Southern California Investor Symposium Economic and Market ...€¦ · West Palm Beach 11.1% Boston...

Southern California Investor Symposium

Economic and Market OutlookOctober 30, 2007

Housing Market Cycle Has Not Bottomed Months’ Supply of Inventory

0

6

12

18

24

Aug-01

Aug-02

Aug-03

Aug-04

Aug-05

Aug-06

Aug-07

Num

ber o

f mon

ths

Los Angeles Orange County

San Diego Riverside/San Bernardino

Sources: Marcus & Millichap Research Services, California Association of Realtors

Cash From Home Refinancing No Longer Shielding Retail Sales From High Energy Prices

0%

2%

4%

6%

8%

10%

2000

2001

2002

2003

2004

2005

2006

2007

*

$0

$20

$40

$60

$80

$100Retail Sales Oil Prices

Crude O

il (price per barrel)Y-

o-Y

Perc

ent C

hang

e in

Ret

ail S

ales

Sources: MMCR, Economy.com

*Retail Sales Forecast, Oil Prices as of September 25th

Falling Dollar Boosting Exports, Corporate Sector Remains Healthy, Low Unemployment Supporting the Consumer

-10%

0%

10%

20%

19971998199920002001200220032004200520062007*2008*

0%

2%

4%

6%

8%Fixed Nonresidential Investment Unemployment Rate

Sources: Marcus & Millichap Research Services, Economy.com**Estimates

80

90

100

110

120

2000

2001

2002

2003

2004

2005

2006

2007

Val

ue o

f Dol

lar (

Mar

'73=

100)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Exports (YOY %

chg)

Dollar Value Exports

Fixe

d N

onre

s. In

vest

men

t (A

nnua

l % c

hg)

Annual U

nemploym

ent Rate

Subprime Home Mortgages’ Impact Significant

0%

25%

50%

75%

100%

2001

2002

2003

2004

2005

2006

Prime Subprime Alt-A Home Equity FHA/VA

Shar

e of

Tot

al V

olum

e

2001 = 11% 2006 = 34%

Sources: MMCR, Joint Center for Housing Studies (Harvard)

Subprime Spillover Affecting Commercial: CMBS Spreads Have Risen Dramatically…

Despite Healthy Fundamentals

Sources: MMCR, Wachovia, ACLI

0%

2%

4%

6%

8%

1988Q21989Q21990Q21991Q21992Q21993Q21994Q21995Q21996Q21997Q21998Q21999Q22000Q22001Q22002Q22003Q22004Q22005Q22006Q22007Q2

Com

mer

cial

Del

inqu

ency

Rat

e (A

CLI

)

THEN

CRE Supply/Demand Imbalance

Credit Crunch Due to Rising Delinquencies

NOW

Credit Concerns Rooted in Subprime Residential

CRE Market Fundamentals Healthy

Commercial Delinquencies < 1%

0

100

200

300

400

500

9/15 /200610/13 /200611/10 /2006

12/8 /20061 /5/20072 /2/20073/2/2007

3 /30 /20074/27/20075 /25 /20076 /22 /20077 /20 /20078 /17 /20079 /14 /2007

10/12/2007

CM

BS

Spre

ad to

Sw

ap

AAA AA A BBB+ BBB BBB-

Inflation Moving in the Right Direction, Giving the Fed More Flexibility

0%

2%

4%

6%

8%

00 01 02 03 04 05 06 07*0%

2%

4%

6%

8%

Fed Funds Rate 10-Year Treasury Core Inflation

Sources: Marcus & Millichap Research Services, BLS, Economy.com, Federal Reserve*Through September

10-Y

ear T

reas

ury

and

Fed

Fund

s R

ate

Core Inflation Y-O

-Y Change

-100

0

100

200

300

0%

2%

4%

6%

8%

05 06 2Q07*

Gross Domestic Product

Jobs

in T

hous

ands

Ann

ualiz

ed G

row

th

Monthly Job Growth

*YE ForecastSources: Marcus & Millichap Research Services, Economy.com

Economy Expected to Slow -Risk Levels Higher (Housing, Energy, Credit Conditions)

21,000Jan-06 Jan-07

Avg. 07

Avg. 08

Sept-07

2005: 3.1%2006: 2.9%

2007: 2.3%2008: 2.3%

$0

$200,000

$400,000

$600,000

$800,000

Los Angeles OrangeCounty

Inland Empire San Diego U.S.

