1 Economic Recovery on the Horizon? Unemployment and GDP Growth - - PDF document
Metro Atlanta First Quarter 2010 Overview Prepared by Cushman & Wakefield Atlanta Overview Gradual improvement in economic conditions in first quarter 2010. Significant downside risks to sustained recovery persist. Including
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Metro Atlanta First Quarter 2010 Overview
Prepared by Cushman & Wakefield Atlanta Overview
■ Gradual improvement in economic conditions in first quarter 2010. ■ Significant downside risks to sustained recovery persist. ■ Including limited job growth and depressed business and consumer sentiment. ■ Weak commercial markets and lingering housing market issues continued to weigh on smaller banks in the metro Atlanta area.
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Source: Moody’s | Economy.com
Economic Recovery on the Horizon?
Unemployment and GDP Growth Trends
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 GDP Growth 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 Jan-00 Jul-01 Jan-03 Jul-04 Jan-06 Jul-07 Jan-09 % Unemployment Quarterly GDP Growth US Unemployment Rate Atlanta Unemployment Rate
Stabilizing Employment Situation in Atlanta
Source: BLS
Atlanta Monthly Employment Trends
10000 20000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Change in Total Employment 2008 2009 2010
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Though Unemployment Remains Elevated
Atlanta MSA Employment Trends 2,200 2,250 2,300 2,350 2,400 2,450 2,500 Jan-2000 Jan-2002 Jan-2004 Jan-2006 Jan-2008 Jan-2010 Nonfarm Employment (thousands) 0.0 2.0 4.0 6.0 8.0 10.0 12.0 % Total Nonfarm Employment (Ths) Unemployment Rate (SA)
Source: Moody’s | Economy.com Source: Moody’s | Economy.com
Stabilizing Consumer Confidence and Retail Sales
Advanced Durable Goods Orders and Monthly Retail Sales Trends
50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00 Consumer Confidence Index (SA) Advanced Durable Goods: New Orders (Mil. $, SA) Estimated Monthly Retail Sales ($mil., SA)
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Source: Moody’s | Economy.com
Continued Expansion in the Industrial Sector
ISM Index and Durable Goods Orders 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 40,000 80,000 120,000 160,000 200,000 240,000 280,000 ISM Purchasing Managers' Index (SA) Advanced Durable Goods: New Orders (Mil. $, SA)
Atlanta Office Market
■ Demand rebounded slightly to yield flat absorption in first quarter following near-record net occupancy losses in 2009. ■ Last speculative office towers of current construction cycle completed. ■ Overall vacancy continued to grow, though sublease vacancies decreased slightly. ■ Excess supply and weak demand continued to weigh on effective rents.
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Few Bright Spots Among Office-Using Industries
Source: Moody’s | Economy.com
Atlanta MSA Nonfarm Employment Job Gains - Office Sectors (2000 - 1Q 2010)
1.87 4.12 1.50 5.43 20.01 63.63
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
Admin., Support and Waste Mgt. Credit Intermediation & Related Mgmt of Companies & Enterprises Insurance Carriers & Related Computer Sys. Design & Related Arch., Eng., & Related Srcs Other Financial Inv. Activities Other Prof., Sci., & Tech. Srvcs Real Estate, Rental & Leasing Mgmt., Sci. & Tech. Consulting Svcs Educational Svcs Health Care & Social Assistance
Net Change (In 000s, SA)
Job Losses Continue…
Source: Moody’s | Economy.com
Office-Using Employment Trends
0.00 10.00 20.00 30.00 40.00 1982 1986 1990 1994 1998 2002 2006 YTD 2010 Thousands
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… Though Employment is Gradually Stabilizing
Source: Moody’s | Economy.com, Cushman & Wakefield
Atlanta MSA Yearly Employment vs. Overall Absorption
0.0 3.0 6.0 9.0 12.0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 MSF
10 20 30 40 Year-Over-Year Change in No. of Jobs (thsnds) Year-Over-Year Change in Office-Using Employment Overall Absorption
Office Supply and Demand Trends
Source: Cushman & Wakefield
Atlanta Office Annual Absorption & Vacancy Trends (4.0) (2.0) 0.0 2.0 4.0 6.0 8.0 10.0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 MSF 0% 4% 8% 12% 16% 20% 24% 28% 32% Overall Absorption Construction Completions Overall Vacancy
