The Global Economy and
Real Estate Markets
Asieh Mansour, PhD
Head of Americas Research
January 2013
The Global Economy
Four Forces Shaping Global Economy
 Austerity
 Deleveraging
 Monetary Reflation
 US Labor Market Weakness
CBRE | Page 3
Global Outlook: Still Growing Despite Europe
(Real GDP, Quarter-on-Quarter % Change, Annual Rate)
6%
4%
2%
0%
-2%
-4%
-6%
-8%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: IHS Global Insight, December 2012.
CBRE | Page 4
4
2013: Diminished Growth Expectations
 A synchronized deceleration in growth
 European debt crisis
 Slowdown in Emerging Markets, no decoupling
 Debt-ceiling and spending cliff concerns in the U.S.
.
CBRE | Page 5
2014: A Multi-Speed Global Recovery
(Real GDP, Annual % Change)
6.0%
5.0%
5.4%
4.4%
4.0%
4.4%
3.4%
3.4%
3.0%
2.7%
2.6%
1.9%
2.0%
1.6%
1.0%
1.0%
0.0%
Asia-Pacific Latin America
2013
Source: IHS Global Insight, December 2012.
CBRE | Page 6
World
2014
United States
EMEA
The U.S. Economy
US Economic Outlook: Consumers More Upbeat than Business
(Annual % Change)
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Real Private Consumption
Real GDP Growth
Source: Global Insight, December 2012.
CBRE | Page 8
8
Lackluster Employment Trends
4
12%
3
10%
2
1
8%
0
-1
6%
-2
4%
-3
-4
2%
-5
-6
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net Jobs (Millions), Left-Hand Side
Source: IHS Global Insight, December 2012.
CBRE | Page 9
9
Where will the jobs come from?
Net Job Gains (1000s)
2.7%
Health Care & Social Assistance
2.3%
Professional & Business Services
2.3%
Leisure & Hospitality
1%
Retail Trade
Other Services
1.4%
Finance & Insurance
1.2%
Wholesale Trade
Educational Services
Transportation & Warehousing
1.1%
1.3%
1%
Construction
0.5%
Information
0.9%
Manufacturing
0.2%
Real Estate
1%
Utilities
0.6%
Natural Resources & Mining
-0.7%
Federal Government
-0.6%
-100
0
100
200
300
400
500
Source: Moody’s Economy.com, January 2013.
CBRE | Page 10
10
Where are the jobs?
Net Job Creation in 2013 (1000s), Top 25 Markets
New York
Dallas
Houston
Los Angeles
Atlanta
San Francisco
Phoenix
Boston
Minneapolis
Seattle
Austin
San Antonio
San Diego
Orlando
Denver
Philadelphia
Washington D.C.
Detroit
Riverside, CA
Miami
Chicago
Portland, OR
Tampa
San Jose
St. Louis
0
20
40
60
80
100
120
140
Source: Moody’s DataBuffet.com, November 2012
CBRE | Page 11
11
The Capital Markets
Real Estate Comparative Returns (Annualized Returns)
35%
33.8%
30.2%
30%
25%
20%
15%
11.5%
10%
11.0%
8.0%
8.4%
4.7%
5%
3.0%
2.0% 2.5%
1.7%
0.1%
0%
REITs
Equities
Real Property
1 Year
(1)
(2)
(3)
(4)
(5)
(6)
NAREIT Equity REIT Index
Standard & Poors 500 Index
NCREIF Property Index
Barclays Capital Govt Bond
Consumer Price Index
90-day T-Bills
Source: NCREIF, Q3 2012.
Note: Data through September 30, 2012.
CBRE | Page 13
Government
Bonds
10 Year
CPI
T-Bills
1 Year Total Returns by Country
Note: Annual results based on local currency composite; selected countries shown where data are available. Frequency of countrylevel and regional indices differ.
Source: IPD, CBRE Research as of Q3 2012.