1992-2006 2007*

Med

ian

Hom

e Pr

ice

97%

63%

104%

55%

25%

Data points = % growth from 2002-2007*

Home Prices To Follow Sales Decline –Recent Appreciation Somewhat of a Cushion

Sources: Marcus & Millichap Research Services, California Association of Realtors, Economy.com

*Through September 2007

Sources: Marcus & Millichap Research Services, Economy.com

(60)

(20)

20

60

100

Los Angeles Orange County Inland Empire San Diego

2000-2006 2007* 2008* 2009*

Ann

ual C

hang

e in

Job

s (th

ousa

nds)

*Forecast – Non-farm employment

Southern California Employment Will Remain in Transition Through 2008

Apartment Price Trends Beginning To Vary By Quality, Sub-Market

$0

$50

$100

$150

$200


2002-2006 2007*

Sources: Marcus & Millichap Research Services, CoStar Group, Inc.

06 U.S. Median Price

Med

ian

Pric

e pe

r Uni

t (00

0s)

Sales $1 million and above

* 12 month trailing period from August 2007

So. Cal Multi-Tenant Retail Properties Still Attracting Buyers Due to Scarcity of Product

$0

$100

$200

$300

$400


2002-2006 2007*



Med

ian

Pric

e pe

r Squ

are

Foot



Southern California Office Prices Remain Firm Due to Favorable Long-Term Outlook

$0

$100

$200

$300

$400


2002-2006 2007*



Med

ian

Pric

e pe

r Squ

are

Foot



Lowest Vacancy Markets by Property Type

Sources: Marcus & Millichap Research Services, Reis

Office 3Q07*

New York 6.2%

Miami 8.6%

Seattle 8.9%

Washington, DC 9.0%

Los Angeles 9.0%

Orange County 9.0%

Philadelphia 11.1%

West Palm Beach 11.1%

Boston 11.5%

Portland 11.5%

Fort Lauderdale 9.3%

San Francisco 9.6%

Tucson 10.0%

Orlando 10.2%

Riverside/San Bernardino 11.6%

Shopping Centers 3Q07*

Los Angeles 2.6%

Orange County 2.6%

San Jose 2.6%

San Diego 3.1%

San Francisco 3.3%

N. New Jersey 3.5%

Boston 4.9%

Miami 5.0%

Riverside/SB 5.1%

Portland 5.3%

Seattle 3.5%

Oakland 4.0%

New York 4.2%

Washington, DC 4.4%

Las Vegas 5.4%

Apartment 3Q07*New York 2.2%

Orange County 3.2%

Los Angeles 3.5%

N. New Jersey 3.5%

San Jose 3.6%

Miami 3.7%

Minneapolis 4.2%

Portland 4.4%

Seattle 4.4%

Chicago 4.6%

Milwaukee 4.0%

Philadelphia 4.0%

San Diego 4.0%

San Francisco 4.1%

Washington, DC 4.6%

New Supply Has Become More Constrained, Less Volatile -Construction as a Percentage of Inventory

0%

2%

4%

6%

8%

Apartment Shopping Centers Office Industrial

Ave

rage

Ann

ual P

erce

nt o

f Inv

ento

ry

1980-89 1990-99 2000-06 2007-10*

Sources: Marcus & Millichap Research Services, Reis*Forecast

Long-Term Capital Flows Favor Real EstatePension Funds’ Real Estate Allocation and Targets

0%

3%

6%

9%

12%

15%

Japa

n

France UK US

Austra

lia

German

y

Netherl

ands

% o

f Rea

l Est

ate

Allo

catio

ns

REITs Direct Real Estate

Sources: Marcus & Millichap Research Services, RREEF

Target

So. Cal Apartment Vacancies Among the Lowest Nationally

Source: Marcus & Millichap Research Services, Reis

0%

2%

4%

6%

8%


1990-2006 2007** 2008**

Vaca

ncy

Rat

e

2007 U.S. Vacancy

* Preliminary Estimate **Forecast

2007 = 3.5%

2008 = 3.7%

2007 = 3.5%

2008 = 4.5%

2007 = 5.4%

2008 = 5.4%

2007 = 4.0%

2008 = 4.3%

Shopping Center Vacancies Remain Low Due to High Retail Tenant Demand


0%

3%

6%

9%

12%


1990-2006 2007** 2008**

Vaca

ncy

Rat

e

2007 U.S. Vacancy

* Preliminary estimate ** Forecast

2007 = 3.0%

2008 = 3.3%

2007 = 3.3%

2008 = 3.6%

2007 = 5.6%

2008 = 5.9%

2007 = 3.4%

2008 = 3.6%

Office Vacancies Softening Moderately – Still Remain Below U.S. Average


0%

10%

20%

30%


1990-2006 2007** 2008**

Vaca

ncy

Rat

e

2007 U.S. Vacancy

* Preliminary estimate **Forecast

2007 = 9.2%

2008 = 9.7%

2007 = 9.2%

2008 = 10.5%

2007 = 11.6%

2008 = 11%

2007 = 12.2%

2008 = 12.5%

$0

$200,000

$400,000

$600,000

$800,000

Los Angeles OrangeCounty

Inland Empire San Diego U.S.

