BEYOND THE Dr. Richard Barkham

Transcription

1 BEYOND THE NUMBERS Dr. Richard Barkham OCTOBER 2012

2 THE GLOBAL FINANCIAL CRISIS CONTINUES TO LINGER The legacy of the Global Financial Crisis is still with us

3 SPARE CAPACITY IN THE OECD OECD output gap, % 3 Source:OECD

4 US RECOVERY REMAINS SLUGGISH Unemployment rate, % 4 Source: IHS Global Insight

5 ECB PROPS UP EURO BANKS ECB lending to peripheral Europe, billion 5 Source: Oxford Economics/Haver Analytics

6 MONEY, MONEY, MONEY Central Bank Balance Sheets, Jan 2007 = Source: EcoWin, Bank of England, Bank of Japan, US Federal Reserve

7 HOW DID WE GET HERE?

8 LONG DECLINE IN BOND RATES Percent 8 Source IHS Global Insight

9 CHINA S EXPORT DOMINANCE Change in share of world manufacturing output, % 9 Source: EcoWin

10 CHINA RECYCLES ITS EARNINGS Chinese foreign currency reserves, US$ mn 10 Source: IHS Global Insight, US department of the Treasury

11 WORLD INTEREST RATES FALL OECD Real Interest Rates, % 11 Source: IHS Global Insight

12 CREATING A MOUNTAIN OF DEBT Household debt to GDP ratios, % 12 Source: OEF

13 CENTRAL BANK COMPLACENCY The defeat of inflation was a major policy triumph But central banks took their eyes off the ball: Cheap goods from China helped suppress inflation Cheap capital flooded into bond markets and money markets Weak regulation allowed excessive bank gearing and the emergence of a huge shadow banking industry Monetary stimulus became a panacea: Causing a series of asset bubbles And the build up of a debt mountain 13

14 WHERE DOES THIS LEAVE US?

15 GLOBAL RECOVERY UNCERTAIN Real GDP, quarterly percent change year over year 15 Source: IHS Global Insight Source: IHS Global Insight

16 GLOBAL RETAIL COMPOSITE CAP RATE Global retail composite yield, % 16 Source: Brokers, Grosvenor Research

17 GLOBAL OFFICE COMPOSITE CAP RATE Global office composite yield, % 17 Source: Brokers, Grosvenor Research Source: Brokers, Grosvenor Research

18 THE CLOUDS DARKEN Grosvenor world economic activity indicator, 0 is trend growth 18 Source: IHS Global Insight, Grosvenor Research, Google

19 GLOBAL REAL ESTATE RETURNS % Core Real Estate IRRs per annum, next 5 years Sector US Canada CE UK Japan China Australia All Office 8.1% 5.1% 4.1% 5.0% 6.2% 7.3% 8.4% 6.0% Retail 8.6% 6.3% 5.2% 4.8% - 7.3% 7.4% 6.6% Residential 6.2% % - 4.5% - 5.0% All 7.9% 5.7% 4.5% 4.7% 6.2% 6.4% 7.9% 6.1% 19 Source: Grosvenor Research, 2012

20 BEYOND THE NUMBERS Eileen Marrinan OCTOBER 2012

21 US ECONOMIC OUTLOOK

22 US ECONOMIC OUTLOOK Economic expansion in the US is slated to strengthen over the next five years. Where will it focus? 22

23 DRIVERS OF GROWTH A rotation is occurring in the Last Decade Sectors Next Decade Sectors sectors that drive economic Finance Energy growth. Government Manufacturing Therefore, the metros/regions Defense Housing/Construction that outperform over the next Trade Trade decade will differ from those Tech Tech that led in the past. Services Services Last tdecade Benefiting Locations Next Decade Benefiting Locations Great Plains Southwest Gulf Coast East Coast East Coast West Coast West Coast 23

24 ENERGY

25 ENERGY Technological innovations have transformed the US energy industry. (Mil Cu Ft ) 2,200,000 US Natural Gas and Oil Production (Source: Moody's Analytics) Oil (R) Natural Gas (L) (Mil Bbl ) 6.50 Exploration and production of both oil and gas are expanding 2,000, rapidly. 1,800, ,600, ,400, ,200, ,000,

26 ENERGY This trend has a way to run. The US is now the world s lowcost producer of natural gas, by a considerable margin. il BTU Spot Price per Mi $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Natural Gas Prices Source:ycharts.comcom US (Henry Hub) Europe Japan (LNG) 26 Source: EcoWin

27 ENERGY LOCATIONS Salt Lake City Denver Pittsburgh Dallas Houston New Orleans 27

28 MANUFACTURING

29 MANUFACTURING Lower labor and energy costs have increased the competitiveness of US manufacturing. Both domestic and foreign firms are expanding, especially in the auto and durables industries Manufacturing Re-set: Renewed Competiveness of US Industry Source: Moody's Analytics Manufacturing Unit Labor Costs Index (L) Natural Gas Prices (R) $12 $10 $8 $6 $4 95 $2 90 $0 29 Surce: EcoWin

30 MANUFACTURING By contrast, Chinese wages are rising at double-digit rates. China s one-child policy will soon translate into a shrinking labor force. 30

31 MANUFACTURING LOCATIONS Seattle Portland Minneapolis San Jose Chicago Detroit Los Angeles Ft. Worth Atlanta Houston 31

32 HOUSING

33 HOUSING The housing market is finally coming back to life, with both home sales and prices on the upswing. Historically low interest rates and the Fed s QE3 program will speed and strengthen its recovery. 33

34 HOUSING LOCATIONS Minneapolis Boston San Francisco Oakland San Jose Los Angeles Orange County Denver Cincinnati Washington, DC Austin Miami 34 Oakland Cincinnati

35 CONSTRUCTION

36 CONSTRUCTION Homebuilding is poised to expand after several years at a historically low level. 36

37 CONSTRUCTION Commercial real estate will soon follow. Multifamily the most improved sector is already picking up. ($Bil SAAR) $70 $60 $50 Value of Private Construction Put in Place (Source: Moody's Analytics) $40 $30 $20 $10 $0 Multifamily Warehouse Office Retail 37

38 CONSTRUCTION LOCATIONS Boston New York Chicago Los Angeles Riverside Denver Washington, DC Orange County Phoenix Dallas Atlanta Houston 38

39 CONCLUSION It s not just the coasts anymore. As the economy re-balances, other regions and other metros are emerging as attractive prospects for real estate investment. Economic considerations are the first but not the sole criterion characteristics of the investors themselves and of the markets also come into play. 39