MBA COMMERCIAL REAL ESTATE / MULTIFAMILY FINANCE QUARTERLY DATABOOK

Transcription

1 MBA COMMERCIAL REAL ESTATE / MULTIFAMILY FINANCE QUARTERLY DATABOOK Q

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3 MBA COMMERCIAL REAL ESTATE / MULTIFAMILY FINANCE QUARTERLY DATABOOK Q4 2012

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5 Fourth Quarter 2012 Selected Charts Month-over-month Change in At-Place Employment Thousands of jobs Treasury Yield Curve Percent Source: Bureau of Labor Statistics Source: Federal Reserve Board Ten-year Treasury and 10-year Swaps Percent Multifamily Permits, Starts and Completions Thousands, Seasonally adjusted annual rate Source: Federal Reserve Board Source: Census Bureau

6 Commercial/Multifamily Mortgage Bankers Originations Index 2001 quarterly average = 100 Source: MBA The Commercial Real Estate/ Multifamily Finance Quarterly Data Book is a quarterly compendium of the latest MBA research on the commercial/multifamily finance markets. The latest version of the Data Book can be downloaded from the MBA website at: mortgagebankers.org/res earchandforecasts/ Commercial/Multifamily Property Sales $Billions Price Indices December 2000 = 100 Source: Real Capital Analytics Source: MBA, Moody's Investors Services, National Council of Real Estate Investment Fiduciaries, and Green Street Advisors Monthly Retail Sales Average Vacancy Rates By Property Type Source: U.S. Census Bureau Source: REIS

7 MBA Commercial Real Estate/ Multifamily Finance Quarterly Data Book Fourth Quarter 2012 March 29, 2013 SELECTED CHARTS... 5 TABLE OF CONTENTS Introduction... 9 Economic Commentary MBA Long-Term Mortgage Finance and Economic Forecasts Treasury Yields and Bank Rates Employees on Non-farm Payrolls Monthly Retail Sales Owner- and Renter-Occupied Housing Units COMMERCIAL/MULTIFAMILY FINANCE Extract of Commercial Real Estate Comments from The Federal Reserve Board s Beige Book New Inventory Change Less Net Absorption for Commercial/Multifamily Properties Average Rents and Vacancy Rates at Commercial/Multifamily Properties Multifamily Building Permits, Starts and Completions Value of Construction Put-In-Place Commercial/Multifamily Property Sales Volume Commercial/Multifamily Prices and Capitalization Rates Commercial/Multifamily Property Price Indices Quarterly Mortgage Banker Originations Survey Commercial Mortgage Backed Securities (CMBS) and Commercial Real Estate Collateralized Debt Obligation (CRE CDO) Issuance American Council of Life Insurers (ACLI) Commitment Volumes COMMERCIAL MORTGAGE DEBT & REAL ESTATE SECURITIES Commercial/Multifamily Mortgage Debt Outstanding Commercial/Multifamily Mortgage Delinquencies by Investor Group Commercial Mortgage-Backed Securities (CMBS) Outstanding Commercial Mortgage Backed Securities (CMBS) Spreads Commercial/Multifamily Mortgage Servicers, Year-End RECENT MBA COMMERCIAL/MULTIFAMILY RESEARCH

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9 1. Outlook Introduction The U.S. economy recorded lackluster economic growth during the fourth quarter, but commercial real estate markets continued their trend of slow and steady revival. THE ECONOMY The U.S. economy, as measured by the real gross domestic product, grew at just 0.4 percent during the fourth quarter, tying the slowest rate of quarterly growth since The drop was driven by a decline in government spending. At the same time, employment picked up during the quarter, with the addition, on a seasonally adjusted basis, of 160,000 nonfarm jobs in October, 247,000 jobs in November and 219,000 in December. January and February continued the trend with the addition of 119,000 and 236,000 jobs respectively. Over the year, the number of occupied housing units grew by 947,000 with the addition of more than one million renter households and a decline of 106,000 owneroccupied households, although the last two quarters saw growth in both renter- and owner-occupied households. PROPERTY FUNDAMENTALS Commercial property fundamentals continued their trend of modest improvement among office, retail and certain other property types and tight and tightening conditions in multifamily apartment markets. Office vacancy rates fell from 17.2 percent in the third quarter to 17.1 in the fourth (down from a cycle high of 17.6 percent). Retail vacancies dropped from 10.8 percent to 10.7 percent (down from a cycle high of 11.1 percent). The multifamily vacancy rate, in contrast, fell from 4.7 percent in the third quarter to 4.5 percent in the fourth (down from a cycle high 8.0 percent). Asking rents rose during the quarter for all three property types, by 3 percent for apartments, 2 percent for office properties and 1 percent for retail. PROPERTY TRANSACTIONS The dollar volume of property sales transactions increased by 28 percent during 2012, from $202 billion in 2011 to $258 billion in Apartment property sales increased by 51 percent, retail properties by 23 percent, office properties by 22 percent and industrial by 7 percent. Capitalization rates were mixed. Apartment cap rates were unchanged at 6.2 percent. Industrial were unchanged at 7.8 percent. Office cap rates fell from 7.2 percent in the third quarter to 7.0 percent in the fourth. Retail cap rates rose from 7.2 percent to 7.3 percent. In terms of property prices, the Green Street Advisors CPPI which generally tracks REIT properties and represents the equity markets valuation of real estate rose 1.3 percent over the quarter and is now at 98 percent of its peak level. The NCREIF TBI which tracks transactions of generally high-quality institutional properties fell 1 percent during the quarter and is currently at 85 percent of its peak value. The Moody s/rca index which tracks a wide range of properties across a variety of markets rose 3.2 percent and now sits at 80 percent of its peak value. ORIGINATIONS ACTIVITY Commercial and multifamily mortgage originations increased 49 percent between the third and the fourth quarters of 2012, and were also up 49 percent compared to the fourth quarter of MBA s commercial/multifamily mortgage bankers originations index shows originations for the full year 2012 were 24 percent higher than in Final numbers will come out in early April with MBA s Annual Origination Summation. 9

