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NAIOP Capital Markets 101 September 2016
The Myth – DC Metro Falling in Eyes of Investors
Source: PWC/ULI Emerging Trends in Real Estate
Market Outlook 2010 vs. 2016
San Jose
Washington, DC
Detroit
Source: PWC/ULI Emerging Trends in Real Estate
PWC Overall Real Estate Prospects
0369
12151821242730333639
Dal
las
Aust
in
Char
lott
e
Seat
tle
Atla
nta
Den
ver
Nas
hvill
e
San
Fran
cisc
o
Port
land
Los A
ngel
es
Rale
igh/
Dur
ham
San
Jose
Bost
on
Ora
nge
Coun
ty
New
Yor
k Ci
ty
San
Die
go
Phoe
nix
Min
neap
olis
Mia
mi
San
Anto
nio
Indi
anap
olis
Hon
olul
u
Was
hing
ton,
DC
Chic
ago
Hou
ston
Nor
ther
n VA
Rank 2010 Rank 2016
…and then we have this…
Clarion | Cushman & Wakefield
Reality – US is Strong, DC Economy is Stronger
Source: PWC/ULI Emerging Trends in Real Estate
-4%
-2%
0%
2%
4%
6%
8%
China MiddleEast
UnitedKingdom
Canada LatinAmerica
Eurozone Japan Russia UnitedStates
2014 2015 2016e
Global Slowdown GDP Growth with Forecast , 2014-2016
Source: IMF
Global Monetary Policy • Eurozone ECB launching QE in March 2015,
bond-buying $60 Billion per month through March 2017; also dropped short-term rates to effectively 0%
• Japan BOJ launched new QE in October of
2014, swelling monetary base by $670 billion per year; introduced negative interest rate on new excess reserves
• China PBOC cut interest rates from 4.6% to 4.35%% in October 2015 – has continued to inject Yuan thru liquidity facilities
• Australia cut interest rates in May to record low of 2%
• India Central bank reduced its main rate by half a percentage point in October 2015 – citing economy is “far from robust”
Central Banks Ease while U.S. Considers Tightening
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%Sw
itzer
land
Japa
n
Ger
man
y
Fran
ce
U.K
.
Cana
da
Sout
h Ko
rea
U.S
10 Year Treasury Yield
Source: Bloomberg
DC Metro Employment % Growth YOY
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%19
91Q
219
91Q
419
92Q
219
92Q
419
93Q
219
93Q
419
94Q
219
94Q
419
95Q
219
95Q
419
96Q
219
96Q
419
97Q
219
97Q
419
98Q
219
98Q
419
99Q
219
99Q
420
00Q
220
00Q
420
01Q
220
01Q
420
02Q
220
02Q
420
03Q
220
03Q
420
04Q
220
04Q
420
05Q
220
05Q
420
06Q
220
06Q
420
07Q
220
07Q
420
08Q
220
08Q
420
09Q
220
09Q
420
10Q
220
10Q
420
11Q
220
11Q
420
12Q
220
12Q
420
13Q
220
13Q
420
14Q
220
14Q
420
15Q
220
15Q
420
16Q
2
Washington DC, MSA US
DC MSA Now Outperforming the US
Source: BLS
Job Growth in Major Markets July 2016 YOY
185,800
115,100 107,300 92,500
74,000 69,400 68,700 66,500 56,300 52,900 50,900 47,800 42,900
5,500
2.0%
2.0%
3.2% 2.9% 2.9%
2.7%
3.0% 3.5%
2.0%
1.2%
3.6%
1.8%
2.2%
0.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
-10,000
40,000
90,000
140,000
190,000N
ew Y
ork
Los A
ngel
es
Dalla
s
Was
hing
ton,
DC
Mia
mi
Atla
nta
San
Fran
cisc
o
Seat
tle
Phila
delp
hia
Chic
ago
Denv
er
Bost
on
Detr
oit
Hous
ton
Non Office-Using Office-Using % Growth YOY
Source: BLS
-1,390
280
4,770
7,960
8,260
10,380
17,220
18,850
-5,000 0 5,000 10,000 15,000 20,000
Information (76k)
Financial (153k)
Federal Government (364k)
Manufacturing & Construction (203k)
Retail (275k)
Leisure & Hospitality (308k)
Education & Healthcare (422k)
Professional & Business Services (732k)
# of Jobs
NoVA Other DC Metro Total MSA
Employment by Sector DC Metro with NoVA Breakout, July 2016 YOY
(total sector employment)
Source: BLS
-52
-8
36 39 26
45 62
74 93
118
41
9
56 71 64
50 23 14
-51
11
43 40 29 18
58 64 53 48 41 33
-120
-70
-20
30
80
13019
91
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Thou
sand
s
DC Metro Annualized Job Growth Historical Average: 36,000 Jobs
FORECAST
Historical, Current and Projected Job Growth DC Metro Annualized Job Growth
Source: BLS
Job Growth Forecast
58,080
64,399
53,105 47,792
40,832
32,827
0
10,000
20,000
30,000
40,000
50,000
60,000
2015 2016 2017 2018 2019 2020
Cushman & Wakefield George Mason University Moody's Average Historical Average: 36,000
Source: Cushman & Wakefield, Moody’s, GMU-CRA
Federal Spending In The DC Region The Party Doesn’t Matter
$0
$50
$100
$150
$200
$250
Reagan Bush I Bush II Clinton Obama
Republican Controlled House Democrat Controlled House Light Colored Bar = Opposite Party President
Billi
ons
Forecast
Source: Cushman & Wakefield, White House OMB
DC Metro Unemployment Rate DC Metro vs. the US and Major Markets, July 2016.