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End of the Current Construction Cycle
Office Supply Trends 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1Q97 1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 MSF 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% 24.0% 28.0% 32.0% Under Construction Overall Vacancy
Source: Cushman & Wakefield
Excess Development Had Many Root Causes…
Source: Moody’s | Economy.com, Cushman & Wakefield
Atlanta Office Construction Starts vs. Investment Trends 0.0 0.4 0.8 1.2 1.6 2.0 2.4 2.8 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 msf $0 $400 $800 $1,200 $1,600 $2,000 $2,400 $2,800 million Speculative Construction Starts Investment Activity ($)
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Attractive Trends in Investment and Easily-Secured Financing…
Source: Moody’s | Economy.com, Cushman & Wakefield
Atlanta Office Speculative Construction Starts vs. RHLB Construction Cost Index 0.0 0.3 0.6 0.9 1.2 1.5 1.8 2.1 2.4 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 MSF 100.00 110.00 120.00 130.00 140.00 150.00 160.00 170.00 180.00
Construction Starts RHLB Construction Cost Index, (April 2001 = 100) Moody’s/REAL Commercial Property Price Index - National Office, (2000Q4=100, NSA)
Positive Trends in Overall Vacancy …
Source: Cushman & Wakefield
Atlanta Office Development vs. Overall Vacancy 0.0 0.3 0.6 0.9 1.2 1.5 1.8 2.1 2.4 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 MSF 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% 26.0% Speculative Construction Starts Construction Completions Overall Vacancy
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… And Aggressive Underwriting to Rental Rate Growth
Source: Cushman & Wakefield
Atlanta Office Development vs. Class A Asking Rents 0.0 0.3 0.6 0.9 1.2 1.5 1.8 2.1 2.4 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 MSF $21.00 $21.50 $22.00 $22.50 $23.00 $23.50 $24.00 $24.50 $25.00 Speculative Construction Starts Construction Completions Class A Direct Avg Rent
Soft Demand and Development Activity Yielded Steadily Increasing Vacancies
Source: Cushman & Wakefield
Atlanta vs. U.S. Office Overall Vacancy and Rent Trends 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 PSF Atlanta Overall Vacancy US Overall Vacancy
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Excess Supply Included Expanding Subleases
Source: Cushman & Wakefield
Sublease and Overall Vacancy Trends 0.0 1.0 2.0 3.0 4.0 5.0 6.0 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 MSF 0% 5% 10% 15% 20% 25% 30% Sublease SF Overall Vacancy
Above-Market Average Vacancies…
Source: Cushman & Wakefield
Non-CBD Overall Vacancy Comparison 0% 5% 10% 15% 20% 25% New Haven, CT Baltimore, MD Los Angeles CBD Northern VA San Francisco Peninsula, CA New Jersey - Northern San Diego, CA San Gabriel Valley CA Hartford, CT Philadelphia, PA Houston, TX Miami, FL Denver, CO Tampa, FL Atlanta, GA Dallas, TX US
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… Even in the Absence of New Construction
Source: Cushman & Wakefield
CBD Overall Vacancy Comparison 0% 5% 10% 15% 20% 25% 30% Midtown South, NY Downtown, NY New Haven, CT Houston, TX Midtown, NY San Francisco, CA Portland, OR Philadelphia, PA Boston, MA Washington, DC San Diego, CA Westchester County, NY Chicago, IL Denver, CO Miami, FL Tampa, FL Atlanta, GA Dallas, TX US
Few Barriers to Entry Constrain Rental Rate Growth
Source: Cushman & Wakefield
Atlanta Office Overall Vacancy and Rent Trends $0.00 $4.00 $8.00 $12.00 $16.00 $20.00 $24.00 1Q87 1Q89 1Q91 1Q93 1Q95 1Q97 1Q99 1Q01 1Q03 1Q05 1Q07 1Q09 PSF 0% 5% 10% 15% 20% 25% 30% Overall Wtd Avg Rent Overall Vacancy
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Atlanta Industrial Market
■ Demand rebounded slightly to yield flat absorption in first quarter following near-record net occupancy losses in 2009. ■ Last speculative office towers of current construction cycle completed. ■ Overall vacancy continued to grow, though sublease vacancies decreased slightly. ■ Excess supply and weak demand continued to weigh on effective rents.