Global Research and Consulting
CBRE | Page 14
National Investment Sales
(Sales Volume, in Billions)
$160
$140
$120
$100
$80
$60
$40
$20
$0
2005
2006
Hotel
Source: Real Capital Analytics, Q3 2012
CBRE | Page 15
2007
Apartment
2008
2009
Retail
2010
Industrial
2011
2012
Office
Cap Rate Forecast by Property Type
10%
9%
8%
7%
6%
5%
2005
2006
Office
Source: Real Capital Analytics, Q3 2012
CBRE | Page 16
2007
Industrial
2008
2009
Retail
2010
Apartment
2011
2012
Hotel
US Market Fundamentals
Property Sector Trajectory
2011.4
2012Q4
Past Cyclic
High
“Natural
Rate”
Year Back to
"Natural Rate"
15.4%
16.9 / 2010
13 to 15
2013
Industrial Availability Rate
12.8%
14.5 / 2010
9 to 10
2015
Retail Availability Rate
12.8%
13.2 / 2011
9 to 10
2016
Multifamily Vacancy Rate
5.0%
7.44 / 2009
5 to 6
2010
Full Service
Hotels Vacancy Rate
33.7%*
43 / 2009
34 to 38
2010
Office Vacancy Rate
*Q3 2012 data.
Source: CBRE Econometric Advisors, Q4 2012
CBRE | Page 18
Property Fundamentals: Uneven Recovery
 Apartment market is back in equilibrium
 Office, industrial, retail sectors affected by overhang
of vacant space
 Over-building has not been an issue for all property
sectors this cycle
 Some speculative construction is coming back for
apartments and industrial
 Job growth will ultimately determine real estate
market performance
CBRE | Page 19
2013 US Office Supply & Demand Outlook Remains Tepid
(SF x Million)
(Vacancy Rate, %)
100
18%
80
16%
60
14%
12%
40
10%
20
8%
0
6%
-20
4%
-40
2%
-60
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Completions (SF x Million)
Net Absorption (SF x Million)
Vacancy Rate (%)
Source: CBRE EA, Q3 2012.
CBRE | Page 20
20
US Multifamily Housing Supply & Demand Outlook
(Units x 1000)
(Vacancy Rate, %)
400
8%
7%
300
6%
200
5%
100
4%
3%
0
2%
-100
1%
-200
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Rentable Completions (Units x 1000)
Vacancy Rate (%)
Net Absorption (Units x 1000)
Source: CBRE EA, Q3 2012.
CBRE | Page 21
21
Americas Office Market Rent Cycle, Q3 2012
Rental Decline Accelerating
Rental Decline Slowing
Rental Growth Accelerating
B
Buenos Aires
D
M
Denver
P
S
Rental Growth Slowing
Calgary
Miami
New York
Panama City
San Diego
M
S
A
Austin
Orange County
O
Philadelphia
Washington D.C.
Source: CBRE Research, Q3 2012.
Global Research and Consulting
CBRE | Page 22
A
Atlanta
D
Dallas
B
C
H
Boston
Chicago
N Northern New
P Jersey
L
P Phoenix
L
Houston
S
Montreal
W
Santiago
M
S
Lima
Los Angeles
Seattle
N
R
Rio de Janeiro
S
Sao Paulo
T
Toronto
V
Vancouver
Mexico City
San Francisco
C
Implication for Investors and Occupiers
 Highest probability is for the North American economy to
continue modest growth.
 Debt markets remain open
 Interest rates remain low for now.
 Global equity markets remain highly volatile.
 Demand for “core” assets is strong. Investors searching for yield
are beginning to fan out to secondary markets and non-core
assets.
 Investors have begun to focus on development and
build-to-core strategies as well.
 Occupiers should lock in long-term leases while investors want to
shorten duration. Rents have begun to rise across certain
markets.
CBRE | Page 23
Los Angeles: Market
Fundamentals
Occupancy Levels by Property Type
100%
95%
90%
85%
80%
75%
2005
2006
2007
Office
Source: CBRE Research, Q4 2012.
Note: Apartment data from CBRE EA, Q3 2012.
CBRE | Page 25
2008
Industrial
2009
2010
Retail
2011
2012
Apartment
YOY Rent Growth by Property Type
30%
20%
10%
0%
-10%
-20%
-30%
2005
2006
2007
Office
Source: CBRE Research, Q4 2012.
Note: Apartment data from CBRE EA, Q3 2012.
CBRE | Page 26
2008
Industrial
2009
Retail
2010
2011
Apartment
2012