Post on 30-Mar-2015
1
Prepared for Edge Fund Advisors
THE ECONOMY AND THE OFFICE MARKETS OFWASHINGTON, BOSTON, NEW YORK,
AND SAN FRANCISCO
ByGregory H. Leisch, CREAlexander (Sandy) Paul
December 2, 2009
THE NATIONAL ECONOMY
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct. Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.-800
-700
-600
-500
-400
-300
-200
-100
0
100
200
Pa
yro
ll J
ob
s in
00
0's
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
U.S. PAYROLL JOB LOSSES HAVE MODERATED
2008 20092007
LEADING ECONOMIC INDICATORS HAVE TURNED UP
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.
95
96
97
98
99
100
101
102
103
104
Lea
din
g E
con
om
ic I
nd
icat
or
Ind
ex
Source: The Conference Board, Delta Associates; December 2009. Note: 2004 = 100.
2008 20092007
U.S. INITIAL UNEMPLOYMENT CLAIMS: PREDICTOR OF RECESSION’S END
300,000
400,000
500,000
600,000
700,000
Sea
son
ally
Ad
just
ed U
ne
mp
loym
ent
Cla
ims
(Fo
ur
We
ek M
ovi
ng
Ave
rag
e)
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
Peak in Initial Unemployment Claims
Note: Through November 14, 2009.
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Un
emp
loy
men
t R
ate
and
An
nu
aliz
ed G
DP
Ch
an
ge
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Delta Associates; December 2009.
Percent Change in GDP Unemployment Rate
Recession
U.S. ECONOMIC TRENDS AND FORECAST
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Percent Change in GDP Unemployment Rate
Recession
Un
emp
loy
men
t R
ate
and
An
nu
aliz
ed G
DP
Ch
an
ge
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Delta Associates; December 2009.
U.S. ECONOMIC TRENDS AND FORECAST
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
Un
emp
loy
men
t R
ate
and
An
nu
aliz
ed G
DP
Ch
an
ge
U.S. ECONOMIC TRENDS AND FORECAST
Percent Change in GDP Unemployment Rate
Recession Recovery
32 months: Recession + Recovery
32 months: Recession + Recovery
50 months: Recession + Recovery
51 months: Recession + Recovery
Source: Bureau of Labor Statistics, Bureau of Economic Analysis, Delta Associates; December 2009.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3-2%
0%
2%
4%
6%
8%
10%
Ch
an
ge
in E
mp
loy
ee
Ou
tpu
t p
er
Ho
ur
Source: Bureau of Economic Analysis, Delta Associates; December 2009.
U.S. PRODUCTIVITY IS HIGH
2003 2004 2005 2006 2007 2008 2009
U.S. CONSUMER SENTIMENT IS LOW
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*
45
55
65
75
85
95
105
115Chart Title
Co
nsu
me
r S
en
tim
en
t In
de
x
Source: University of Michigan, Delta Associates; December 2009. * Through October 2009.
Note: 1966 = 100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q30%
1%
2%
3%
4%
5%
6%
Pe
rso
na
l Sa
vin
gs
Ra
te
Source: Bureau of Economic Analysis, Delta Associates; December 2009.
U.S. PERSONAL SAVINGS RATE IS HIGH
2005 2006 2007 2008 2009
THE WASHINGTON AREA REGIONAL
ECONOMY
Was Den DFW Bos Hou S. Fla SF Bay
Phx Atl Chi NY LA Basin
-300
-250
-200
-150
-100
-50
0
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB LOSSES
- 23.9
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS 12 MONTHS ENDING OCTOBER 2009
District of Columbia only = + 0.6
Construction
Retail
Information
Financial
Manufacturing
Other
Wholesale
Leisure/Hospitality
Trans/Utilities
Professional/Bus Services
Education/Health
Government
-20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000 25,000
Chart Title
Job Change
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
+22,600
-46,500
PAYROLL JOB CHANGEWASHINGTON METRO AREA 12 MONTHS ENDING OCTOBER 2009
2007
Dec.
Jan. Feb.
Mar.
Apr.
May
Jun. Jul. Aug.
Sep.
Oct.
Nov.
Dec.
Jan. Feb.
Mar.
Apr.
May
Jun. Jul. Aug.
95
100
105
110
115
120
Co
inc
iden
t In
dex
Source: Dr. Stephen Fuller, Delta Associates; December 2009.