1992-2006 2007*

Med

ian

Hom

e Pr

ice

97%

63%

104%

55%

25%

Data points = % growth from 2002-2007*

Home Prices Decline Will Follow Declining Sales, Degree of Recent Appreciation A Safety Net

Sources: Marcus & Millichap Research Services, California Association of Realtors, Economy.com

*Through September 2007

$200

$600

$1,000

$1,400

$1,800


1990-2005 2006 2007 2008*

Avg

. Ask

ing

Ren

tApartment Rents Remain Strong Despites

Slowing Growth Rate


07 U.S. Asking Rent

* Forecast

$0

$10

$20

$30

$40


1990-2006 2007* 2008*

Avg

. Ask

ing

Ren

t per

Squ

are

Foot

Core, Primary Area Shopping Center Rents

Still Rising


07 U.S. Asking Rent

* Forecast

$0

$10

$20

$30

$40


1990-2006 2007* 2008*

Avg

. Ask

ing

Ren

t per

Squ

are

Foot

Office Rent Growth Beginning to Level Off After Significant Rise


07 U.S. Asking Rent

* Forecast

Southern California Apartment SubmarketsLargest Vacancy Improvement


Submarket Metro 2Q 2006 2Q 2007 Bps ChangeFullerton Orange County

Inland EmpireInland EmpireSan DiegoInland EmpireLos AngelesInland EmpireLos AngelesLos AngelesOrange CountyLos AngelesInland EmpireLos AngelesSan DiegoLos Angeles

5.7% 3.7% -200

Tustin 3.6% 3.0% -60North Long Beach 2.4% 1.8% -60Indio/La Quinta 6.3% 5.7% -60Santa Monica 3.6% 3.1%

Riverside City 5.4% 3.9% -150

-50

4.1%0.9%6.0%9.9%2.3%

Mid-City/West Adams 3.6% 2.9% -70Marina Del Rey 5.7% 5.0% -70

El Segundo 2.7% 2.3% -40SD/East of I-15 5.2% 4.7% -50

Rancho Cucamonga 5.6% -150Ocean Beach/Point Loma 2.3% -140Perris 7.3% -130Downtown 11.2% -130Colton/Loma Linda 3.3% -100

Southern California Retail Shopping Center Submarkets

Largest Vacancy Improvement


Submarket Metro 2Q 2007 2Q 2007 Bps ChangeVictorville Inland Empire

Los AngelesLos AngelesLos AngelesInland EmpireLos AngelesOrange CountyLos AngelesSan DiegoInland EmpireSan DiegoLos AngelesOrange CountyInland EmpireLos Angeles

5.5% 2.6% -290

Moreno Valley/Riverside 6.3% 6.0% -30Northwest County 3.5% 3.3% -20Central L.A. 1.3% 1.3% 0West 2.3% 2.6%

Westside/Downtown 3.9% 2.7% -120

30

1.7%3.6%4.6%1.9%1.9%

South Bay/Torrance 1.8% 1.4% -40West San Diego Beach 2.4% 2.0% -40

San Fernando Valley West 2.0% 2.4% 40Rancho Cucamonga/Chino 4.9% 5.3% 40

San Gabriel Valley West 2.8% -110San Gabriel Valley East 4.6% -100South Riverside County 5.4% -80Culver City/Inglewood 2.6% -70North 2.5% -60

Southern California Office SubmarketsLargest Vacancy Improvement


Submarket Metro 2Q 2006 2Q 2007 Bps ChangeBeverly Hills Los Angeles

Los AngelesLos AngelesLos AngelesLos AngelesOrange CountyLos AngelesLos AngelesLos AngelesLos AngelesSan DiegoSan DiegoLos AngelesLos AngelesInland Empire

10.4% 4.3% -610

West L.A. 6.6% 4.7% -190East County 8.5% 6.8% -170Central San Diego 6.9% 5.3% -160LAX/El Segundo 19.6% 18.1%

Santa Clarita Valley 14.0% 8.8% -520

-150

8.4%8.0%5.2%5.4%4.4%

South Bay 13.4% 11.1% -230Marina/Culver City 6.7% 4.5% -220

Colton/Redlands 9.4% 8.7% -70Mid-Wilshire 8.3% 7.6% -70

Long Beach 12.8% -440Hollywood/Sunset 11.5% -350Burbank 8.3% -310West 8.3% -290San Fernando Valley East 7.2% -280

Southern California Investor Symposium

Economic and Market OutlookOctober 30, 2007

Southern California Investor Symposium Economic and Market ...€¦ · West Palm Beach 11.1% Boston...

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Transcript of Southern California Investor Symposium Economic and Market ...€¦ · West Palm Beach 11.1% Boston...