10 Between the third and fourth quarters of 2012, the dollar volume of loans originated for CMBS increased by 141 percent, loans for GSEs increased by 54 percent, originations for life insurance companies increased 33 percent and loans for commercial bank portfolios increased by 32 percent. In February, MBA forecast that 2013 originations will rise by 11 percent from 2012 levels. MORTGAGES The level of commercial/multifamily mortgage debt outstanding increased by $21.8 billion, or 0.9 percent, in the fourth quarter of 2012, as all four major investor groups increased their holdings. On a yearover-year basis, the amount of mortgage debt outstanding at the end of 2012 was $29.7 billion higher than at the end of 2011, an increase of 1.2 percent. Multifamily mortgage debt outstanding rose to $846 billion, an increase of $11.8 billion or 1.4 percent from the third quarter, and $35.7 billion or 4.4 percent from the fourth quarter of The fourth quarter saw the largest increase in commercial and multifamily mortgage debt outstanding since Bank-held commercial mortgages increased by the largest amount since The balance of loans held in CMBS rose by the most since 2007 and the balances of loans held by life companies and held or guaranteed by Fannie Mae, Freddie Mac and FHA continued their multi-year increases. or insured by Fannie Mae decreased 0.04 percentage points to 0.24 percent. The 90+ day delinquency rate for loans held by FDIC-insured banks and thrifts decreased 0.32 percentage points to 2.62 percent. The 30+ day delinquency rate for loans held in commercial mortgage-backed securities (CMBS) decreased 0.13 percentage points to 8.73 percent. LOAN MATURITIES In February, MBA released its latest analysis of upcoming loan maturity volumes, which found that $119.5 billion, eight percent of the outstanding balance, of commercial and multifamily mortgages held by non-bank lenders and investors will mature in 2013, a 21 percent decline from the $150.6 billion that matured in 2012 The loan maturities vary significantly by investor group. Just 5 percent ($16.0 billion) of the outstanding balance of multifamily and health care mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in Life insurance companies will see 7 percent ($21.9 billion) of their outstanding mortgage balances mature in Among loans held in CMBS, 7 percent ($43.4 billion) will come due in Twenty-one percent ($38.1 billion) of commercial mortgages held by credit companies and other investors will mature in (For more information go to andforecasts/productsandsurveys/loanmat urityvolumes.htm). LOAN PERFORMANCE Delinquency rates continued to decline for commercial and multifamily mortgage loans in the fourth quarter of The 60+ day delinquency rate for commercial and multifamily mortgages held in life company portfolios decreased 0.04 percentage points to 0.08 percent. The 60+ day delinquency rate for multifamily loans held or insured by Freddie Mac decreased 0.08 percentage points to 0.19 percent. The 60+ day delinquency rate for multifamily loans held 10

11 Economic Commentary Stronger Start to 2013 March 2013 Growth in the first quarter of 2013 has picked up after a slow fourth quarter last year due to strong inventory investment, retail sales, and less of a drag from the trade deficit. The first quarter is likely to see growth of 2.4 percent. With sequestration, across the board cuts in federal government spending, kicking in, we have lowered our estimates for the second and third quarters of 2013 as furloughs begin leading many households to have to adjust to less take home pay. This will be a small drag on growth, but overall consumer spending should continue to increase at a roughly 2 percent rate, driven by purchases of durable goods. The FOMC statement released following the March meeting was very similar to January s statement, with the Committee acknowledging the pickup in the pace of growth but also recognizing still elevated unemployment. It was also noted that fiscal policy has become more restrictive. The Committee reiterated its commitment to accommodative monetary policy, keeping the Fed Funds rate low and continuing to expand its balance sheet with month MBS and Treasury purchases. Similar to the last few statements, the Committee provided an unemployment target of 6.5 percent and inflation target of 2.5 percent. However, in Chairman Bernanke s press conference following the release of the statement, he indicated that the Fed may begin to vary the pace of asset purchases in the months ahead, decreasing purchase volumes in response to signs of economic strength, but holding on to the option to increase purchases again should growth weaken. Job growth has been accelerating over the past four months and the unemployment rate is improving more rapidly than we had previously expected. Nonfarm payroll employment in February grew by 236,000 jobs, with private payrolls increasing by 246,000 jobs and government payrolls decreasing by 10,000 jobs. The unemployment rate decreased to 7.7 percent from 7.9 percent in January. The increase in overall and private payrolls was the highest single monthly increase since November However, the January overall payroll count was revised down by 38,000 so the gain is less than it appeared. With the downward revision in January, job growth in the first two months of 2013 has averaged a little under 178,000 jobs, well below the January and February 2012 average of 291,000. However, the 4 month moving average for overall payroll growth is at 205,000 jobs, the highest since April At 7.7 percent, the unemployment rate is the lowest since December The labor force participation rate edged down to 63.5 percent from 63.6 percent in January. The participation rate was below 64 percent for all of 2012, the lowest levels seen since The U6 measure of underemployment dropped to 14.3 percent from 14.4 percent. There were fewer new and reentering workers to the work force in February but increases in discouraged workers, marginally attached workers, and long term unemployed. This suggests that mismatches still remain between the jobs that have been added to the economy and the skills of those who have been unemployed yet still seeking work. The increase in private nonfarm payrolls was driven primarily by gains in the private service providing sector which added 179,000 positions while the goods producing sector added 67,000 positions, the highest level in over a year. Within the service sector, professional and business 11