3.4% 3.6%
3.7% 3.8%
4.0% 4.7%
4.7% 4.8%
4.8% 4.9% 4.9% 4.9%
5.2% 5.3%
5.6%
0% 1% 2% 3% 4% 5% 6%
Boston
Denver
Washington, DC
Dallas
San Francisco
Los Angeles
Atlanta
Miami
New York
Seattle
United States
Detroit
Philly
Houston
Chicago
Source: BLS
Federal % of Total Employment is Shrinking DC Metro Federal Government as a Percentage of Total Employment
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
1990
Q1
1990
Q4
1991
Q3
1992
Q2
1993
Q1
1993
Q4
1994
Q3
1995
Q2
1996
Q1
1996
Q4
1997
Q3
1998
Q2
1999
Q1
1999
Q4
2000
Q3
2001
Q2
2002
Q1
2002
Q4
2003
Q3
2004
Q2
2005
Q1
2005
Q4
2006
Q3
2007
Q2
2008
Q1
2008
Q4
2009
Q3
2010
Q2
2011
Q1
2011
Q4
2012
Q3
2013
Q2
2014
Q1
2014
Q4
2015
Q3
2016
Q2
Non-Federal Employment Federal Employment Federal % of Total Linear (Federal % of Total)
Source: BLS
DC Metro Population 540,000 new people from 2009-2015
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Seattle Denver Boston Baltimore Portland Las Vegas Atlanta Miami Minneapolis Cleveland
DC Population Growth 2009-2015
Source: US Census
DC Metro Economic Indicators
0%
10%
20%
30%
40%
50%
60%
$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000$90,000
$100,000W
ashi
ngto
n, D
CSa
n Fr
anci
sco
Bost
onN
ew Y
ork
Denv
erCh
icag
oLo
s Ang
eles
Dalla
sHo
usto
nAt
lant
aU
nite
d St
ates
Detr
oit
Mia
mi
Incomes and Education
Median Incomes
Educational Attainment - % of Population with Bachelor's
21
5
4
Fortune 1,000 HQ’s
NoVA DC Maryland
The Smartest, most Well-Paid Workforce in the Nation with Great Companies to Work For
Source: US Census, Forbes
Wealthiest Counties in the U.S. Median Household Income – 4 of 10 Wealthiest U.S. Counties are in the DC Metro Region
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Source: Census, Motley Fool
Capital Markets – DC Metro Office Trends
Office Sales Volume 2015 Among Major Metros
$32.5
$15.2
$11.1 $9.7 $8.7 $8.3
$5.6 $5.1 $4.1 $3.1 $2.8 $2.0
$388
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
NYC Metro SF Metro LA Metro DC Metro Chicago Boston Seattle Atlanta Dallas Houston Denver Philly Metro
$Bill
ions
Sales Volume 2015 YTD Average Price Per SF
Source: C&W, RCA
Office Sales Volume YTD 2016 Among Major Metros
$23.1
$8.8 $8.4
$5.4 $4.0 $3.7 $3.2 $3.0
$1.9 $1.9 $1.5 $0.5
$245
$0
$100
$200
$300
$400
$500
$600
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
NYC Metro LA Metro SF Metro Boston DC Metro Chicago Seattle Dallas Atlanta Philly Metro Denver Houston
$Bill
ions
Sales Volume 2015 YTD Average Price Per SF
Source: C&W, RCA
Office Investment Sales Volume Washington DC Metro
$10.2
$14.1 $12.5
$3.4 $2.3
$4.3
$7.2
$5.4 $6.8
$8.0
$9.7
$4.0
-$1.0
$1.0
$3.0
$5.0
$7.0
$9.0
$11.0
$13.0
$15.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Bill
ions
DC NoVA SMD Historical Average: $7.6 Billion
Source: Cushman & Wakefield
Office Pricing $/square foot
$424
$201
$146
$0
$100
$200
$300
$400
$500
$600
$700
$800
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
DC NoVa SMD
Source: Cushman & Wakefield
Office Cap Rates Washington, DC Metro Area, all classes
1.69%
5.14%
8.81%
6.80%
