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Global Research and Consulting

An InconvenientWorld …

Presented by:

Raymond G. Torto, Ph.D, CREGlobal Chief EconomistCBRE

7th Annual Mid-Year Economic Real Estate Symposium

August 14, 2012

CBRE | Page 2


Regional Shares of World Output and Population

Source: IHS Global Insight, Q3 2012

CBRE | Page 3


The Global Outlook

The global economy is behaving precisely as the history of financial crises have shown: Vulnerable to too much debt!

“Low”-- sub-normal-- global economic growth is expected for balance of decade with slowest period from now to 2014/2015.

Low growth, excess capacity implies low interest rates and low global inflation for several more years. However, interest rates will be lower than inflation rates!—”financial repression”

Global electoral cycle and policy/political discourse portends political paralysis—fostering a “muddling through” as opposed to decisive action.


U.S. Economy Performance

CBRE | Page 5


Trough

Previous Peak

Peak To Trough Decline

Phase

Recov

ery

Phase

Expansion Phase

Return to Previous

Peak

Defining “Recovery”

CBRE | Page 6


U.S. Real GDP Has Recovered!

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

$11,000

$11,500

$12,000

$12,500

$13,000

$13,500

$14,000

Real Gross Domestic Product

Real GDP, Billions USD

Q3 2011

Source: IHS Global Insight, data through Q1 2012.

CBRE | Page 7


U.S. Real GDP Per Capita Has Not Recovered

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

$39,000

$40,000

$41,000

$42,000

$43,000

$44,000

$45,000

Real Gross Domestic Product per Capita

Real GDP Per Capita, USD

Source: IHS Global Insight, data through Q1 2012.

CBRE | Page 8


Population Growth by Region

2010 Population

2030 Population

Growth Population Number

North America 344 m 401m + 16% 57m

Latin America 590m 701m +18% 111m

Asia 3.9b 4.5b +15% 600m

Europe 738m 741m 0 3m

Middle East and Africa 1,297m 1,949m +50% 652m

Total 1,423m

CBRE | Page 9


The Great (Deepest) U.S. Recession

Source: Calculated Risk, July 2012

CBRE | Page 10


Except for the Great U.S. Depression!

Source: Calculated Risk, July 2012

CBRE | Page 11


Owner’s Equity has Dropped to 38%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

30

35

40

45

50

55

60

65

70

Households Owner's Equity in Real EstateOwner's Equity as a Percentage of Household Real Estate

Owner’s Equity in Real Estate, USD Millions Owner’s Equity as a Percentage of Household Real Estate, %

Source: Federal Reserve Flow of Funds B.100 (Q) Balance Sheet Households and Nonprofit Organizations, n.s.a.


Real Estate Performance

CBRE | Page 13


U.S. Real Estate vs. Other Assets: 1 and 10 year Returns

Source: NCREIF as of March 31, 2012.

NPI NPI-Leverage Barclays Capital Gct Bond Index

Consumer Price Index

NAREIT Equity REIT Index

S&P 500 Index

13.4

23.8

7.9

2.7

11.312.6

8.2

11.8

5.5

2.5

10.4

4.1

Total Return Index Comparison as of March 31, 2012

1 Year 10 Year


Thinking About Commercial Real Estate

CBRE | Page 15


_NOI_

r-g


U.S. Transaction Volume & Pricing

CBRE | Page 17


U.S. Transaction Volume

$-

$20,000,000,000

$40,000,000,000

$60,000,000,000

$80,000,000,000

$100,000,000,000

$120,000,000,000

$140,000,000,000

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Unites States Transaction Volume Average Transaction Volume 2007U.S. Share of Global Total

U.S. Transaction Volume, USD Billions U.S. Share of Global Transaction Volume, %

Source: RCA as of Q3 2012.

CBRE | Page 18


US Office Cap Rates

New York

Los Angele

s

Wash

ingto

n, DC

Sum o

f Mark

ets

Boston

Chicago

Dallas

Denver

Houston

Philadelp

hia4

5

6

7

8

9

10

Current Cap Rate (Q1 2012)Cap Rate, %

Source: CBRE Research and RCA as of Q3 2012; smoothed annual weighted average cap rates used.