12 services gained 73,000 jobs, half of which originated from administrative and support services, while leisure and hospitality and education and health services added 24,000 jobs respectively. Construction accounted for most of the gain in the goods producing industry by adding 48,000 jobs, the largest monthly gain in nearly 6 years, specifically with the hiring of specialty trade contractors propelling the construction employment numbers. The government lost 10,000 positions concentrated in state and local governments. Industrial production increased by the largest margin in three months in February, driven by manufacturing and utilities. Gains compared to a year ago were also strong compared to a year ago. The overall level of production continued on an upward trend overall and was the highest since Capacity utilization, at 79.6 percent, was also the highest since 2008, but is still below the historical average of 80.7 percent. The ISM s manufacturing index for February also moved in a favorable direction, increasing to the highest level since June The index had been unimpressive in the second half of 2012, but has shown solid growth over the last two months. New orders and production drove some of that growth, along with the prices, imports, and export components. Anecdotal responses to the ISM s survey however, did note a few soft spots in the manufacturing sector, including defense spending. Housing starts rose in February and the three month moving average for total starts is at the highest level since August Starts increased across all unit types, with single family starts increasing 0.5 percent to a SAAR of 618,000 units, the highest level since July 2008, while multifamily starts increased to a SAAR of 14,000 units and 285,000 units, for 2-4 units and 5+ units respectively. The starts level improved over the past year for all housing types, particularly for single unit structures and 5 or more unit structures, which have seen positive year over year gains for at least 17 months. In a separate report, sales of existing homes increased 0.8 percent to 4.98 million units, the highest pace since November 2009, which coincides with the first implementation of the home buyer tax credit. Over the year, home sales increased 6.3 percent. Perhaps more significantly in this release, the inventory of homes available for sale increased from 1.78 million units to 1.94 million units. While this was a step towards more robust growth, the inventory level has been stuck below the 2 million mark for four months, the longest sub-2 million streak since 2000/2001. The historical average for the series is around 2.7 million units for sale. Home purchase volume in February 2013 increased 28 percent over the month and 16 percent relative to the same month last year, on a non-seasonally adjusted basis. February is typically when purchase mortgage application activity rises quickly as the spring buying season begins. Compared to the previous month, purchase applications increased for all states except North Dakota. Gains were largest in Vermont, Indiana and Rhode Island. Over the year, more than three quarters of the states had increases in purchase applications. Refinance applications in February increased 3.7 percent from the previous month, but were down from last year. Refinance applications grew in the majority of states compared to January 2013, with the largest gain in Michigan, Utah and Ohio. Year over year refinance applications were split pretty evenly in terms of gains and losses among the states, although the national total still increased slightly by 0.4 percent. In a separate survey, the HARP share of refinance applications remained around 30 percent for the fourth week, which is likely keeping the flow of refinance applications in the pipeline higher than it would be without the program. We raised our forecast for both new and existing home sales given more positive data releases of late, and continue to expect that purchase originations will continue their rise while refinancing activity slows in

13 We forecast that mortgage rates will rise from 3.6 percent in Q1 to 4.3 percent by Q4. We estimate that mortgage originations totaled $1.7 trillion in 2012, and will decline to $1.4 trillion in 2013 as rates rise, and refinance originations fall. The origination forecast is based on expectations of a modest increase in economic growth in 2013 relative to We expect gross domestic product to rise 2.1 percent in 2013, driven by residential fixed investment and personal consumption expenditures. As noted earlier, housing starts and sales have been strong and will improve further in coming quarters. Despite tax increases and tighter fiscal policy overall in 2013, household spending has been resilient so far, although more significant adverse impacts might be felt later in the year as more of the budget cuts set in. We expect that growth through 2014 will be 2.5 percent. The unemployment rate should decrease more rapidly, as monthly job growth picks up and as demographic factors keep labor force participation low. The unemployment rate will decrease to 7.5 percent for all of 2013 and 6.9 percent in

