Post on 27-Jul-2020
A New Playbook
MEGATRENDS
MegaTrends
• Regional Economy to Rebound
• National Economic Recovery Gaining Momentum
• Capital Flows Vary
• Demographic Shifts Impact Commercial Real Estate
• Changing Nature of Space
Source: Delta Associates; February 2014.
A New Playbook
REGIONAL ECONOMY
TO REBOUND
National Economic Recovery Poll Has the Economy Begun to Recover?
59%
39%
30%
35%
40%
45%
50%
55%
60%
65%
70%
November 2011 December 2013
No
Source: ABC News/Washington Post Polls, Delta Associates; February 2014. Excludes ‘no opinion’ responses.
Yes
MegaTrend 1:
Regional Economy to Rebound
Payroll Job Growth Washington Metro Area
-60
-40
-20
0
20
40
60
80
100
120
140
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
District of Columbia Suburban Maryland Northern Virginia
20-Year Annual Average = 42,400/Year
5-Year Projected Average = 59,300/Year
THO
USA
ND
S O
F N
EW
PAY
RO
LL J
OB
S
Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; February 2014.
MegaTrend 1:
Regional Economy to Rebound
Job Growth Washington Metro Area | 12 Months Ending December 2013
Source: Bureau of Labor Statistics, Dr. Stephen Fuller, Delta Associates; February 2014.
(8,400)
(28,000)
62,200
-40,000
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Federal Government Procurement/Contractors All Other
JO
B G
RO
WT
H
Total = 25,800
MegaTrend 1:
Regional Economy to Rebound
Payroll Job Change By Wage Washington Metro Area
(60) (40) (20) 0 20 40 60 80
Lower Wage
Mid-Wage
Higher-Wage
Thousands
2008-2009
2010-2013
Higher-Wage
Mid-Wage
Lower-Wage
JOB CHANGE IN THOUSANDS
Source: Dr. Stephen Fuller, Delta Associates; February 2014.
MegaTrend 1:
Regional Economy to Rebound
A New Playbook
NATIONAL ECONOMIC
RECOVERY GAINING
MOMENTUM
Household Stress Index United States
-10
-5
0
5
10
15
20
25
30
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
IND
EX 20-Year Average = 4.8
Source: PNC, Delta Associates; February 2014.
MegaTrend 2:
National Economic Recovery Gaining Momentum
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
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*
Source: Conference Board, Morgan Stanley Research, Federal Reserve Board, Delta Associates; February 2014.
AN
NU
AL
GR
OW
TH
IN
R
EV
OL
VIN
G C
RE
DIT
* Through November 2013.
Annual Growth in Revolving Credit Outstanding United States
MegaTrend 2:
National Economic Recovery Gaining Momentum
58% 68%
57%
39%
41% 31%
42%
60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013
Note: Totals may not add to 100% due to rounding. Data polled in October of each year. Source: PNC, Delta Associates; February 2014.
Business Owners’ Outlook on National Economy
Optimistic
Pessimistic
MegaTrend 2:
National Economic Recovery Gaining Momentum P
ER
CE
NT
AG
E O
F R
ES
PO
ND
EN
TS
-10%
-5%
0%
5%
10%
15%
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 15
32 months: Recession + Recovery
32 months: Recession + Recovery
51 months: Recession + Recovery
84 months: Recession + Recovery
Percent Change in GDP Unemployment Rate
Recession Recovery
UN
EMP
LOY
MEN
T R
ATE
AN
D
AN
NU
ALI
ZED
GD
P C
HA
NG
E
Source: BLS, BEA, Center for Regional Analysis, Global Insight, Delta Associates; February 2014.
Economic Trends and Forecast United States
MegaTrend 2:
National Economic Recovery Gaining Momentum
A New Playbook
CAPITAL FLOWS
VARY
EQU
ITY
INV
ESTE
D
(BIL
LIO
NS
OF
DO
LLA
RS)
$0
$10
$20
$30
$40
$50
$60
$70
$80
2007 2012
Note: 2012 data is most recent full calendar year available.
Private Real Estate Funds U.S.-Focused | Equity Invested in Commercial Real Estate
MegaTrend 3:
Capital Flows Vary
Source: Preqin, Real Estate Forum, Delta Associates; February 2014.
-5%
0%
5%
10%
15%
20%
25%
30%
35%
To
tal R
etu
rn/Y
ear
U.S. REAL ESTATE
STOCKS
BONDS
S&P 500
NCREIF Property Index
Barclays Capital
Government Bond
Source: NCREIF, Delta Associates; February 2014.