2008 2009
COINCIDENT INDEX OF ECONOMIC INDICATORSWASHINGTON METRO AREA
NY Was Bos Den DFW Chi Hou SF Bay
Phx Atl S. Fla LA Basin
-140
-100
-60
-20
20
60
100
140
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB CHANGE
+ 40.4
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS JANUARY 31 THROUGH OCTOBER 31, 2009
Source: Dr. Stephen Fuller, Delta Associates; December 2009. GRP = Gross Regional Product
Core Industries % GRP
Federal Government 32%
(Federal Procurement = 15% of total GRP)
Technology 16%
Building Industry 6%
International Business 5%
Tourism / Hospitality 2%
Total Core Industries 61%
Other 39%
Total GRP 100%
CORE INDUSTRIESWASHINGTON METRO AREA 2008
$7.7
$1.6
$5.0
$0.3$1.0
Source: Deutsche Bank, CNN, MSNBC, Bloomberg, NY Times, Delta Associates; December 2009.
Total = $15.6
Federal Reserve
FDIC
Treasury Department
HUD
Stimulus Initiatives
Bailout/Guarantee Initiatives
FEDERAL BAILOUT/GUARANTEE INITIATIVESTRILLIONS OF DOLLARS 2008 - 2010
District of Columbia Suburban Maryland* Northern Virginia* 0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
12,000
25,73527,507N
um
ber
of
Job
s
Source: Recovery.gov, Delta Associates; December 2009. *Delta Associates’ estimate based on state-wide job creation and regional population share.
PROJECTED JOBS CREATED/SAVED THROUGH THEAMERICAN RECOVERY AND REINVESTMENT ACT
WASHINGTON METRO AREA THROUGH 2011
CREDIT CRISIS: IMPACTED SUBMARKETS?
Financial Firms Mainly Located in:• Tysons Corner
• Reston
• Bethesda / Chevy Chase
Financial Recovery Agency Locations:• CBD / East End
• NoMa
• Rosslyn-Ballston Corridor
WASHINGTON METRO AREA
Source: Delta Associates; December 2009.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-40
-20
0
20
40
60
80
100
120
140
District Sub. MD No. Virginia
30-Year Annual Average = 47,600/Year
Source: Dr. Stephen Fuller, Delta Associates; December 2009. Note: 2009 is estimated at -21,000 jobs.
PAYROLL JOB CHANGEWASHINGTON METRO AREA
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-40
-20
0
20
40
60
80
100
120
140
District Sub. MD No. Virginia
5-Year Projected Average = 40,400/Year
30-Year Annual Average = 47,600/Year
Source: Dr. Stephen Fuller, Delta Associates; December 2009. Note: 2009 is estimated at -21,000 jobs.
PAYROLL JOB CHANGEWASHINGTON METRO AREA
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
THE WASHINGTON AREA OFFICE MARKET
NY Bos LA Was Hou SF Bay S Fla Chi Den OC Atl DFW Phx0%
5%
10%
15%
20%
25%
10.5% 10.7%11.8%
12.6%13.2% 13.3%
14.3% 14.6% 14.8% 15.1%16.4%
17.8%
21.2%
Chart Title
NationalVacancy Rate: 14.0%
OFFICE VACANCY RATESSELECT METRO AREAS THIRD QUARTER 2009
Ove
ral l
Va
can
cy
Rat
e
Source: CoStar, Delta Associates; December 2009.
OFFICE NET ABSORPTIONSELECT METRO AREAS JANUARY – SEPTEMBER 2009
Hou DFW Den Was Phx Chi Bos NY SF Bay LA/OC-9
-8
-7
-6
-5
-4
-3
-2
-1
0 Chart Title-0.5
Source: CoStar, Delta Associates; December 2009.
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Nation: negative 48 million SF
OFFICE NET ABSORPTIONWASHINGTON METRO AREA 1981 – THIRD QUARTER 2009
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*-2
0
2
4
6
8
10
12
14
16
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Long-Term Average = 7.9 MSF
* Through 3rd quarter 2009.Source: Delta Associates; December 2009.
NY Was Hou LA/OC Chi Bos DFW Phx Den SF Bay0
2
4
6
8
10
12
14
16
18
SF Available SF Pre-Leased
OFFICE SPACE UNDER DEVELOPMENT
Mil
lio
ns
of
SF
SELECT METRO AREAS SEPTEMBER 2009
Source: CoStar, Delta Associates; December 2009.