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16 TREASURY YIELDS AND BANK RATES Federal Reserve Statistical Release H-15 Treasury Yield Curve Month 1-Year 3-Year 5-Year 7-Year 10-Year Feb-13 Dec-12 Dec-11 Dec-10 Dec-09 Dec-08 Ten Year Treasury and Ten Year Swaps Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 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 Year Treasury 10 Year Swaps Source: Federal Reserve Board H-15 Report Yields on actively traded issues adjusted to constant maturities. 16

17 TREASURY YIELDS AND BANK RATES Federal Reserve Statistical Release H-15 3-Month 1-Year 3-Year 5-Year 7-Year 10-Year 10-Year Treasury Treasury Treasury Treasury Treasury Treasury Swap Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Change in Rate Feb- 12 to Feb (0.02) Source: Federal Reserve Board H-15 Report Yields on actively traded issues adjusted to constant maturities. 17

18 EMPLOYEES ON NONFARM PAYROLLS Number of Employees on Nonfarm Payrolls Seasonally Adjusted, Thousands of Employees Year-over-year Change 6,000 4,000 2,000 - (2,000) (4,000) (6,000) (8,000) Total Non-Farm Service Producing Goods Producing Government Month-over-month Change (200) (400) (600) (800) (1,000) Service Producing Goods Producing Government Source: Bureau of Labor Statistics 18

19 EMPLOYEES ON NONFARM PAYROLLS Number of Employees on Nonfarm Payrolls Seasonally Adjusted, Thousands of Employees Private Private Service Goods Government Total Producing Producing Nonfarm Dec ,435 22,404 22, ,927 Dec ,690 21,976 22, ,042 Dec ,546 20,323 22, ,425 Dec ,107 17,786 22, ,373 Dec ,336 17,792 22, ,395 Dec ,306 18,242 21, ,498 Dec ,295 18,522 21, ,691 Feb ,771 18,365 21, ,080 Mar , ,402 21, ,285 Apr ,056 18,408 21, ,397 May ,220 18,396 21, ,522 Jun ,284 18,410 21, ,609 Jul ,435 18,436 21, ,762 Aug ,580 18,422 21, ,927 Sep ,715 18,405 21, ,065 Oct ,916 18,421 21, ,225 Nov ,129 18,464 21, ,472 Dec ,295 18,522 21, ,691 Jan ,394 18,563 21, ,810 Feb ,573 18,630 21, ,046 Percent change Feb 2012 to Feb % 1.4% -0.5% 1.5% Change Year-over-year Dec , ,071 Dec ,255 (428) 288 1,115 Dec 2008 (2,144) (1,653) 180 (3,617) Dec 2009 (2,439) (2,537) (76) (5,052) Dec ,229 6 (213) 1,022 Dec , (317) 2,103 Dec , (76) 2,193 Month-over-month Feb Mar (3) 205 Apr (8) 112 May (12) (27) 125 Jun Jul (24) 153 Aug (14) Sep (17) Oct (57) 160 Nov (9) 247 Dec (5) 219 Jan (21) 119 Feb (10) 236 Source: Bureau of Labor Statistics 19

20 MONTHLY RETAIL SALES Seasonally Adjusted Retail sales, excluding motor vehicle and parts dealers, $millions 350, , , , , ,000 50, Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Year-Over-Year % Change in Trailing three month retail sales, excluding motor vehicles and parts delears 15% 10% 5% 0% -5% -10% -15% Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Source: U.S. Census Bureau 20

21 MONTHLY RETAIL SALES Seasonally Adjusted By Kind of Business, $millions General Merchandise Food and Beverage Stores 56,000 54,000 52,000 50,000 48,000 46,000 44,000 42,000 40, Jan Jan Jan Jan Jan Jan Jan Jan 60,000 50,000 40,000 30,000 20,000 10, Jan Jan Jan Jan Jan Jan Jan Jan 35,000 30,000 25,000 20,000 15,000 10,000 5, Jan Jan Building Materials Jan Jan Jan Jan Jan Jan Health and Personal Care Stores 25,000 20,000 15,000 10,000 5, Jan Jan Jan Jan Jan Jan Jan Jan Clothing & Accessories 25,000 20,000 15,000 10,000 5, Jan Jan Jan Jan Jan Jan Jan Jan Source: U.S. Census Bureau 21

22 MONTHLY RETAIL SALES Seasonally Adjusted By Kind of Business, $millions Total excludes motor vehicle and parts dealers Selected Businesses General Food & Building Health & Clothing & Total % Change Merchandise Beverage Materials Personal Accessories Year- Over- Year , , , , ,112 2,184, % , , , , ,593 2,246, % , , , , ,308 2,311, % , , , , ,417 2,420, % , , , , ,393 2,597, % , , , , ,233 2,800, % , , , , ,945 2,977, % , , , , ,547 3,090, % , , , , ,235 3,155, % , , , , ,951 2,954, % , , , , ,520 3,093, % , , , , ,310 3,329, % , , , , ,627 3,464, % Month- over- Month Feb 52,932 52,130 24,495 22,939 19, , % Mar 53,388 52,449 25,339 22,970 19, , % Apr 52,791 52,582 24,531 23,031 19, , % May 52,689 52,523 24,006 22,921 19, , % Jun 52,536 52,621 23,504 22,618 19, , % Jul 52,606 52,886 23,897 22,975 19, , % Aug 52,702 52,705 24,286 22,874 20, , % Sep 52,522 53,243 24,940 22,790 20, , % Oct 52,388 53,475 24,598 22,788 20, , % Nov 52,032 53,347 24,884 22,794 20, , % Dec 51,759 53,566 25,113 23,069 20, , % Jan 51,866 53,596 25,314 23,115 20, , % Feb 52,101 54,006 25,603 23,120 20, , % Source: U.S. Census Bureau 22