Investment Alternatives as of Year-End 2013 Commercial Real Estate vs. Stocks vs. Bonds
AN
NU
AL
RET
UR
N
MegaTrend 3:
Capital Flows Vary
10-Year 1-Year
Source: Real Capital Analytics, graphic by Delta Associates; February 2014.
U.S. Investment Sales of Office Buildings
BIL
LIO
NS
OF
DO
LLA
RS
$0
$20
$40
$60
$80
$100
$120
2008 2009 2010 2011 2012 2013
MegaTrend 3:
Capital Flows Vary
$0
$5
$10
$15
$20
03 04 05 06 07 08 09 10 11 12 13*
Flex/Industrial
Retail
Office
Apartment
BIL
LIO
NS
OF
DO
LLA
RS
Source: Real Capital Analytics, graphic by Delta Associates; February 2014.
Investment Sales Washington Metro Area
MegaTrend 3:
Capital Flows Vary
*Excludes Archstone’s divestiture.
0%
5%
10%
15%
Retail Industrial Apartment Office
TOTA
L O
NE-
YEA
R R
ETU
RN
Washington Metro
U.S.
Source: NCREIF, Delta Associates; February 2014.
Total Investment Returns in 2013 Core Commercial Real Estate | U.S. vs. Washington Metro Area
MegaTrend 3:
Capital Flows Vary
4%
5%
6%
7%
8%
9%
07 08 09 10 11 12 13 07 08 09 10 11 12 13 07 08 09 10 11 12 13 07 08 09 10 11 12 13
Office Grocery-
Anchored SC Apartments Flex/Industrial
AV
ERA
GE
CA
P R
ATE
– A
LL C
LASS
ES
Source: Delta Associates’ Market Maker Surveys; February 2014.
Year-End Cap Rates Washington Metro Area
MegaTrend 3:
Capital Flows Vary
$235
$471
$0
$100
$200
$300
$400
$500
2009 2010 2011 2012 2013
SALE
S P
RIC
E P
ER U
NIT
(I
N T
HO
USA
ND
S)
Source: Real Capital Analytics, graphic by Delta Associates; February 2014.
National Average
$88
$215
Apartment Pricing – Class A Washington Metro Area
Garden/Low-Rise
Mid/High-Rise
MegaTrend 3:
Capital Flows Vary
A New Playbook
DEMOGRAPHIC SHIFTS
IMPACT COMMERCIAL
REAL ESTATE
-1%
0%
1%
2%
3%
4%
5%
6%
25-34 35-44 45-54 55+
( ≈ B a b y B o o m e r s )
Source: U.S. Census, GMU CRA, Delta Associates, February 2014.
AV
ERA
GE
AN
NU
AL
CH
AN
GE
A G E R A N G E
Population Change By Age Group Washington Metro Area | 2006 - 2011
( ≈ M i l l e n n i a l s )
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
54%
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Millennials Baby Boomer
Source: 2013 ULI/BRS National Survey, Delta Associates; February 2014.
PER
CEN
T O
F G
ENER
ATI
ON
Own vs. Rent Residence United States
Own Rent
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
500
520
540
560
580
600
620
640
660
2005 2010 2013
PO
PU
LATI
ON
IN T
HO
USA
ND
S
Source: U.S. Census, Delta Associates; February 2014.
Population District of Columbia
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
Source: Delta Associates; February 2014.
-10
-8
-6
-4
-2
0
2
4
6
8
10
Class A Class B/C
District
SubMD
NoVA
NET
AB
SOR
PTI
ON
(M
ILLI
ON
S O
F SQ
UA
RE
FEET
)
District
Office Net Absorption By Class of Space Washington Metro Area | 2011 - 2013
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
SubMD
NoVA
Inventory of Class B/C Office Space in Need of Renovation Washington Metro Area | Year-End 2013
0
50
100
150
200
250
300
Class B/C
INV
ENTO
RY
(M
ILLI
ON
S O
F SQ
UA
RE
FEET
)
Source: Delta Associates; February 2014.
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
District
SubMD
NoVA
Amazon Delivery Drone Prototype
MegaTrend 4:
Demographic Shifts Impact Commercial Real Estate
A New Playbook
CHANGING NATURE
OF SPACE
175
180
185
190
195
200
2000 2005 2010 2015 2017
AV
ERA
GE
REN
TAB
LE
SQU
AR
E FE
ET
Source: Delta Associates; February 2014.