Nation: 74 million SF at 44% pre-leased
0
2
4
6
8
10
12
14
16
18
OFFICE SPACE DEMAND & DELIVERIESWASHINGTON METRO AREA SEPTEMBER 2009 – DECEMBER 2014
26.0 million SF
Deliveries
=
Demand
Total = 13.3 million SF
U/C or U/R: 8.2 million SF
Planned and maydeliver by 12/14: 5.1 million SF
Inside the Beltway Outside the Beltway
=
=
Mil
lio
ns
of
Sq
uar
e F
eet
Source: CoStar, Delta Associates; December 2009.
OFFICE VACANCY RATESINSIDE THE BELTWAY 2001 – 2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
14%
Ove
rall
Va
can
cy
Rat
e
Metro
Source: CoStar, Delta Associates; December 2009.
Vacancy 9.6% 11.6% 11.2% 9.2% 7.9% 8.5% 9.1% 10.5% 13.2% 13.8% 13.1% 11.8% 10.3% 9.1%
10.4%
7.0%
12.5%
Rent Equilibrium Zone = 7.9% to 8.1%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
14%
10.2%
6.9%
13.0%
OFFICE VACANCY RATESDISTRICT OF COLUMBIA 2001 – 2014
Source: CoStar, Delta Associates; December 2009.
Metro Vacancy 9.6% 11.6% 11.2% 9.2% 7.9% 8.5% 9.1% 10.5% 13.2% 13.8% 13.1% 11.8% 10.3% 9.1%
Rent Equilibrium Zone = 7.4% to 7.6%
Ove
rall
Va
can
cy
Rat
e
OFFICE RENT GROWTH PER YEARWASHINGTON METRO AREA 2000 – 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Inside the Beltway
Outside the Beltway
Average of Past 15 Years: 3.8%
Eff
ect
ive
Ren
tal
Rat
e C
ha
ng
e/S
F/Y
r.
Source: CoStar, Delta Associates; December 2009.
Source: Delta Associates; December 2009.
Office
20132012201120102009
WHEN IS THE MARKET’S “SWEET SPOT”?WASHINGTON METRO AREA
= Market Transition = Landlord/Seller Market= Tenant/Buyer Market
THE BOSTON AREA REGIONAL ECONOMY
Was Den DFW Bos Hou S. Fla SF Bay
Phx Atl Chi NY LA Basin
-300
-250
-200
-150
-100
-50
0
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB LOSSES
- 63.5
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS 12 MONTHS ENDING OCTOBER 2009
City of Boston plus inner suburbs only = -
45.8
Professional/Bus Services
Construction
Manufacturing
Financial
Retail
Wholesale
Government
Information
Other
Trans/Utilities
Leisure/Hospitality
Education/Health
-20,000 -15,000 -10,000 -5,000 0 5,000 10,000
Chart Title
Job Change
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
+11,400
-74,900
PAYROLL JOB CHANGEBOSTON METRO AREA 12 MONTHS ENDING OCTOBER 2009
2007
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
160
165
170
175
180
Co
inc
iden
t In
dex
Source: Federal Reserve Bank of Philadelphia, Delta Associates; December 2009.
2008 2009
COINCIDENT INDEX OF ECONOMIC INDICATORSCOMMONWEALTH OF MASSACHUSETTS
NY Was Bos Den DFW Chi Hou SF Bay
Phx Atl S. Fla LA Basin
-140
-100
-60
-20
20
60
100
140
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB CHANGE
+ 35.2
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS JANUARY 31 THROUGH OCTOBER 31, 2009
Source: Dr. Stephen Fuller, Delta Associates; December 2009. GRP = Gross Regional Product
Core Industries % GRP
Technology 14%
Prof./Bus./Fin. Services 10%
Federal & State Government 8%
Medical & Education Services 7%
Construction 6%
Transportation & Warehousing 4%
Total Core Industries 49%
Other 51%
Total GRP 100%
CORE INDUSTRIESBOSTON METRO AREA 2008
Series10
10,000
20,000
30,000
40,000
50,000
49,889
Nu
mb
er o
f Jo
bs
Source: Recovery.gov, Delta Associates; December 2009. *Delta Associates’ estimate based on state-wide job creation and regional population share.