23 Change in Owner- and Renter-Occupied Housing Units Thousands of Units Year-over-year Change 5,000 4,000 3,000 2,000 1,000 - (1,000) (2,000) (3,000) Change in Renter-occupied Units Change in Owner-occupied Units Quarter-over-quarter Change 4,000 3,000 2,000 1,000 - (1,000) (2,000) (3,000) (4,000) Change in Renter-occupied Units Change in Owner-occupied Units Source: MBA, U.S. Census Bureau and Haver Analytics 23

24 Owner- and Renter-Occupied Housing Units Thousands of Units at End-of-period Number of Occupied Units Year-over-year Change Total Owner Renter Total Owner Renter ,728 58,798 32, (4) ,691 59,508 33, ,980 60,523 33,457 1,289 1, ,717 61,450 34,267 1, ,797 62,144 34,653 1, ,545 63,502 34, ,358 (610) ,421 64,367 34, ,743 65,531 34,212 1,322 1, ,115 67,140 33,975 1,372 1,609 (237) ,330 68,459 33,871 1,215 1,318 (103) ,646 70,010 33,635 1,315 1,551 (236) ,698 71,230 33,468 1,053 1,220 (167) ,759 72,187 33,572 1, ,505 73,091 33, (158) ,735 75,233 33,502 2,230 2, ,281 76,119 34,162 1, ,096 76,544 34, ,724 75,720 36, (824) 1, ,823 75,465 36, (255) ,485 75,537 36, ,439 75,413 38, (124) 1, ,086 75,315 38, (98) ,033 75,209 39, (106) 1,053 Quarter-over-quarter Change Q4 113,439 75,413 38, (116) Q1 113,111 75,092 38,018 (328) (321) (8) Q2 113,391 74,706 38, (386) Q3 113,548 75,251 38, (386) Q4 114,086 75,315 38, Q1 114,123 74,602 39, (713) Q2 114,200 74,832 39, (153) Q3 114,695 75,076 39, Q4 115,033 75,209 39, Source: MBA, U.S. Census Bureau and Haver Analytics 24

25 2. Commercial/Multifamily Finance Environment Extract of Commercial Real Estate Comments from the Federal Reserve Board s Beige Book March 6, 2013 Prepared at the Federal Reserve Bank of Kansas City and based on information collected on or before February 22, This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. NATIONAL SUMMARY Overall commercial real estate conditions were mixed or slightly improved in most Districts. Commercial real estate activity grew modestly in the Philadelphia, Richmond, Atlanta, and St. Louis Districts, and activity in the San Francisco District expanded. Boston and New York reported mixed activity, while the Kansas City and Dallas Districts noted few changes. Although some modest growth was reported in the Chicago District, the level of activity remained weak, and commercial contractors in the Cleveland District noted a slowing in activity, particularly for defense-related projects. Office vacancy rates declined across most of the New York District, and industrial vacancy rates in upstate New York posted their lowest levels in three years. Richmond contacts described the supply of Class A office space as tight, which they attributed to the absence of new construction. Commercial development and leasing activity increased in the San Francisco Bay and Seattle markets, fueled by sustained growth in the technology sector. Commercial construction improved by varying degrees in the Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Respondents in the Boston District expressed concerns about overbuilding in Boston's apartment market and office sector, while Philadelphia contacts noted an increase in energy-related projects and repair work resulting from Hurricane Sandy. Cleveland, Atlanta, and Chicago reported high demand for manufacturing space, with some Chicago manufacturers leasing temporary space to accommodate increased demand. Credit for commercial development and transactions was widely available, although Boston noted a large decline in loan demand and contacts in the Cleveland District said financing difficulties continued. FIRST DISTRICT BOSTON Contacts across the First District offer somewhat mixed reports concerning recent activity and the outlook, but note that fundamentals are largely unchanged since the last report. Leasing interest picked up slightly in Hartford in recent weeks but has not resulted in an increase in completed lease deals nor in significant absorption. In Boston, leasing inquiries remain steady. One Boston contact notes that tenants express little urgency to sign deals while another says that absorption increased slightly in recent weeks. In Providence, leasing activity picked up from last time and Class A downtown office vacancies fell to just under 9 percent from roughly 15 percent a year earlier. A Portland contact reports that leasing activity is stable and office rents unchanged since the last report, notwithstanding some newly announced plant closings in the region that will result in layoffs. Investment sales reportedly picked up in both Hartford and Providence as some investors were priced out of primary markets such as Boston. Across the region, multifamily structures remain the favored investment class, but high quality office and industrial structures are also seeing healthy demand. More properties are coming up for sale in response to rising prices. Some contacts are concerned that the high sales 25

