.9% 1.1% 0.9% 3.0% 3.8% SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

22 REALITY: WORLD OF UNCERTAINTY Stock market volatility Slower growth: China & Europe Geo-political tensions Terrorism Bio-terrorism Natural Disasters

23 COMMERCIAL MARKETS OUTLOOK

24 CRE TRANSACTIONS BOTH SALES & PRICE UP FROM 2013 SOURCE: National Association of Realtors - Commercial Real Estate Market Survey (Q314)

25 COMMERCIAL CAP RATE MODERATED

26 CRE SUPPLY AND DEMAND IMPROVED

27 NONRESIDENTIAL CONSTRUCTION SOURCE: Wells Fargo, U.S. Dept. of Commerce, American Institute of Architects

28 COMMERCIAL LENDING CONDITIONS IMPROVED SOURCE: National Association of Realtors - Commercial Lending Survey 2014

29 Office Space

30 U.S. OUTLOOK - OFFICE 000 Sq. Feet Net Absorption Completions Vacancy Rate Vac. Rate 16.1% 16.0% 15.9% 15.8% 15.7% 15.6% 15.5% 15.4% 15.3% 15.2% SOURCE: National Association of REALTORS, REIS

31 U.S. OUTLOOK - OFFICE OFFICE 2014-Q Q Q Q Q Q Q2 Vacancy Rate 15.7% 15.8% 15.7% 15.7% 15.6% 15.7% 15.6% Rent Growth 0.7% 0.8% 0.8% 0.8% 0.9% 0.8% 0.9% Net Absorption ('000 sq. ft) 13,855 12,002 11,851 12,865 12,123 13,522 13,352 Completions ('000 sq. ft) 8,663 10,095 12,079 9,857 10,122 10,530 12,086 Inventory ('000,000 sq. ft) 4,134 4,144 4,156 4,166 4,176 4,186 4,198 SOURCE: National Association of REALTORS, REIS

32 INCREASING WORKPLACE DENSITY SOURCE: Cushman & Wakefield, Corenet Global 2013 Survey

33 VACANCY RATES FOR THE OFFICE SEGMENT Los Angeles Orange County Inland Empire 2012-Q Q Q Q Q Q Q Q Q Q Q SOURCE: National Association of REALTORS, REIS

34 VACANCY RATES FOR THE OFFICE SEGMENT Los Angeles Orange County Inland Empire P F SOURCE: National Association of REALTORS, REIS

35 AVERAGE ASKING RENTS FOR THE OFFICE SEGMENT Percent Change (yty) Los Angeles Orange County Inland Empire P 2015 F SOURCE: National Association of REALTORS, REIS

36 Industrial Space

37 U.S. OUTLOOK - INDUSTRIAL 000 Sq. Feet Net Absorption Completions Vacancy Rate Vac. Rate 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% SOURCE: National Association of REALTORS, REIS

38 U.S. OUTLOOK - INDUSTRIAL INDUSTRIAL 2014-Q Q Q Q Q Q Q2 Vacancy Rate 8.8% 8.7% 8.5% 8.5% 8.4% 8.3% 8.1% Rent Growth 0.7% 0.6% 0.7% 0.8% 0.8% 0.7% 0.8% Net Absorption ('000 sq. ft) 25,450 18,443 25,616 30,739 27,665 19,040 26,445 Completions ('000 sq. ft) 15,666 14,983 22,118 20,691 13,556 13,040 19,250 Inventory ('000,000 sq. ft) 8,466 8,480 8,503 8,523 8,537 8,550 8,569 SOURCE: National Association of REALTORS, REIS

39 VACANCY RATES FOR THE INDUSTRIAL SEGMENT Los Angeles Orange County Inland Empire P F SOURCE: National Association of REALTORS, REIS

40 AVERAGE ASKING RENTS FOR THE INDUSTRIAL SEGMENT Percent Change Los Angeles Orange County Inland Empire P 2015F SOURCE: National Association of REALTORS, REIS

41 Retail Space RETAIL SPACE

42 RETAIL FIRMING SLOWLY Drivers: Retail sales, Growth in economy & jobs, Consumer expenditures, Consumer credit High-end retailers and low-end discount stores have been the strongest performers, while retailers in the middle continued to get squeezed. Retail stores such as Sears, Abercrombie & Fitch and JC Penny, to name a few, are closing stores as many buyers switch to online purchases. Ecommerce will continue to garner a greater share of retail sales at the expense of physical stores. Lower gasoline prices, however, may provide a short-term reprieve.