PROJECTED JOBS CREATED/SAVED THROUGH THEAMERICAN RECOVERY AND REINVESTMENT ACT
BOSTON METRO AREA THROUGH 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-80
-60
-40
-20
0
20
40
60
80
30-Year Annual Average = 19,800/Year
Source: Dr. Stephen Fuller, Delta Associates; October 2009. Note: 2009 is estimated at -55,200 jobs.
PAYROLL JOB CHANGEBOSTON METRO AREA
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-80
-60
-40
-20
0
20
40
60
805-Year Projected Average = 14,800/Year
30-Year Annual Average = 19,800/Year
Source: Dr. Stephen Fuller, Delta Associates; October 2009. Note: 2009 is estimated at -55,200 jobs.
PAYROLL JOB CHANGEBOSTON METRO AREA
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
THE BOSTON AREA OFFICE MARKET
NY Bos LA Was Hou SF Bay S Fla Chi Den OC Atl DFW Phx0%
5%
10%
15%
20%
25%
10.5% 10.7%11.8%
12.6%13.2% 13.3%
14.3% 14.6% 14.8% 15.1%16.4%
17.8%
21.2%
Chart Title
NationalVacancy Rate: 14.0%
OFFICE VACANCY RATESSELECT METRO AREAS THIRD QUARTER 2009
Ove
ral l
Va
can
cy
Rat
e
Source: CoStar, Delta Associates; December 2009.
OFFICE NET ABSORPTIONSELECT METRO AREAS JANUARY – SEPTEMBER 2009
Hou DFW Den Was Phx Chi Bos NY SF Bay LA/OC-9
-8
-7
-6
-5
-4
-3
-2
-1
0 Chart Title
-3.7
Source: CoStar, Delta Associates; December 2009.
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Nation: negative 48 million SF
OFFICE NET ABSORPTIONBOSTON METRO AREA 1981 – THIRD QUARTER 2009
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*
-8
-6
-4
-2
0
2
4
6
8
10
12
14
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Long-Term Average = 4.5 MSF
* Through 3rd quarter 2009.Source: Delta Associates; December 2009.
NY Was Hou LA/OC Chi Bos DFW Phx Den SF Bay0
2
4
6
8
10
12
14
16
18
SF Available SF Pre-Leased
OFFICE SPACE UNDER DEVELOPMENT
Mil
lio
ns
of
SF
SELECT METRO AREAS SEPTEMBER 2009
Source: CoStar, Delta Associates; December 2009.
Nation: 74 million SF at 44% pre-leased
0
2
4
6
8
10
OFFICE SPACE DEMAND & DELIVERIESBOSTON METRO AREA SEPTEMBER 2009 – DECEMBER 2014
9.0 million SF
Deliveries
=
Demand
Total = 6.7 million SF
U/C or U/R: 3.2 million SF
Planned and maydeliver by 12/14: 3.5 million SF
=
=
Mil
lio
ns
of
Sq
uar
e F
eet
Source: CoStar, Delta Associates; December 2009.
OFFICE VACANCY RATESBOSTON METRO AREA 2001 – 2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
14%
16%
Ove
rall
Va
can
cy
Rat
e
Metro
Source: CoStar, Delta Associates; December 2009.
Vacancy 10.6% 14.0% 14.5% 13.4% 12.4% 9.6% 11.2% 10.0% 11.4% 12.0% 11.6% 11.1% 10.5% 9.7%
10.7%9.7%
12.0%
Rent Equilibrium Zone = 8.9% to 10.1%City of Boston = 7.6%
OFFICE RENT GROWTH PER YEARBOSTON METRO AREA 2000 – 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-15%
-10%
-5%
0%
5%
10%
15%
20%
Average of Past 30 Years: 2.5%
Eff
ect
ive
Ren
tal
Rat
e C
ha
ng
e/S
F/Y
r.
Source: CoStar, Delta Associates; December 2009.
Source: Delta Associates; December 2009.