26 prices for premier properties in Boston are increasingly out of line with fundamentals. A regional lender notes a significant decline in loan demand for commercial properties since December and cites as possible reasons a temporary decline in the bank's marketing efforts together with a general climate of economic uncertainty. Respondents raise concerns about overbuilding in Boston's apartment market and possibly also in its office sector. While current office construction in Boston is preleased rather than speculative, one contact notes that the intended tenants will nonetheless generate significant vacancies at their current locations in other parts of the city. The outlook is largely unchanged in Portland and Boston, calling for a continuation of slow growth. Upside risks to absorption are cited for both Hartford and Providence, while contacts in both Boston and Hartford note downside macroeconomic risks as a threat to commercial real estate markets. SECOND DISTRICT NEW YORK Commercial real estate markets across the District were mixed but generally firmer since the last report. Office vacancy rates declined across most of the District, though rents in most areas continued to run below year-ago levels. Manhattan's office market was particularly robust, with vacancy rates continuing to decline and asking rents up 4 percent from a year ago. In northern New Jersey and in the Buffalo, Albany and Syracuse metro areas, vacancy rates have declined since the start of the year, but rents continue to run 1-3 percent below early 2012 levels. However, office markets in Westchester and Fairfield counties have been increasingly slack, with vacancy rates climbing to new highs and rents slipping roughly 4 percent over the past year. Market conditions in metro Rochester have been essentially flat. Industrial markets have shown some signs of firming. In northern New Jersey, Long Island, Westchester and Fairfield counties, industrial vacancy rates have been steady since the beginning of the year, while rents are running 2-4 percent ahead of comparable 2012 levels. Industrial vacancy rates across upstate New York have continued to decline, reaching their lowest levels in three years, while rents have also drifted down. THIRD DISTRICT PHILADELPHIA Nonresidential real estate contacts reported continued modest growth in overall leasing activity and continued slight growth in construction. Contacts report that construction and repair work have grown, prospect activity has gained momentum and resolve, and money has been flowing more freely for investments. Current activity and prospects are emerging from recently quiet sectors, including some land development projects and retail, in particular, large warehouse facilities for national retailers. Activity is heating up in energy-related projects, with some repair work resulting from Hurricane Sandy. Contacts were decidedly more upbeat about future prospects, stating that the trends "feel sustainable." FOURTH DISTRICT CLEVELAND Nonresidential contractors experienced some slowing in business activity, when compared to the fourth quarter of last year. Margins are still tight and inquiries were down slightly. Builders noted that stress on government budgets is choking the supply of projects, especially defense-related. One contractor stated that uncertainty has eased somewhat and the number of potential clients is growing. But transforming proposals into signed contracts remains challenging, which is due in part to difficulty in obtaining financing. Project work is found mainly in manufacturing, distribution, and large multifamily developments. Our contacts are cautious about near-term activity and expect slow to moderate growth, mainly from private- sector clients. FIFTH DISTRICT RICHMOND Commercial real estate and construction markets improved somewhat since our last report. A developer in the Carolinas said that leasing activity continued at a reasonably healthy pace, while a Richmond 26

27 Realtor stated that tenants were trying to hedge based on the economy. He noted that companies didn't want to commit to more than a five-year lease with the right to cancel at three years. Most contacts continued to describe the supply of Class A office space as tight, which they attributed to the absence of new construction. Several Realtors reported that rental rates had firmed in the market with property owners keeping rents firm and minimizing concessions. A source in Charleston, South Carolina cited heightened industrial sales due to attractive lending rates. He indicated that vacancy rates had declined and that a couple of build-to-suit projects had positive absorption. SIXTH DISTRICT ATLANTA Contacts cited improvements in District commercial real estate markets but the recovery continued to unfold slowly. Multifamily projects dominated reports, although it was also noted that manufacturers were expanding their facilities. Commercial contractors reported that construction improved modestly from late last year. Commercial brokers indicated that demand improved as well. Rents stabilized by most accounts and tenants were seeking longer lease deals. Investors still have a strong interest in core markets, though there has been some indication that some have started to turn to secondary markets in the region. SEVENTH DISTRICT CHICAGO Although there was some modest growth in nonresidential construction, the level of activity remains weak. Notably, while some new projects are slated to break ground, growth in commercial and office space is expected to remain below trend for some time. However, contacts did note that construction of private-practice facilities close to affiliated hospitals is an area of strength in this segment. Commercial real estate leasing activity was generally unchanged--rents held steady, while vacancy rates continued to come down slowly. In contrast, some manufacturers were reportedly leasing temporary space in order to accommodate increased demand. EIGHTH DISTRICT ST. LOUIS Commercial and industrial real estate markets improved modestly throughout most of the District. Contacts in Louisville reported that office asking rents increased during the fourth quarter of 2012, while contacts in Little Rock noted that office vacancy rates decreased. A contact in St. Louis reported strong office leasing and industrial sales activity. A contact in Memphis reported stable commercial real estate conditions. Commercial and industrial construction activity continued to strengthen throughout most of the District. A contact in northeast Mississippi noted that commercial construction and renovation activity increased in the fourth quarter of Contacts in St. Louis noted a few commercial construction projects underway and plans for a speculative industrial building project. Contacts in Louisville reported several ongoing commercial construction projects in Bowling Green. NINTH DISTRICT MINNEAPOLIS Commercial construction activity increased at a robust pace since the last report. A real estate forecasting firm expects 600,000 square feet of industrial construction in the Minneapolis-St. Paul area in 2013 compared with 200,000 square feet in Some of that construction is speculative. Commercial real estate markets continued to strengthen. A major commercial real estate firm forecast that Minneapolis-St. Paul area office vacancy rates will drop to 15.5 percent by the end of 2013 compared with 17.6 percent at the end of The same firm forecast industrial vacancy rates to drop to 7.6 percent from 8.5 percent. TENTH DISTRICT KANSAS CITY Commercial real estate sales, prices, rents and vacancy rates were all unchanged since the last survey period. However, new construction was much improved compared to a year ago and contacts expected new construction to continue to improve in the coming months. Interest rates on commercial and industrial loans continued to show moderate declines. Most bankers reported improved loan quality compared to a year ago, and they also expected the 27