Average Square Feet Leased Per Office Worker Washington Metro Area
MegaTrend 5:
Changing Nature of Space
Office
MegaTrend 5:
Changing Nature of Space
878
851
771
750
800
850
900
2000 2010 2013
AV
ERA
GE
UN
IT S
IZE
(SQ
UA
RE
FEET
)
Class A High-Rise Apartments Average Unit Size District of Columbia
Source: Delta Associates; February 2014.
MegaTrend 5:
Changing Nature of Space
Apartments
MegaTrend 5:
Changing Nature of Space
E-C
OM
MER
CE
SALE
S (I
N B
ILLI
ON
S O
F D
OLL
AR
S)
Source: eMarketer, Delta Associates; February 2014.
$259
$434
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2013 2014 2015 2016 2017
E-Commerce Sales Forecast United States
MegaTrend 5:
Changing Nature of Space
Retail
MegaTrend 5:
Changing Nature of Space
Industrial
MegaTrend 5:
Changing Nature of Space
Property Sectors
Washington Metro Area | Inventory at Year-End 2013
• Office: 422 million SF
• Flex/Industrial: 405 million SF
• Apartment: 554,000 units
• Condominium: 124,000 units
• Grocery-Anchored Shopping Center: 316 centers
Source: Delta Associates; February 2014.
A New Playbook
THE WASHINGTON
AREA OFFICE MARKET
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18-3
0
3
6
9
12
15
18
MIL
LIO
NS
OF
SQU
AR
E FE
ET
10-Year Trailing Average
Source: Delta Associates; February 2014.
The Washington Area Office Market
Office Space Net Absorption
10.3
7.1
4.4
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18-3
0
3
6
9
12
15
18
The Washington Area Office Market
Office Space Net Absorption
12 mil/yr 10 mil/yr 8 mil/yr 5 mil/yr
Average Absorption Per Annum During Expansion Cycles
Source: Delta Associates; February 2014.
MIL
LIO
NS
OF
SQU
AR
E FE
ET
0
2
4
6
8
10
12
14
16
Northern Virginia Suburban Maryland District of Columbia
26.5 million SF =
Demand
Total = 19.8 million SF
Under construction: 6.4 million SF
Planned and may deliver by 12/18: 13.4 million SF
Deliveries
=
=
Office Space Demand and Deliveries Five Years Ending December 2018
Source: Delta Associates; February 2014.
MIL
LIO
NS
OF
SQU
AR
E FE
ET
The Washington Area Office Market
4%
6%
8%
10%
12%
14%
16%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Overall Vacancy Rate
OV
ERA
LL V
AC
AN
CY
RA
TE
13.4%
11.6%
The Washington Area Office Market
Rent Equilibrium Zone = 10.2% - 10.4%
Rent Equilibrium Zone = 12.4% to 12.6%
Source: Historical data is Delta Associates’ analysis of CoStar data; projections and rent equilibrium zone are by Delta Associates; February 2014.
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Effective Rent Change
EFFE
CTI
VE
REN
T C
HA
NG
E
Average Since 1970 = 3.0%
The Washington Area Office Market
Source: Delta Associates; February 2014.
A New Playbook
WASHINGTON/BALTIMORE
FLEX/INDUSTRIAL MARKET
-4
-2
0
2
4
6
8
10
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
15-Year Average = 3.8 million SF
MIL
LIO
NS
OF
SQU
AR
E FE
ET
Flex/Industrial Net Absorption
The Washington/Baltimore Flex/Industrial Market
Source: Delta Associates; February 2014.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Washington Metro Baltimore Metro
7.5 million SF =
Demand
Total = 5.6 million SF
Under construction: 4.7 million SF
Planned and may deliver by 12/2014: 0.9 million SF
Deliveries
=
= MIL
LIO
NS
OF
SQU
AR
E FE
ET
Flex/Industrial Space Demand and Deliveries 12 Months Ending December 2014
The Washington/Baltimore Flex/Industrial Market
Source: Delta Associates; February 2014.
6%
8%
10%
12%
14%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
OV
ERA
LL V
AC
AN
CY
RA
TE Rent Equilibrium Zone = 10.1% to 10.3%
8.1%
Overall Vacancy Rate
8.7%
The Washington/Baltimore Flex/Industrial Market
Source: Historical data is Delta Associates’ analysis of CoStar data; projections and rent equilibrium zone are by Delta Associates; February 2014.
-5%
0%
5%
10%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Long-Term Average = 3.0%
ASK
ING
REN
T C
HA
NG
E
Asking Rent Change
The Washington/Baltimore Flex/Industrial Market
Source: Historical data is Delta Associates’ analysis of CoStar data; projections are by Delta Associates; February 2014.