Office
20132012201120102009
WHEN IS THE MARKET’S “SWEET SPOT”?BOSTON METRO AREA
= Market Transition = Landlord/Seller Market= Tenant/Buyer Market
THE NEW YORK AREA REGIONAL ECONOMY
Was Den DFW Bos Hou S. Fla SF Bay
Phx Atl Chi NY LA Basin
-300
-250
-200
-150
-100
-50
0
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB LOSSES
- 218.2
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS 12 MONTHS ENDING OCTOBER 2009
New York City only = - 109.9
Professional/Bus Services
Financial
Construction
Manufacturing
Retail
Wholesale
Trans/Utilities
Information
Government
Other
Leisure/Hospitality
Education/Health
-80,000 -60,000 -40,000 -20,000 0 20,000 40,000
Chart Title
Job Change
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
+31,900
-250,100
PAYROLL JOB CHANGENEW YORK METRO AREA 12 MONTHS ENDING OCTOBER 2009
2007
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
160
165
170
Co
inc
iden
t In
dex
Source: Federal Reserve Bank of New York, Delta Associates; December 2009. 1992 = 100
2008 2009
COINCIDENT INDEX OF ECONOMIC INDICATORSNEW YORK CITY
NY Was Bos Den DFW Chi Hou SF Bay
Phx Atl S. Fla LA Basin
-140
-100
-60
-20
20
60
100
140
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB CHANGE
+ 96.1
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS JANUARY 31 THROUGH OCTOBER 31, 2009
Source: Delta Associates; December 2009. GRP = Gross Regional Product
Core Industries % GRP
Prof./Fin./Tech. Services 14%
Government 10%
Education & Health Services 8%
Manufacturing & Distribution 6%
Construction 3%
Tourism / Hospitality 2%
Total Core Industries 45%
Other 55%
Total GRP 100%
CORE INDUSTRIESNEW YORK METRO AREA 2008
Note: Core industry percentages do not total to 45% due to rounding.
New York Portion of Metro Area New Jersey Portion of Metro Area0
50,000
100,000
150,000
200,000
169,800
50,700
Nu
mb
er o
f Jo
bs
Source: Recovery.gov, Delta Associates; December 2009. Note: Delta Associates’ estimate based on ratio of state-wide job creationand state-wide population to metro area population share.
PROJECTED JOBS CREATED/SAVED THROUGH THEAMERICAN RECOVERY AND REINVESTMENT ACT
NEW YORK METRO AREA THROUGH 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-220
-180
-140
-100
-60
-20
20
60
100
140
180
Th
ou
san
ds
of
New
Pa y
r ol l
Jo
bs
PAYROLL JOB CHANGE
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
NEW YORK METRO AREA
30-Year Annual Average = 29,200/Year
Note: 2009 is estimated at -210,000 jobs.
15-Year Annual Average = 60,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-220
-180
-140
-100
-60
-20
20
60
100
140
1805-Year Projected Average = 44,000/
Year
Th
ou
san
ds
of
New
Pa y
r ol l
Jo
bs
PAYROLL JOB CHANGE
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
NEW YORK METRO AREA
30-Year Annual Average = 29,200/Year
Note: 2009 is estimated at -210,000 jobs.
15-Year Annual Average = 60,000
THE NEW YORK AREA OFFICE MARKET
NY Bos LA Was Hou SF Bay S Fla Chi Den OC Atl DFW Phx0%
5%
10%
15%
20%
25%
10.5% 10.7%11.8%
12.6%13.2% 13.3%
14.3% 14.6% 14.8% 15.1%16.4%
17.8%
21.2%
Chart Title
NationalVacancy Rate: 14.0%
OFFICE VACANCY RATESSELECT METRO AREAS THIRD QUARTER 2009
Ove
ral l
Va
can
cy
Rat
e
Source: CoStar, Delta Associates; December 2009.
OFFICE NET ABSORPTIONSELECT METRO AREAS JANUARY – SEPTEMBER 2009
Hou DFW Den Was Phx Chi Bos NY SF Bay LA/OC-9
-8
-7
-6
-5
-4
-3
-2
-1
0 Chart Title
-5.8
Source: CoStar, Delta Associates; December 2009.
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Nation: negative 48 million SF
OFFICE NET ABSORPTIONNEW YORK METRO AREA 1981 – THIRD QUARTER 2009
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*
-30
-25
-20
-15
-10
-5
0
5
10
15
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Long-Term Average = 3.3 MSF
* Through 3rd quarter 2009.Source: REIS, CoStar, Delta Associates; December 2009.
In normal growth years, average net absorption equals 5-10 million SF per
year
NY Was Hou LA/OC Chi Bos DFW Phx Den SF Bay0
2
4
6
8
10
12
14
16
18
SF Available SF Pre-Leased
OFFICE SPACE UNDER DEVELOPMENT
Mil
lio
ns
of
SF
SELECT METRO AREAS SEPTEMBER 2009
Source: CoStar, Delta Associates; December 2009.