The Cyclical High was chosen as the highest rate after the cyclical low. The Cyclical Low was chosen as the lowest rate from the most recent cycle (i.e. prior to the onset of Global Financial Crisis)...


U. S. Leasing

CBRE | Page 20


U.S. Occupancy Trends

2004.1

2004.3

2005.1

2005.3

2006.1

2006.3

2007.1

2007.3

2008.1

2008.3

2009.1

2009.3

2010.1

2010.3

2011.1

2011.3

2012.190

95

100

105

110

Multi-Housing Industrial Office Retail Hotel

Occupancy, Indexed to Q1 2004

Retail

Office

Industrial

MFH

Hotel

Source: CBRE EA Outlook as of Q3 2012.

*4 quarter rolling average taken and index is based off that; so for example, the Q1 2004 base figure is the average occupancy from Q2 2003-Q1 2004. As of the time of update, Q2 data is not yet available.

CBRE | Page 21


Multi-Housing Enters Expansion Phase

Multi-Housing Hotels Office Retail Industrial-35

-30

-25

-20

-15

-10

-5

0

5

10

Q1 2012 Revenue as % of Last Peak Q1 2012 Real Rent as % of Long-Term Average

Percent

Source: CBRE EA Outlook, Q1 2012.

CBRE | Page 22


Houston

Was

hingto

n, DC

Denve

r

Atlanta

Chicag

o

Philadel

phia

Dalla

s

Boston

Sum o

f Mar

kets

Offi

ce

Los Angel

es

New Y

ork

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Peak To Trough Peak to Current

Change in TW Rent Index (%)

U.S. TW Rent Index: Office Recovery Progress

Source: CBRE EA Outlook, Q2 2012.

Changes in Rents: Peak-to-Trough and Peak to Q2 2012


Risks

CBRE | Page 24


U.S. Outlays and Receipts

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

esti

mat

e12%

14%

16%

18%

20%

22%

24%

26%

Historical Government Receipts and Outlays as % of GDP

Receipts as % of GDP Outlays as % of GDP

Receipts/Outlays, % GDP

Source: Office of Management and Budget Historical Table 1.2.

CBRE | Page 25


Fiscal Cliff

Fiscal Policies Scheduled for January 2013:

Bush Tax cuts Expire

Increase in Federal Payroll Tax

Decreased unemployment benefits

Mandatory spending cuts to defense and other programs

The Challenge Facing the U.S.

CBRE | Page 26


U.S Political Divide

Shrinking Overlap between the Two Parties in the U.S. Congress

Source: Royce Carroll, Rice University.

The charts sort Republicans and Democrats by roll call votes along the horizontal axis.


Thank You

Raymond G. Torto, PhDGlobal Chief Economist

[email protected]

CBRE | Page 28


Raymond Torto, PhD, CRE

Ray Torto is CBRE’s Global Chief Economist. He directs CBRE’s worldwide team of commercial real estate market analysts and serves as the firm’s primary spokesperson on macro economic issues and the global commercial real estate market.

Ray earned his Ph.D. in Economics from Boston College. He is active in many organizations including Chairman of the Pension Real Estate Association and the Real Estate Roundtable. A former professor and author, he currently teaches Executive Education in the Harvard School of Design.

[email protected]

CBRE | Page 29


Disclosures: Raymond G. Torto

The information presented reflects the opinions of Raymond G. Torto based on sources and data believed to be reliable. Although the information used has been obtained from sources believed to be reliable, CBRE and CBRE Econometrics Advisors (formerly Torto Wheaton Research) does not guarantee its accuracy or completeness. This material is for private use and is for informational purposes only. Unauthorized distribution or use of the information is strictly prohibited and all rights to the material are reserved. There is no obligation to update or supplement this information at any time or in any way. Ray Torto is not a registered investment advisor.

All contents of this work product and all projections, opinions and forecasts contained in the presentation are based upon historical events, trends and econometric models which are subject to material variation and interpretation. The material is also based upon various assumptions and is subject to significant uncertainties and contingencies, as well as possible typographical, arithmetic and other human error, and no representations or warranties, expressed or implied, as to the accuracy or completeness of the products and publications or any of their separate contents are made herein. This presentation does not take into account the investment objectives or financial situation of any particular person or institution.

Pdf version for flash drive torto_utah -august 14v1

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