28 outlook for loan quality to either improve or remain about the same over the next six months. ELEVENTH DISTRICT DALLAS Demand for commercial space remained moderate since the last report. Contacts said real estate investment activity continues to improve, and most remain optimistic in their outlooks. TWELFTH DISTRICT SAN FRANCISCO Commercial real estate development and leasing activity increased, particularly in the San Francisco Bay Area and Seattle markets, fueled by sustained growth in the technology sector. Commercial rental rates increased in various parts of the District. 28

29 NET INVENTORY CHANGE/NET ABSORPTION COMMERCIAL/MULTIFAMILY PROPERTIES Net Absorption (Thousands of Square Feet) 100,000 80,000 60,000 40,000 20, ,000 40,000 60, Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Office Retail Apartment Net Inventory Change (Thousands of Square Feet) 100,000 80,000 60,000 40,000 20, ,000 40,000 60, Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Office Retail Apartment Source: REIS 29

30 COMMERCIAL/MULTIFAMILY PROPERTIES NET INVENTORY CHANGE LESS NET ABSORPTION THOUSANDS OF SQUARE FEET Calendar Year Q1 Q2 Q3 Q4 Year YTD Q4 APARTMENT ,558 22,952 9,087 39, , , ,553 (7,445) (10,381) 27,858 64,585 64, ,224 (24,225) (20,472) 3,337 (14,136) (14,136) 2005 (6,228) (20,131) (57,423) (12,080) (95,862) (95,862) ,123 (23,851) (13,943) 38,538 11,867 11, ,335 (19,332) (14,686) 9,830 (4,853) (4,853) ,525 15,695 9,298 50,108 99,626 99, ,784 35,266 17,797 20, , , ,739 (17,456) (71,245) (45,176) (132,138) (132,138) 2011 (37,816) (31,488) (26,419) (37,708) (133,431) (133,431) 2012 (26,686) (17,127) (7,764) (21,119) (72,696) (72,696) OFFICE ,606 23,707 17,453 15,574 99,340 99, ,626 11,394 8,539 8,093 41,652 41, (201) (1,996) (5,895) (12,298) (20,390) (20,390) 2005 (11,483) (21,652) (15,582) (16,844) (65,561) (65,561) 2006 (19,558) (13,917) (13,385) (5,483) (52,343) (52,343) 2007 (10,008) (11,669) (9,309) 5,429 (25,557) (25,557) ,244 13,636 24,037 31,506 80,423 80, ,430 32,272 24,940 17, , , ,748 4,982 7,264 (234) 26,760 26, (1,131) (1,567) (2,390) (1,921) (7,009) (7,009) 2012 (4,295) (1,533) (1,745) (3,154) (10,727) (10,727) RETAIL ,956 (717) ,800 4, (1,337) 234 2,434 (512) ,007 (1,368) (1,383) (205) (1,949) (1,949) (3,892) 1,390 1,448 (952) (952) , ,660 2,267 7,519 7, ,486 2,644 1,564 3,825 9,519 9, ,331 9,094 6,474 10,395 31,294 31, ,788 11,282 6,052 5,580 34,702 34, ,540 2,591 1, ,743 7, (396) 1,649 1,132 (1,167) 1,218 1, (1,502) (1,297) (772) (1,377) (4,948) (4,948) Source: REIS 30

31 AVERAGE RENTS AND VACANCY RATES AT COMMERCIAL/MULTIFAMILY PROPERTIES Average Rents $/Sq Ft $35 $30 $25 $20 $15 $10 $5 $/Month $0 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 0 Office Retail Apartment (Right Scale) Average Vacancy Rates percent Q1 2Q1 2002Q3 2Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 0Q1 2010Q3 0Q3 2011Q1 1Q1 2011Q3 1Q3 2012Q1 2Q1 2012Q3 2Q3 Office Retail Apartment Source: REIS 31