A New Playbook
THE WASHINGTON AREA
APARTMENT MARKET
0
2,000
4,000
6,000
8,000
10,000
03 04 05 06 07 08 09 10 11 12 13 14 15 16
The Washington Area Apartment Market
Annual Average = 7,500
Long-Term Average = 5,648
Average Since 2008 = 6,342
Source: Delta Associates; February 2014.
CLA
SS A
APA
RTM
ENT
UN
ITS
Class A Apartment Absorption
-4%
-2%
0%
2%
4%
6%
8%
10%
2009 2010 2011 2012 2013 2013
U.S.
EFFE
CTI
VE
REN
T G
RO
WTH
Annual Class A Apartment Effective Rent Growth
Source: MPF, Delta Associates; February 2014.
-3.0%
The Washington Area Apartment Market
0
2
4
6
8
10
12
14
16
District of Columbia Suburban Maryland Northern Virginia
Net Absorption: 7,500/Year = 22,500
Demand
Deliveries
Planned and may deliver by 12/16: 6,031 units
Under construction: 33,091 units
Total = 39,122 units
Projected Stabilized Vacancy at December 2016
4.8% Metro-Wide
MA
RK
ET R
ATE
UN
ITS
(IN
TH
OU
SAN
DS)
Class A Apartment Demand and Delivery Projections Three Years Ending December 2016
Source: Delta Associates; February 2014.
5.1% 5.4% 4.3%
The Washington Area Apartment Market
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Long-Term Average = 4.2%
Class A Apartment Rent Growth
EFFE
CTI
VE
REN
T G
RO
WTH
The Washington Area Apartment Market
Source: Delta Associates; February 2014.
A New Playbook
THE WASHINGTON AREA
CONDOMINIUM MARKET
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
2007 2008 2009 2010 2011 2012 2013
NU
MB
ER O
F U
NIT
S
3,308
Source: Delta Associates; February 2014.
New Condominiums Actively Marketing or Under Construction Washington Metro Area at Each Year-End
The Washington Area Condominium Market
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
The Washington Area Condominium Market
AN
NU
AL
EFFE
CTI
VE
PR
ICE
CH
AN
GE
Source: Delta Associates; February 2014.
New Condominium Effective Price Change
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2007 2008 2009 2010 2011 2012 2013 2014
1,907
The Washington Area Condominium Market
2,000
NU
MB
ER O
F N
EW U
NIT
S SO
LD
Source: Delta Associates; February 2014.
Past and Projected New Condominium Unit Sales
A New Playbook
THE WASHINGTON
AREA RETAIL MARKET
OV
ERA
LL V
AC
AN
CY
RA
TE
0%
2%
4%
6%
8%
10%
12%
14%
Was SF Bos NY LA/OC Den Hou DFW Chi Atl Phx
4.9%
National Rate = 8.6%
Shopping Center Vacancy Rate – All Types Select Metro Areas | Year-End 2013
Source: Delta Associates’ analysis of CoStar data; February 2014.
The Washington Area Retail Market
Average Retail Spending Per Household Select Metro Areas | 2012
$0
$5,000
$10,000
$15,000
$20,000
$25,000
Was Bos SF Phx Hou DFW LA Chi NY Atl Mia
AV
ERA
GE
RET
AIL
SP
END
ING
Source: Bureau of Labor Statistics, Delta Associates; February 2014.
$21,084
The Washington Area Retail Market
Note: Excludes auto, auto parts and gas.
Annual Rent Increase – Grocery-Anchored Shopping Centers 2013
0%
1%
2%
3%
4%
5%
Inside the Beltway Outside the Beltway
AN
NU
AL
REN
T IN
CR
EASE
Source: Delta Associates; February 2014.
The Washington Area Retail Market
12%
22%
66%
Shopping Center Age Distribution 2013
Source: Delta Associates’ analysis of CoStar data; February 2014.
The Washington Area Retail Market
10 Years or Younger
11-25 Years
26 Years or Older
A New Playbook
OPPORTUNITIES
1. Improve revenues: Renovate and reposition
2. Reduce costs: Invest in enhanced asset performance
3. Sustain net cash flow: Finance while interest rates
are low
A New Playbook
Opportunities Washington Metro Area
Source: Delta Associates; February 2014.
4. Repurpose obsolete assets
5. Leverage demographic shifts: Invest in seniors
housing, medical office, and retail
6. Seize market opportunities: Selectively invest in and
develop industrial and condominium projects
7. Acquire and position sites for next cycle of office
and apartment development
A New Playbook
Opportunities Washington Metro Area
Source: Delta Associates; February 2014.