2015 NAR Commercial Report

THE COMMERCIAL OUTLOOK

Commercial Real Estate DemandA Function of Jobs and Growth

• Commercial Sales Drivers: Jobs and GDP. – Expanding After Some Difficult Years. – Sales and Prices Increasing – Capital Increasingly Available.

• Foreign Interest in U.S. Properties Continues.

• New Construction—Slow Recovery. • Rents Increasing.

SIOR Member Survey on Activity

Commercial Real EstateNew Construction--Recovering

Total Construc-on Put in Place Millions of Dollars, Monthly

0

200000

400000

600000

800000

2002 -‐ Jan2004 -‐ Jan2006 -‐ Jan2008 -‐ Jan2010 -‐ Jan2012 -‐ Jan2014 -‐ Jan

Commercial Real Estate Price Index, 1987 = 100 Source: Federal Reserve Board

0

65

130

195

260

2000 -‐ Q1

2000 -‐ Q4

2001 -‐ Q3

2002 -‐ Q2

2003 -‐ Q1

2003 -‐ Q4

2004 -‐ Q3

2005 -‐ Q2

2006 -‐ Q1

2006 -‐ Q4

2007 -‐ Q3

2008 -‐ Q2

2009 -‐ Q1

2009 -‐ Q4

2010 -‐ Q3

2011 -‐ Q2

2012 -‐ Q1

2012 -‐ Q4

2013 -‐ Q3

2014 -‐ Q2

Commercial Sector Forecast

Commercial Sales —Follows Residential, May Lag

Commercial Sales in Billions Actual and Projected

Source: Urban Land Ins-tute

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

430420

400

355

299

233

147

67

174

571

423

362

212

130

Commercial Real Estate SalesSales Volume Recovering

Quarterly Commercial Sales

$ -‐ 0

$ 40,000,000,000

$ 80,000,000,000

$ 120,000,000,000

$ 160,000,000,000

'01

01Q3

'02

02Q3

'03

03Q3

'04

04Q3

'05

05Q3

'06

06Q3

'07

07Q3

'08

08Q3

'09

09Q3

'10

10Q3

'11

11Q3

'12

12Q3

'13

13Q3

Offices Industrial Retail Apartments Hotel

Commercial Real Estate Forecast

OFFICE2014 2015 2016

Vacancy Rate 16.2% 15.7% 15.6%

Net Absorption ('000 sq. ft.) 35,586 48,841 55,026

Completions ('000 sq. ft.) 27,073 42,154 44,460

Rent Growth 2.6% 3.3% 3.6%

INDUSTRIAL2014 2015 2016

Vacancy Rate 8.9% 8.5% 8.1%

Net Absorption ('000 sq. ft.) 110,652 102,463 105,780

Completions ('000 sq. ft.) 81,009 71,349 62,097

Rent Growth 2.4% 2.9% 3.1%

RETAIL2014 2015 2016

REALTORS® Report Commercial Sales IncreasePercen

t Change, year-‐o

ver-‐y

ear

-‐40%

-‐30%

-‐20%

-‐10%

0%

10%

20%

2008.Q4

2009.Q1

2009.Q2

2009.Q3

2009.Q4

2010.Q1

2010.Q2

2010.Q3

2010.Q4

2011.Q1

2011.Q2

2011.Q3

2011.Q4

2012.Q1

2012.Q2

2012.Q3

2012.Q4

2013.Q1

2013.Q2

2013.Q3

2013.Q4

2014.Q1

2014.Q2

2014.Q3

Sales Volume Sales Prices

Source: NaYonal AssociaYon of Realtors®

New Construction and Leasing Favorable% Change, Quarter-‐over-‐q

uarter

-‐30%

-‐23%

-‐15%

-‐8%

0%

8%

2009.Q2

2009.Q3

2009.Q4

2010.Q1

2010.Q2

2010.Q3

2010.Q4

2011.Q1

2011.Q2

2011.Q3

2011.Q4

2012.Q1

2012.Q2

2012.Q3

2012.Q4

2013.Q1

2013.Q2

2013.Q3

2013.Q4

2014.Q1

2014.Q2

2014.Q3

New ConstrucYon Leasing Volume


Trends in Leasing Volumes, Rates, Concessions

REALTOR® Commercial Leasing Trends

Percen

t Change, Quarterly

-‐14%

-‐11%

-‐7%

-‐4%

0%

4%

7%

11%

14%

2008.Q4

2009.Q1

2009.Q2

2009.Q3

2009.Q4

2010.Q1

2010.Q2

2010.Q3

2010.Q4

2011.Q1

2011.Q2

2011.Q3

2011.Q4

2012.Q1

2012.Q2

2012.Q3

2012.Q4

2013.Q1

2013.Q2

2013.Q3

2013.Q4

2014.Q1

2014.Q2

2014.Q3

Leasing Volume Leasing Rates Lease Concessions


Commercial Vacancy Rates Reported Down