32 AVERAGE RENTS AND VACANCY RATES AT COMMERCIAL/MULTIFAMILY PROPERTIES Average Asking Rents Year Q1 Q2 Q3 Q4 Average Vacancy Rates (percent) Q4 Yearoveryear % change Q1 Q2 Q3 Q4 Q4 Yearover-year change APARTMENT (per month) 2002 $ 877 $ 880 $ 886 $ $ 892 $ 894 $ 897 $ 902 1% $ 904 $ 909 $ 917 $ 921 2% $ 925 $ 930 $ 938 $ 944 2% $ 952 $ 962 $ 975 $ 982 4% $ 991 $ 1,002 $ 1,015 $ 1,026 4% $ 1,035 $ 1,046 $ 1,052 $ 1,050 2% $ 1,045 $ 1,039 $ 1,033 $ 1,026-2% $ 1,028 $ 1,032 $ 1,038 $ 1,043 2% $ 1,047 $ 1,053 $ 1,060 $ 1,064 2% $ 1,070 $ 1,082 $ 1,091 $ 1,097 3% OFFICE (per sq. ft) 2002 $ $ $ $ $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % RETAIL (per sq. ft) 2002 $ $ $ $ $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % $ $ $ $ % Source: REIS 32

33 MULTIFAMILY BUILDING PERMITS, STARTS AND COMPLETIONS Thousands of Units Permitted, Started and Completed in Structures with 5 or More Units, Seasonally Adjusted Annual Rate 1968 to present Completions 5+ Permits 5+ Starts 5+ Median Starts (300.5) 1996 to present Completions 5+ Permits 5+ Starts 5+ Median Starts (300.5) Source: U.S. Census Bureau 33

34 MULTIFAMILY BUILDING PERMITS, STARTS AND COMPLETIONS Number of Units Permitted, Started and Completed in Structures with 5 or More Units, Seasonally Adjusted Annual Rate Thousands of Units Percent Change Permits Starts Completions Permits Starts Completions Year-over-year % -2.4% 1.8% % -2.1% -7.8% % 5.2% 2.6% % 2.4% -9.5% % -3.9% 10.0% % 2.8% -10.1% % -6.0% 10.2% % -5.3% -11.0% % -4.1% 9.6% % -63.4% -6.3% % 7.2% -43.6% % 60.4% -11.3% % 39.8% 21.3% Month-over-month Feb % 24.4% -2.9% Mar % -10.4% 0.0% Apr % 8.8% 25.0% May % -23.9% -28.8% Jun % 20.8% 8.3% Jul % -1.9% 51.1% Aug % -2.8% -8.6% Sep % 19.5% -22.7% Oct % 14.7% 45.0% Nov % -7.1% -28.1% Dec % 33.0% -2.1% Jan % -18.4% 5.6% Feb % 0.7% -13.9% Percent change Feb 2012 to Feb % 18.8% -4.4% Source: U.S. Census Bureau 34

35 NEW PRIVATELY OWNED HOUSING UNITS STARTED, BY PURPOSE Thousands of Units 1- Units in Buildings with 2 or More Units Quarter TOTAL Family Units Total For Rent For Sale Percent for Rent 2006Q % 2006Q % 2006Q % 2006Q % 2007Q % 2007Q % 2007Q % 2007Q % 2008Q % 2008Q % 2008Q % 2008Q % 2009Q % 2009Q % 2009Q % 2009Q % 2010Q % 2010Q % 2010Q % 2010Q % 2011Q % 2011Q % 2011Q % 2011Q % 2012Q % 2012Q % 2012Q % 2012Q % Thousands of units unit for sale unit for rent Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Source: U.S. Census Bureau 35

36 Value of Commercial Real Estate Construction Put- In-Place January 2013 Data The value of selected commercial real estate (CRE)-related private construction put-inplace decreased in the month of January, but was higher than the pace of construction in January The $191.5 billion seasonally adjusted annual rate in January was 0.2 percent lower than the December rate, but 14 percent higher than the January 2012 pace. The pace of construction in January was 31% higher than its recession low and 39% below its pre-recession high. Private MULTIFAMILY new construction activity continued to increase in January. January s seasonally adjusted annual pace of $26.5 billion was 1.7 percent higher than December s $26.0 billion and 55 percent higher than last January s rate. The pace of construction in January was 103% higher than its recession low and 52% below its pre-recession high. adjusted annual pace of $44.9 billion was 3.0 percent higher than last January s rate. The pace of construction in January was 30% higher than its recession low and 50% below its pre-recession high. The value of LODGING construction put-inplace decreased in January. January s seasonally adjusted annual pace of $10.3 billion was 13.3 percent higher than last January s rate. The pace of construction in January was 31% higher than its recession low and 73% below its pre-recession high. The value of MANUFACTURING construction put-in-place fell 2.9 percent in January. January s seasonally adjusted annual pace of $50.6 billion was 13.1 percent higher than last January s rate. The pace of construction in January was 72% higher than its recession low and 22% below its pre-recession high. The value of private OFFICE construction put-in-place increased slightly 0.9 percent in January. January s seasonally adjusted annual pace of $29.9 billion was 26.2 percent higher than last January s rate. The pace of construction in January was 39% higher than its recession low and 49% below its pre-recession high. The value of private HEALTH CARE construction put-in-place increased 2.9 percent in January. January s seasonally adjusted annual pace of $29.4 billion was 1.9 percent lower than last January s rate. The pace of construction in January was 8% higher than its recession low and 27% below its pre-recession high. The value of private RETAIL, WHOLESALE AND SELECTED SERVICES (referred to as COMMERCIAL by the Census Bureau) construction put-in-place increased 0.6 percent in January. January s seasonally 36