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2014 California Commercial Market OUTLOOK

2014 California Commercial Market OUTLOOK. Northern California Commercial Association January 24, 2014 Oscar Wei Senior Research Analyst. Overview. Economic Outlook California Housing Market Outlook Commercial Market Outlook Concluding Remarks. Economic Outlook. So….what’s happening? .

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2014 California Commercial Market OUTLOOK

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  1. 2014 California Commercial Market OUTLOOK

    Northern California Commercial Association January 24, 2014 Oscar Wei Senior Research Analyst
  2. Overview Economic Outlook California Housing Market Outlook Commercial Market Outlook Concluding Remarks

  3. Economic Outlook

  4. So….what’s happening? Economy appears to be gaining strength Unemployment rate at 5 year low “Tapering” has begun : $85B /month bond-buying reduced by $10B/month Rates headed higher in 2014 Tax Reform: Mortgage Interest Deduction is on the table Future of Fannie and Freddie? Highly profitable today
  5. Gross Domestic Product 2012: 2.2%; 2013 Q3: 4.1% ANNUAL PERCENT CHANGE, CHAIN-TYPE (2005) $ ANNUALLY QUARTERLY 2009 Largest Annual Drop since 1938 (-3.4%) SERIES: GDP SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
  6. U.S. Non-farm Job Growth Recession Job Losses: 8.8 million Since Jan’10: +7.4 million MONTH TO MONTH CHANGE SERIES: Employment Growth SOURCE: US Bureau of Labor Statistics
  7. Employment Growth, California vs. U.S. ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
  8. Unemployment Rates Falling (Slowly) California (8.5%) vs. United States (7.0%) SERIES: Unemployment Rate SOURCE: US Bureau of Labor Statistics, CA Employment Development Division
  9. Job Trends by California Metro Area November 2013: CA +1.5%, +226,200 ANNUAL PERCENT CHANGE SERIES: Total Nonfarm Employment SOURCE: CA Employment Development Division
  10. Consumer Confidence Index December 2013: 78.1 INDEX, 100=1985 SERIES: Consumer Confidence SOURCE: The Conference Board
  11. Personal Consumption 2012: 1.9%; 2013 Q3: 2.0% ANNUAL PERCENT CHANGE ANNUALLY QUARTERLY SERIES: Personal Consumption SOURCE: US Dept. of Commerce, Bureau of Economic Analysis
  12. Retail Sales December 2013: Up 4.0% ANNUAL PERCENT CHANGE SERIES: Retail Trade Report SOURCE: US Census Bureau
  13. U.S. Economic Outlook SERIES: U.S. Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  14. California Economic Outlook SERIES: CA Economic Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

  15. California housing market Outlook

  16. Sales of Existing Detached Homes California, Dec. 2013 Sales: 361,890 Units, -5.9% YTD, -18.6% YTY SERIES: Sales of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS® *Sales are seasonally adjusted and annualized
  17. Median Price of Existing Detached Homes California, December 2013: $438,040, Up 19.7% YTY SERIES: Median Price of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  18. Unsold Inventory Index California, December 2013: 3.0 Months Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question. SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®
  19. California Housing Market Outlook SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

  20. Commercial Markets Outlook

  21. Commercial Segments Office Industrial Retail Multi-Family
  22. CRE Transactions volume up slightly Billions of Dollars SOURCE: Wells Fargo, Real Capital Analytics
  23. Prices up sharply over the past year SOURCE: Wells Fargo, NCRIEF
  24. CRE Cap Rate vs. 10-Year Treasury Yields Yield Percent SOURCE: Wells Fargo, Real Capital Analytics
  25. Nonresidential construction spending bounced back in November… SOURCE: U.S. Dept. of Commerce
  26. … but will it continue to rise in 2014? SOURCE: American Institute of Architects

  27. Office Space

  28. Office Segment Drivers Financial Services Business Services Government Other Services
  29. U.S. Outlook - Office SOURCE: National Association of REALTORS®, REIS
  30. Increasing Workplace Density SOURCE: Cushman & Wakefield, Corenet Global 2013 Survey
  31. Vacancy Rates for the Office Segment SOURCE: National Association of REALTORS®, REIS
  32. Vacancy Rates for the Office Segment SOURCE: National Association of REALTORS®, REIS
  33. Average Asking Rents for the Office Segment SOURCE: National Association of REALTORS®, REIS
  34. Average Asking Rents for the Office Segment SOURCE: National Association of REALTORS®, REIS