Nation: 74 million SF at 44% pre-leased
0
4
8
12
16
20
24
28
OFFICE SPACE DEMAND & DELIVERIESNEW YORK METRO AREA SEPTEMBER 2009 – DECEMBER 2014
20.0 million SF
Deliveries
=
Demand
Total = 26.6 million SF
U/C or U/R: 16.4 million SF
Planned and maydeliver by 12/14: 10.2 million SF
New York Metro
=
=
Mil
lio
ns
of
Sq
uar
e F
eet
Source: CoStar, Delta Associates; December 2009.
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
14%
10.5%10.1%
11.5%
OFFICE VACANCY RATESNEW YORK METRO 2001 – 2014
Source: CoStar, Delta Associates; December 2009.
Metro Vacancy 8.2% 10.7% 11.2% 10.6% 8.9% 7.5% 8.5% 9.0% 10.8% 11.5% 11.1% 10.8% 10.4% 10.1%
Rent Equilibrium Zone = 9.4% to 9.6%
Ove
rall
Va
can
cy
Rat
e
City of New York = 8.2%
OFFICE RENT GROWTH PER YEARNEW YORK METRO AREA 2000 – 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%Average of Past 15 Years: 3.5%
Eff
ect
ive
Ren
tal
Rat
e C
ha
ng
e/S
F/Y
r.
Source: CoStar, Delta Associates; December 2009.
Source: Delta Associates; December 2009.
= Market Transition = Landlord/Seller Market= Tenant/Buyer Market
Office
20132012201120102009
WHEN IS THE MARKET’S “SWEET SPOT”?NEW YORK METRO AREA
THE SAN FRANCISCO BAY REGIONAL
ECONOMY
Was Den DFW Bos Hou S. Fla SF Bay
Phx Atl Chi NY LA Basin
-300
-250
-200
-150
-100
-50
0
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB LOSSES
- 133.6
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS 12 MONTHS ENDING OCTOBER 2009
City of San Francisco plus inner suburbs only
= - 49.2
Professional/Bus Services
Construction
Manufacturing
Retail
Leisure/Hospitality
Government
Financial
Wholesale
Information
Other
Trans/Utilities
Education/Health
-30,000 -25,000 -20,000 -15,000 -10,000 -5,000 0 5,000 10,000
Chart Title
Job Change
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
+2,000
-135,600
PAYROLL JOB CHANGESAN FRANCISCO BAY 12 MONTHS ENDING OCTOBER 2009
2007
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
Oct.
Nov.
Dec.
Jan.
Feb.
Mar.
Apr.
May
Jun.
Jul. Aug.
Sep.
150
155
160
165
170
Co
inc
iden
t In
dex
Source: Federal Reserve Bank of Philadelphia, Delta Associates; December 2009.
2008 2009
COINCIDENT INDEX OF ECONOMIC INDICATORSSTATE OF CALIFORNIA
NY Was Bos Den DFW Chi Hou SF Bay
Phx Atl S. Fla LA Basin
-140
-100
-60
-20
20
60
100
140
Pa
yro
ll J
ob
s in
00
0's
PAYROLL JOB CHANGE
- 50.5
Source: Bureau of Labor Statistics, Delta Associates; December 2009.
LARGE METRO AREAS JANUARY 31 THROUGH OCTOBER 31, 2009
Source: Dr. Stephen Fuller, Delta Associates; December 2009. GRP = Gross Regional Product
Core Industries % GRP
Prof./Bus./Fin./Tech Services 25%
Federal and State Government 13%
Education and Health Services 7%
Construction 6%
Manufacturing 5%
Hospitality 3%
Total Core Industries 59%
Other 41%
Total GRP 100%
CORE INDUSTRIESSAN FRANCISCO BAY 2008
SF/Oakland Portion of Bay Area San Jose Portion of Bay Area0
10,000
20,000
30,000
40,000
50,000
46051
19,598
Nu
mb
er o
f Jo
bs
Source: Recovery.gov, Delta Associates; December 2009. *Delta Associates’ estimate based on state-wide job creation and regional population share.
PROJECTED JOBS CREATED/SAVED THROUGH THEAMERICAN RECOVERY AND REINVESTMENT ACT
SAN FRANCISCO BAY THROUGH 2011
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-200
-160
-120
-80
-40
0
40
80
120
160
30-Year Annual Average = 17,800/Year
Source: Delta Associates; December 2009. Note: 2009 is estimated at -143,600 jobs.
