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THE Economy and REAL ESTATE

THE Economy and REAL ESTATE. GARY BARAGONA DIRECTOR, RESEARCH & ANALYSIS JANUARY 2014. TOPICS COVERED. U.S. Economy Southern California Economy Mega-Trend: Workplace Strategy Mega-Trend: E-Commerce U.S. Property Market Fundamentals Los Angeles Market Fundamentals. U.S. ECONOMY.

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THE Economy and REAL ESTATE

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  1. THE Economy and REAL ESTATE • GARY BARAGONA • DIRECTOR, RESEARCH & ANALYSIS • JANUARY 2014

  2. TOPICS COVERED • U.S. Economy • Southern California Economy • Mega-Trend: Workplace Strategy • Mega-Trend: E-Commerce • U.S. Property Market Fundamentals • Los Angeles Market Fundamentals

  3. U.S. ECONOMY

  4. U.S. ECONOMY • Economic growth will strengthen in 2014 • Jobs are everything • Industrial indicators are solid • Resurgent housing market

  5. U.S. ECONOMIC EXPANSION OUTLOOK Annual % Change FORECAST Source: HIS Global Insight

  6. U.S. JOB GROWTH SLOW AND STEADY U.S. Total Nonfarm Payroll, Annual Net Jobs (1000s) FORECAST Source: U.S. Bureau of Labor Statistics, Moody’s Analytics

  7. Return to Previous peak in EARLY 2014 U.S. Total Nonfarm Payroll, (Millions of Jobs) FORECAST Source: U.S. Bureau of Labor Statistics, Moody’s Analytics

  8. recovery TRAILS PAST CYCLES Monthly Job Growth Index (Business Cycle Peak=100) Source: U.S. Bureau of Labor Statistics

  9. GROWTH RATE VARIES BY REGION Monthly Job Growth Index (Dec 2007=100) Source: U.S. Bureau of Labor Statistics

  10. Tech & energy markets LEADING Office-Using Employment Outlook, CAGR 2013-2018 Source: U.S. Bureau of Labor Statistics (BLS): Current Employment Statistics (CES), Quarterly Census of Employment and Wages (QCEW); Moody's Analytics (ECCA) Estimates

  11. U.S. INDUSTRIAL PRODUCTION Industrial production is just shy of pre-recession levels Source: Federal Reserve

  12. U.S. IMPORTS & EXPORTS Imports are stronger than they appear once oil is excluded Source: U.S. Census Bureau

  13. HOUSING PRICES CONTINUE TO GROW S&P/Case-Shiller Home Price Index Source: S&P Case-Shiller Index

  14. RETAIL SALES Housing Recovery Boosts Retail Sales Source: U.S. Census Bureau

  15. SOUTHERN CALIFORNIA ECONOMY

  16. Positive but lackluster JOB GROWTH Southern California: Year-Over-Year Employment Growth FORECAST Source: CBRE Econometric Advisors, Economy.com

  17. SOUTHERN CALIFORNIA ECONOMY Total Employment Forecast (in Millions) 90+ MONTHS TO REACH PREVIOUS PEAK WE ARE ONLY HALF WAY THERE Source: CBRE Econometric Advisors, Economy.com

  18. SOUTHERN CALIFORNIA ECONOMY Hospitality & leisure, construction, education & health services, professional & business services & technology will lead the way Source: CBRE Econometric Advisors, Economy.com

  19. MEGA-TRENDS:WORKPLACE STRATEGY & E-COMMERCE

  20. MEGA-TREND: WORKPLACE STRATEGY Underutilized space and modern design slow occupancy growth Source: CBRE Econometric Advisors, Moody’s Analytics

  21. MEGA-TREND: E-commerce E-commerce will drive demand for industrial space and continue to reshape the retail market Source: CBRE Econometric Advisors, Moody’s Analytics

  22. U.S. PROPERTY MARKET FUNDAMENTALS

  23. Property sector trajectory Source: CBRE Research, CBRE Econometric Advisors

  24. PROPERTY sector trends • OFFICE • Urbanization & densification • Impact of workplace strategy • Investor interest in suburban, non-gateway markets • Tech markets leading the way • INDUSTRIAL • Supply chain efficiencies • Peak manufacturing productivity • Impact of e-commerce • More speculative construction but still in check • RETAIL • High-street retail still strong • E-commerce growing impact • Omni channel strategies • Shrinking retail footprints

  25. U.S. OFFICE RENT CYCLE Q4 2013 L L C D D P P A B D N S S H A M O W N Atlanta S Dallas (Suburban) Seattle Boston Orange County San Diego Source: CBRE Research

  26. RENT GROWTH LED BY TECH MARKETS 5-Year Annualized Rent Growth (%), Largest 20 Office Markets Source: CBRE Econometric Advisors

  27. OFFICE OUTLOOK Completions, Net Absorption & Vacancy Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  28. INDUSTRIAL OUTLOOK Completions, Net Absorption & Availability Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  29. RETAIL OUTLOOK Completions, Net Absorption & Availability Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  30. Real estate investment trends • Increased global interest in U.S. markets • 2013 saw the beginning of interest rate increases. In 2014, look for the end of cap rate compression and a new era of NOI growth. • Expect improved economic performance to correspond with interest rate increase • Expect spreads to between primary & secondary markets to compress

  31. NATIONAL INVESTMENT SALES Sales Volume ($ Billions) Source: Real Capital Analytics

  32. INTEREST RATE U.S. Ten Year Treasury Bonds FORECAST Source: Federal Reserve

  33. A RANGE OF OPINIONS Q2 Survey of economists places the 10-year treasury at 3.5% at the end of 2014

  34. CAP RATE FORECAST Average CAP rates in all product types will remain flat in the near term FORECAST Source: CBRE Econometric Advisors, NCREIF

  35. LOS ANGELES MARKET FUNDAMENTALS

  36. LOS ANGELES OFFICE OUTLOOK Vacancy Rate & Avg Asking Lease Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  37. LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research

  38. LOS ANGELES OFFICE Market dynamics vary greatly on the submarket area Source: CBRE Research

  39. LOS ANGELES INDUSTRIAL OUTLOOK Availability Rate & Avg Asking Lease Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  40. LOS ANGELES RETAIL OUTLOOK Availability Rate & Avg Asking Lease Rate FORECAST Source: CBRE Research, CBRE Econometric Advisors

  41. THE Economy and REAL ESTATE • GARY BARAGONA • DIRECTOR, RESEARCH & ANALYSIS • JANUARY 2014

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