  35. Industrial Space

  36. Industrial Segment Drivers Manufacturing Transportation & Logistics Wholesale/Retail Trade
  37. U.S. Outlook - Industrial SOURCE: National Association of REALTORS®, REIS
  38. Vacancy Rates for the Industrial Segment SOURCE: National Association of REALTORS®, REIS
  39. Average Asking Rents for the Industrial Segment SOURCE: National Association of REALTORS®, REIS

  40. RetailSpace

  41. Retail Segment Drivers Retail sales Growth in economy & jobs Consumer expenditures Consumer credit
  42. U.S. Outlook - Retail SOURCE: National Association of REALTORS®, REIS
  43. Vacancy Rates for the Retail Segment SOURCE: National Association of REALTORS®, REIS
  44. Vacancy Rates for the Retail Segment SOURCE: National Association of REALTORS®, REIS
  45. Average Asking Rents for the Retail Segment SOURCE: National Association of REALTORS®, REIS
  46. Average Asking Rents for the Retail Segment SOURCE: National Association of REALTORS®, REIS

  47. Multi-Family

  48. Pent-up demand continues to drive multifamily sector, while new supply still falls short Market conditions in multifamily rental housing have tightened since the housing crisis began; Renter share in California larger than US Sustained low household formation has caused unprecedented pent-up demand; New supply falls far short of potential demand; Key factor limiting rent growth: wages. Credit dings keep many households in the rental market and out of the housing market
  49. Household formation plunged during the Great Recession, well below its trend pace Percent change over year ago Fitted Trend Source: U.S. Census Bureau, Haver Analytics.
  50. Pent-Up Demand for Housing is RealHousehold Formation will Rebound with Jobs
  51. U.S. Outlook – Multi-Family SOURCE: National Association of REALTORS®, REIS
  52. Vacancy Rates for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS
  53. Vacancy Rates for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS
  54. Average Asking Rents for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS
  55. Average Asking Rents for the Multi-Family Segment SOURCE: National Association of REALTORS®, REIS
  56. New Housing Permits California, Nov. 2013: 6,673 Units, Up 40.6% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  57. New Housing Permits Los Angeles County, November2013: 1,683 Units, Up 37.9% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  58. New Housing Permits Sacramento County, Nov. 2013: 113 Units, +53.5% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  59. New Housing Permits San Diego County, Nov. 2013: 1,256 Units, +37.2% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  60. New Housing Permits San Francisco County, Nov. 2013: 466 Units, +103.4% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board
  61. New Housing Permits Santa Clara County, Nov. 2013: 365 Units, +4.7% YTD SERIES: New Housing Permits SOURCE: Construction Industry Research Board

  62. Concluding Remarks

  63. Commercial RE Outlook Office Demand for office space increases, as employment rises, but is affected by firms’ decision to increase workplace density Markets with high concentrations of energy or tech companies see stronger growth Decline in vacancy rate accompanied with moderate growth in rents Industrial Demand for industrial spaces remains strong as online shopping continues to grow Vacancy rates low in LA and OC Rents rising modestly in 2013 and 2014 Construction activity remains strong SOURCE: National Association of REALTORS®
  64. Commercial RE Outlook Retail The market remains in slow motion as retailers continue to be cautious Growth has been uneven due to the increasing divide of the consumer base Rent will inch up slightly Multi-Family Pent-Up demand continues to fuel the apartment rental market Vacancy rate dropped to 4.0% in 2014(from 5.2% in 2011) Rent growth subdued in near term as wage and salary growth remain sluggish SOURCE: National Association of REALTORS®
  65. http://www.car.org/marketdata/map
  66. For more information:http://www.facebook.com/CARResearchgroup
  67. C.A.R. Finance Helpline NEW C.A.R. Member Benefit for 2013! Finance.car.org (213) 739-8383 Get one-on-one assistance withshort sales, funding, REOs, Deeds in Lieu, and closing transactions.

  68. Thank You!www.car.org/marketdataoscarw@car.org

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