PAYROLL JOB CHANGESAN FRANCISCO BAY
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-200
-160
-120
-80
-40
0
40
80
120
160
5-Year Projected Average = 9,000/Year30-Year Annual Average = 17,800/Year
Source: Delta Associates; December 2009. Note: 2009 is estimated at -143,600 jobs.
PAYROLL JOB CHANGESAN FRANCISCO BAY
Th
ou
s an
ds
of
New
Pa y
r ol l
Jo
bs
THE SAN FRANCISCO BAY OFFICE MARKET
NY Bos LA Was Hou SF Bay S Fla Chi Den OC Atl DFW Phx0%
5%
10%
15%
20%
25%
10.5% 10.7%11.8%
12.6%13.2% 13.3%
14.3% 14.6% 14.8% 15.1%16.4%
17.8%
21.2%
Chart Title
NationalVacancy Rate: 14.0%
OFFICE VACANCY RATESSELECT METRO AREAS THIRD QUARTER 2009
Ove
ral l
Va
can
cy
Rat
e
Source: CoStar, Delta Associates; December 2009.
OFFICE NET ABSORPTIONSELECT METRO AREAS JANUARY – SEPTEMBER 2009
Hou DFW Den Was Phx Chi Bos NY SF Bay LA/OC-9
-8
-7
-6
-5
-4
-3
-2
-1
0 Chart Title
-6.5
Source: CoStar, Delta Associates; December 2009.
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
)
Nation: negative 48 million SF
OFFICE NET ABSORPTIONSAN FRANCISCO BAY 1981 – THIRD QUARTER 2009
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09*
-8
-6
-4
-2
0
2
4
6
8
10
12
14
Net
Ab
s orp
tio
n (
Mil
l io
ns
of
SF
) Long-Term Average = 4.5 MSF
* Through 3rd quarter 2009.Source: Delta Associates; December 2009.
NY Was Hou LA/OC Chi Bos DFW Phx Den SF Bay0
2
4
6
8
10
12
14
16
18
SF Available SF Pre-Leased
OFFICE SPACE UNDER DEVELOPMENT
Mil
lio
ns
of
SF
SELECT METRO AREAS SEPTEMBER 2009
Source: CoStar, Delta Associates; December 2009.
Nation: 74 million SF at 44% pre-leased
0
2
4
6
8
OFFICE SPACE DEMAND & DELIVERIESSAN FRANCISCO BAY SEPTEMBER 2009 – DECEMBER 2014
6.5 million SF
Deliveries
=
Demand
Total = 4.1 million SF
U/C or U/R: 1.6 million SF
Planned and maydeliver by 12/14: 2.5 million SF
=
=
Mil
lio
ns
of
Sq
uar
e F
eet
Source: CoStar, Delta Associates; December 2009.
OFFICE VACANCY RATESSAN FRANCISCO BAY 2001 – 2014
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Ove
rall
Va
can
cy
Rat
e
Metro
Source: CoStar, Delta Associates; December 2009.
Vacancy 10.7% 16.0% 17.2% 15.2% 12.1% 11.9% 10.4% 11.1% 13.5% 14.3% 14.5% 14.0% 13.3% 12.5%
13.3% 12.5%
14.5%
Rent Equilibrium Zone = 10.9% to 11.5%
City of San Francisco = 11.8%
OFFICE RENT GROWTH PER YEARSAN FRANCISCO BAY 2000 – 2014
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014-25%
-15%
-5%
5%
15%
25%
35%
45%
Average of Past 30 Years: 3.0%
Eff
ect
ive
Ren
tal
Rat
e C
ha
ng
e/S
F/Y
r.
Source: CoStar, Delta Associates; December 2009.
Source: Delta Associates; December 2009.
Office
20132012201120102009
WHEN IS THE MARKET’S “SWEET SPOT”?SAN FRANCISCO BAY
= Market Transition = Landlord/Seller Market= Tenant/Buyer Market
87
Prepared for Edge Fund Advisors
THE ECONOMY AND THE OFFICE MARKETS OFWASHINGTON, BOSTON, NEW YORK,
AND SAN FRANCISCO
ByGregory H. Leisch, CREAlexander (Sandy) Paul
December 2, 2009