Commercial Real Estate Outlook Jed Smith, Managing Director Quantitative Research National Association of REALTORS® Lancaster County Association of REALTORS® C&I Regional Conference, May 7, 2014 THE ECONOMY: NOT AS BRIGHT AS THE PICTURE--BUT STILL EXPANDING
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Commercial Real Estate Outlook Jed Smith, Managing Director Quantitative Research
National Association of REALTORS®
Lancaster County Association of REALTORS® C&I Regional Conference, May 7, 2014
THE ECONOMY: NOT AS BRIGHT AS THE PICTURE--BUT STILL EXPANDING
Real Estate Outlook Challenges: Jobs, Growth, and Confidence
• Short Term—Slow Expansion This Year. – Job growth: Up 1.6 percent. – GDP Growth: 2.3 percent vs. 1.9 percent last year. – Interest Rates: 2014 up approximately .5 percent. – Credit Easing Somewhat. – Residential Real Estate: Sales Flat, Prices Up. – Commercial Real Estate: Flat.
• Longer Term—Challenges. – Jobs and Unemployment: Slow Progress, Slow Growth. – Confidence/Discord/Unresolved problems (government debt,
excessive aversion to risk, slow expansion). – Change: Millenials and Residential Markets – Change: Commercial Markets.
U.S. Economy: Impact of The Great Recession
Great Recession—Effects Linger On
Employment and GDP Issues
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2000
4000
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12000
14000
16000
18000
20000
1998 -Q1
2000 -Q1
2002 -Q1
2004 -Q1
2006 -Q1
2008 -Q1
2010 -Q1
2012 -Q1
The Great Recession: Impact on GDP GDP in 2009 Dollars
Real GDP Real GDP W/O Recession
0
20000
40000
60000
80000
100000
120000
140000
160000
1960- Jan
1965- Jan
1970- Jan
1975- Jan
1980- Jan
1985- Jan
1990- Jan
1995- Jan
2000- Jan
2005- Jan
2010- Jan
Establishment Employment: 1960-2013
Economic Forecasting, Augury, and Fortune Telling Can We Really See the Future?
• Based on Relationships Between Various Parts of the Economy. – First Group of Inputs: Exogenous Factors—Monetary and Fiscal
Policy; Foreign Economies; Public Policies. – Second Group of Inputs: Understanding of the Economy:
Relationships Between Economic Variables, Behavioral Assumptions. – Third Group of Inputs: The Unknown Unknowns!
• Forecasts: Based on “All Other Factors Being Constant.” – Which They Never Are! – Best Estimates—Based on Assumptions. – Scenario Analysis and Alternatives.
• Major Drivers of Real Estate: Jobs and GDP Growth. – Offices—Jobs; Retail—Consumer Spending; Warehouses/Flex—
Industrial Output; Apartments– Family Formation and Economic Growth.
– Still Presenting Major Challenges.
Consumer Price Inflation: Less than 2% (% change from one year ago)
• Sales Volume Compared with Previous Quarter: Up 4%. • Sales Volume Compared with Previous Year: Up 8%. • Sales Prices Compared with Previous Quarter: Down 0.4%. • Sales Prices Compared with Previous Year: Up 1%. • Expected Inventory Availability for the Next 12 Months: Up .1%. • Rental Volume Compared with Previous Quarter: Up .4%. • Rental Rates Compared with Previous Quarter: Up .3%. • Level of Rent Concessions Compared with Previous Quarter: Down
4%. • Volume of New Construction Compared with Previous Quarter: Up
2%. • Direction of Business Opportunities Compared with Previous
Quarter: Up 5%.
Lancaster Area: Overview
Employment Comparison
130000
132000
134000
136000
138000
140000
142000
144000
146000
148000
840
860
880
900
920
940
960
980
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan
Employment: Lancaster Area Compared to U.S.
Lancaster Area U.S.
Pennsylvania Economic Activity Generally Consistent with U.S. Economic Activity
0
20
40
60
80
100
120
140
160
180
1990 - Jan 1995 - Jan 2000 - Jan 2005 - Jan 2010 - Jan
Index of Coincident Economic Indicators Source: Philadelphia Federal Reserve
US PA
Construction: Lancaster Compared to U.S.
0
20000
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60000
80000
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120000
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160000
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200000
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2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan
Housing Permits
Central PA U.S.
Lancaster Area Better In Terms of Unemployment Rates
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2
4
6
8
10
12
2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan 2010 - Jan 2012 - Jan 2014 - Jan
Unemployment Rates
PA U.S. Harrisburg Lancaster
Home Prices: Lancaster Slow
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50
100
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200
250
19
95
- Q
1
19
95
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3
19
96
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1
19
96
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3
19
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1
19
97
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3
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1
19
98
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3
19
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1
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99
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3
20
00
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1
20
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3
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01
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1
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3
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3
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1
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3
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1
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10
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3
20
11
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1
20
11
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3
20
12
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1
20
12
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3
20
13
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1
20
13
- Q
3
Trends in Home Prices FHFA Data
Lancaster PA US
Estimated Commercial Sales for Lancaster Area Includes Harrisburg, Lancaster, Reading, York
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50
100
150
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2005 2006 2007 2008 2009 2010 2011 2012 2013
Lancaster: Estimated Commercial Sales Millions of Dollars
Apt/Office/Retail Other Small Commercial
Key Conclusions: Economy and Commercial Markets
• The Economy and Real Estate. – Relatively Slow Recovery and Job Growth. – We Would All Like Greater Optimism!
• Expansion: Retail Space—Probably Disappointing ; Warehouses--Mixed. – Effects of On-line Retailing, Slow Recovery. – Import trends. – The General Direction of the Economy.
• Apartment Outlook. – Continued Growth Possible. – Millennial Generation. – Population and Family Formation.
• Office Building Sector. – Using Less Office Space per Worker. – Cost, Lifestyle, Technology, Changing Nature of Work. – Class A Buildings—Growth Projected.
• Hotels/Motels/Lodging – Long Term Probably Growth—Affluence and Desire for Travel.