0%1%2%3%4%5%6%7%8%9%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US 10 Yr Treasury DC Office Cap Rate MD Office Cap Rate VA Office Cap Rate
Source: C&W
Historical and Projected Interest and Cap Rates
0%1%2%3%4%5%6%7%8%9%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
US 10 Yr Treasury DC Office Cap Rate SMD Office Cap Rates NoVA Office Cap Rates
Source: Cushman & Wakefield, US Treasury
FORECAST
Office Cap Rates Washington, DC Metro Area, all classes
2.22%
5.39%
6.99%
7.05%
0%1%2%3%4%5%6%7%8%9%
10%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US 10 Yr Treasury DC Office Cap Rate MD Office Cap Rate VA Office Cap Rate
Source: Cushman & Wakefield 28
Where Foreign Buyers Are Most Active Cross-border office sales as % of total sales volume – 2016
DC Metro 30%
New York 38% U.S. = 25%
Foreign acquisitions under 10% of investor composition YTD 2015
Dallas 37%
Miami 31%
Philly 35%
Source: Cushman & Wakefield, RCA
Boston 16%
Denver 21%
Seattle 28%
Los Angeles 24%
Chicago 21%
Nashville 12%
Austin 21%
San Francisco 17%
$0
$500
$1,000
$1,500
$2,000
$2,500 $2,171.8 $1,765.7
$1,720.0
$1,066.7 $840.7
$744.9 $707.2 $364.0
$300.2 $150.7 $21.5
Mill
ions
2012 2013 2014 2015 2016
Source: Cushman & Wakefield, RCA
Foreign Investment in DC Metro Office By Country, DC Metro 2012-2015
The Multifamily Market
Historical Completions by Market DC Metro
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2008 2009 2010 2011 2012 2013 2014 2015
Uni
ts
District of Columbia Suburban Maryland Northern Virginia Average
8,000 / Year Average
Source: C&W, Delta
Forecasted Deliveries
0
1,000
2,000
3,000
4,000
5,000
6,000
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017 2018 2019DC SMD NoVA
14,000 Units 8,900 Units DC Metro
Source: C&W, Delta
Multifamily Absorption DC Metro
2,379
4,063
2,589
1,574 735
7,741
1,776 2,646
4,436
8,081
6,782
5,176
6,849
5,926
10,147 10,631
4,308
0
2,000
4,000
6,000
8,000
10,000
12,00020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
YTD
DC MD VA
Source: REIS, CoStar
Housing Permits Single Family vs. Multifamily
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
# of
Uni
ts
Single Family Multifamily Total Average: 30k Units/Year
7,700 Units below average
Source: Moody’s
Multifamily – Washington Metro Area
Multifamily 2010 2011 2012 2013 2014 2015 2016 YTD
Total Volume $3.26 Billion $4.91 Billion $5.74 Billion $8.65 Billion* $3.96 Billion $8.31 Billion** $2.42 Billion
# of Transactions 57 91 101 123 73 129 43
Average of Price/Unit $223k $190k $193k $271k $185k $200k $208k
Average Cap Rate 5.66% 5.54% 5.16% 5.25% 5.60% 5.60%
DC 4.50% 4.77% 4.54% 5.60% 5.00% 5.70%
Nova 5.57% 5.60% 5.12% 5.40% 5.40% 5.00%
Maryland 6.15% 6.23% 5.83% 6.89% 6.10% 5.50%
*Inclusive of the Archstone portfolio sale **Inclusive of the Home Properties, Associate Estates, Gables Residential privatizations / portfolio transactions
Source: C&W, RCA
By 2026…
850,000 Additional People
327,000 Households 33,000 Units/Year 13,000 MF Units/Year
Source: Cushman & Wakefield
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