REALTORS® Commercial Vacancy Rates

0.0%

7.5%

15.0%

22.5%

30.0%

2010.Q1 2010.Q2 2010.Q3 2010.Q4 2011.Q1 2011.Q2 2011.Q3 2011.Q4 2012.Q1 2012.Q2 2012.Q3 2012.Q4 2013.Q1 2013.Q2 2013.Q3 2013.Q4 2014.Q1 2014.Q2 2014.Q3

Office Industrial Retail MulYfamily Hotel


Capitalization Rates as Reported by REALTORS®

REALTORS® Commercial Capitaliza-on Rates

5.0%

6.5%

8.0%

9.5%

11.0%

2010.Q1 2010.Q2 2010.Q3 2010.Q4 2011.Q1 2011.Q2 2011.Q3 2011.Q4 2012.Q1 2012.Q2 2012.Q3 2012.Q4 2013.Q1 2013.Q2 2013.Q3 2013.Q4 2014.Q1 2014.Q2 2014.Q3

Office Industrial Retail MulYfamily Hotel


REALTORS® Reported Improved Credit Conditions

Change in Lending Condi-ons over Past Year

0%

25%

50%

75%

100%

2011 2012 2013 2014

Tightened SignificantlyTightened SomewhatNot ChangedEased SomewhatEased Significantly

Providing the Financing

Providing The Financing for Commercial Real Estate 2012-‐2014

Other 14%

Private Investors 14%

SBA 11%

Regional Banks 19%

NaYonal Banks 8%

Local Financial InsYtuYons 34%

Apartment Vacancy Rates—Low Relative to Experience

Apartments: Average Vacancy Rates Source: Urban Land Ins-tute

Avg Vacancy Rates, 2003-‐13 Avg Vacancy Rates, Past 19 Years Vacancy Rate 2013 Forecasted Vacancy Rates, 2014-‐16

5.2

4.9

5.3

5.7

Rental Rate Changes

Apartments: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR Change Past 18 Yrs RR Change 2013 Forecasted RR Change 2014-‐16

2.4

2.2

2.7

2.1

Apartment Fundamentals

Apartment Rents

Industrial Space Tends to be Warehouses, Flex Space

Industrial: Average Vacancy Rates Source: Urban Land Ins-tute

Avg Vacancy Rates, 2003-‐13 Avg Vacancy Rates, Past 20 years Vacancy Rate, 2013 Forecasted Vacancy Rates, 2014-‐16

10.4

11.3

10.3

11.9

Rental Rate Changes Upswing as Economy Expands

Industrial: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR Change, Past 20 Yrs RR Change 2013 Forecasted RR Change 2014-‐16

3.53.6

1.3

-‐0.4

Industrial Fundamentals

Industrial Fundamentals

Commercial Office Buildings Vacancies Projected to Decline

Offices: Average Vacancy Rates Source: Urban Land Ins-tute

Avg Vacancy Rates, 2003-‐13 Avg Vacancy Rate, Pst 20 Years Vacancy Rate, 2013 Forecasted Vacancy Rates, 2014-‐16

13.7

14.9

14.1

14.9

Commercial OfficesProjected Rental Rate Changes

Offices: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR change, Past 20 Years RR Change 2013 Forecasted RR Change 2014-‐16

3.5

2.52.4

1.0

Commercial OfficesProjected Rental Rate Changes

Offices: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR change, Past 20 Years RR Change 2013 Forecasted RR Change 2014-‐16

3.5

2.52.4

1.0

Commercial Office Fundamentals

Commercial Office Rents

Retail: Vacancy Rates

Retail: Rental Rate Changes

Retail: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR Change, Past 20 Years RR Change 2013 Forecasted RR Change 2014-‐16

2.5

-‐0.2

1.5

0.1

Retail: Vacancy Rates

Retail: Rental Rate Changes

Retail: Rental Rate Changes Source: Urban Land Ins-tute

RR Change 2003-‐13 RR Change, Past 20 Years RR Change 2013 Forecasted RR Change 2014-‐16

2.5

-‐0.2

1.5

0.1

Retail Fundamentals

Retail Rents

CONCLUSIONS

• Expanding Economy • Expanding Commercial Sales. • Significant Uncertainties • Overall Trends: Positive