43 U.S. OUTLOOK - RETAIL 000 Sq. Feet 7,000 6,000 5,000 4,000 Net Absorption Completions Vacancy Rate Vac. Rate 11.0% 10.5% 10.0% 3,000 2,000 1, % 9.0% 8.5% SOURCE: National Association of REALTORS, REIS

44 U.S. OUTLOOK - RETAIL RETAIL 2014-Q Q Q Q Q Q Q2 Vacancy Rate 9.7% 9.7% 9.6% 9.6% 9.5% 9.6% 9.4% Rent Growth 0.6% 0.5% 0.6% 0.7% 0.7% 0.6% 0.7% Net Absorption ('000 sq. ft) 3,879 5,096 4,341 3,486 5,949 6,424 5,472 Completions ('000 sq. ft) 3,719 2,940 2,567 2,941 3,264 4,162 3,596 Inventory ('000,000 sq. ft) 2,050 2,053 2,055 2,058 2,061 2,066 2,069 SOURCE: National Association of REALTORS, REIS

45 VACANCY RATES FOR THE RETAIL SEGMENT Los Angeles Orange County Inland Empire 2012-Q Q Q Q Q Q Q Q Q Q Q SOURCE: National Association of REALTORS, REIS

46 VACANCY RATES FOR THE RETAIL SEGMENT Los Angeles Orange County Inland Empire P F SOURCE: National Association of REALTORS, REIS

47 AVERAGE ASKING RENTS FOR THE RETAIL SEGMENT Percent Change Los Angeles Orange County Inland Empire P 2015 F SOURCE: National Association of REALTORS, REIS

48 Multi-Family MULTI-FAMILY

49 HOMEOWNERSHIP RATE AND RENTER HOUSEHOLDS SOURCE: Bureau of the Census and CBRE Econometric Advisors, Q3 2014

50 REASONS FOR RENTING INSTEAD OF BUYING Can't afford to buy 44% Poor credit / Can't qualify Renting is easier Young/Starting out/not ready Flexibility/Freedom if renting Cost/Upkeep/Responsibility Plan to / Saving for down Never considered it/no interest Disabled/On disability 9% 6% 6% 6% 5% 5% 3% 2% SERIES: 2013 Renter Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

51 Jan-05 PRICE PLATEAU AHEAD; ANNUAL GAINS SLOWING California, Oct. 2014: $450,620, Up 5.4% YTY Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 $700,000 $600,000 $500,000 $400,000 $300,000 P: May-07 $594,530 T: Feb-09 $245,230-59% from peak Oct-13: $427,540 Oct-14: $450,620 $200,000 $100,000 $- SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

52 INCOME REQUIRED TO BUY A MEDIAN- PRICED HOME IN CA: (PEAK VS. CURRENT) $100,000 $80,000 $60,000 $56,324 $94,965 Change in minimum required income: $38,641 Increase in income attributed to interest rate increase: $365 (0.9% of total change) $40,000 $20,000 Increase in income attributed to price increase : $38,276 (99.1% of total change) $ Q Q3 SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

53 % OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME HOUSING AFFORDABILITY DOWN SHARPLY SINCE Q California vs. U.S % CA US 70% 60% 50% 40% 30% 20% 10% 0% Annual Quarterly SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS

54 U.S. OUTLOOK MULTI-FAMILY 000 Sq. Feet Vac. Rate Net Absorption Completions Vacancy Rate 5.0% % % % Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 3.0% SOURCE: National Association of REALTORS, REIS

55 U.S. OUTLOOK MULTI-FAMILY MULTI-FAMILY 2014-Q Q Q Q Q Q Q2 Vacancy Rate 4.0% 4.0% 4.0% 4.1% 4.3% 4.1% 4.2% Rent Growth 1.0% 1.0% 1.0% 1.0% 0.9% 1.0% 0.9% Net Absorption (units) 76,152 43,855 39,723 37,479 50,110 36,799 33,332 Completions (units) 47,123 41,919 55,952 54,433 58,364 35,473 45,058 Inventory (units in imillions) SOURCE: National Association of REALTORS, REIS

56 VACANCY RATES FOR THE MULTI-FAMILY SEGMENT Los Angeles Orange County Inland Empire 2012-Q Q Q Q Q Q Q Q Q Q Q SOURCE: National Association of REALTORS, REIS

57 VACANCY RATES FOR THE MULTI-FAMILY SEGMENT Los Angeles Orange County Inland Empire P F SOURCE: National Association of REALTORS, REIS

58 AVERAGE ASKING RENTS FOR THE MULTI-FAMILY SEGMENT Los Angeles Orange County Inland Empire 3.5 Percent Change F 2015 F SOURCE: National Association of REALTORS, REIS

59 CONCLUDING REMARKS

60 Office CRE KEY TAKEAWAYS Strengthening job trends imply that pent-up demand is rising Firms decision to increase workplace density continues to affect the demand for office space Markets with high concentrations of energy or tech companies see stronger growth Decline in vacancy rate with rents edging up in 2015

61 CRE KEY TAKEAWAYS Industrial Demand for industrial spaces is booming as e-commerce continues to grow Net absorption exceeded new constructions, despite developers trying to keep up with the demand Rent growth could accelerate beyond 3 percent in 2015

62 Retail CRE KEY TAKEAWAYS Job growth and increase in consumer spending pushed the demand for retail space upward High-end retailers and low-end discount stores have been the strongest performers E-commerce continues to garner a greater share at the expense of physical stores

63 Multi-Family CRE KEY TAKEAWAYS The market continued to expand as the labor market strengthened and more households were formed. The decline in housing affordability results in the rise of the propensity to rent, boosting the demand in rental market. Vacancy rate remains near 4.0% in 2014, with rent growth increasing 4% from 2013 Rentable multifamily completions are expected to peak in 2015

64 Housing Matters Sharing the most up-to-date information about California s housing market. Read Research & Economics blog at: HousingMatters.car.org Data Visualization. Economic Trends. Housing Affordability. Housing Trends. Market Outlook.