Industrial Sector Displayed Earliest Signs of Recovery
Source: Moody’s | Economy.com, Cushman & Wakefield
Industrial Demand vs. ISM Purchasing Managers' Index
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2001 2005 2009 MSF 25.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Overall Absorption Leasing Activity ISM Purchasing Managers' Index (SA)
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Healthy Demand Coupled with a Lack of Speculative Development
Source: Cushman & Wakefield
Atlanta Industrial Supply-Demand Trends
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 MSF 0.0% 4.0% 8.0% 12.0% 16.0% 20.0% Leasing Activity Overall Absorption Construction Completions Overall Vacancy
Helped Stabilize Overall Vacancy
Source: Cushman & Wakefield
Overall Rental and Vacancy Rate Trends 0.0% 3.0% 6.0% 9.0% 12.0% 15.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 PSF Atlanta Overall Vacancy US Overall Vacancy
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Developers Focused on Built-to-Suit Activity
Source: Cushman & Wakefield
Atlanta Industrial Development Trends 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 MSF 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% Spec Const. BTS Under Const. Overall Vacancy
Rental Rates Remained Stable
Source: Cushman & Wakefield
Atlanta Industrial Overall Rental and Vacancy Rate Trends $3.00 $3.25 $3.50 $3.75 $4.00 $4.25 $4.50 $4.75 $5.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 PSF 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Wtd Avg Rent Overall Vacancy
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Capital Markets
■ Pervasive bid-ask spread limited investment activity. ■ Expanding pipeline of available core assets. ■ Despite dramatic improvements in liquidity in the credit markets, delinquencies continued to grow. ■ Loan modifications provide some relief for borrowers, banks and special servicers.
Investment Activity Remains Limited
Source: Cushman & Wakefield
Office Investment Activity $98 psf $187 psf $126 psf $109 psf $135 psf $125 psf $264 psf $161 psf $111 psf 0.0 5.0 10.0 15.0 20.0 25.0 30.0 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 MSF 1,000 2,000 3,000 4,000 5,000 6,000 $ Million SF Traded $ Transaction Volume
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Investors Increasingly Focused on Core Assets
Source: Moody’s | Economy.com, Cushman & Wakefield
Atlanta Office Investment Activity 1,000 2,000 3,000 4,000 5,000 6,000 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 $ mil. 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 $ Transaction Volume Cap Rate (12-month avg)
Transaction Volume Gradually Rebounding Nationally as Credit Markets Thaw
US Office Investment Sales Volume - 1Q 2010 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 Boston Houston Manhattan Los Angeles Orange Co DC VA burbs Northern NJ NYC Boroughs Columbus St Louis DC MD burbs Dallas Chicago Stamford San Jose Austin San Francisco Portland Atlanta Tampa Total Vol. ($ Bil) Source: Real Capital Analytics, Cushman & Wakefield
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Buyer and Seller Composition
Source: Real Capital Analytics, Cushman & Wakefield
Buyer Composition (12 Mos.) 16% 18% 20% 22% 22% 10% 3% 8% 2% 8% 5% 6% 2% 16% 16% 17% 22% 43% 20% 2% 15% 6% 3% 16% 58% 23% % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Atlanta Buyers US Buyers Atlanta Sellers US Sellers inst'l foreign reit/public user/other syndicator fund pvt out of state pvt in state
Aggressive or Deteriorating Underwriting Standards
Source: Realpoint
Historical U.S. CMBS Issuance 30 60 90 120 150 180 210 240 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 thru. Jan. US CMBS Issuance ($ Billions)
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Delinquencies Continue to Grow Unabated
Source: Realpoint
Overall CMBS Delinquency Rates R2 = 0.9686 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 CMBS Delinquency
Loan Modifications Gaining Increased Attention
U.S. Total Outstanding Distress $0 $50 $100 $150 $200 $250 J '08 F M A M J J A S O N D J '09 F M A M J J A S O N D J '10 F M million Troubled REO Restructured Resolved
Source: Real Capital Analytics
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Growing Distressed Asset Volume Has Yet to Impact Commercial Market
Source: Real Capital Analytics
Atlanta Distressed Assets $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Office Industrial Retail Apartment Hotel Development Other mil.
As Well-Capitalized Investors Await on the Sidelines
Source: Moody’s | Economy.com, Cushman & Wakefield
Atlanta Office Investment Activity ($) $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2002 2003 2004 2005 2006 2007 2008 2009 YTD 2010 Millions $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 Billions $ Transaction Volume Tax-Free Money Market Funds (Bil. $, NSA)
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■ While modest economic recovery is forecast for the nation, continued contraction in Atlanta’s employment sector and persistent problems in its banking industry will yield limited demand within its office sector in 2010. ■ Continued expansion in the industrial indices will result in increased leasing activity in 2010, especially among distribution facilities attracting headquarters relocation activity. ■ Improving clarity in the investment sector and an expanding pipeline of available assets will greet investors eager to place money, as investment activity increases on a limited basis in 2010.
Market Outlook
Appendix
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Cushman & Wakefield Overview
Founded in 1917 in New York City Largest private real estate services firm in the world
Most Recent Year Performance
Transaction Services
transactions
280 million sf
$35 billion Property/Facility/Project Management
employees
10,000 properties worldwide
467 million sf Investment Sales
than 165 million sf
$31.5 billion 55 Allen Plaza Suite 700 Atlanta, GA 30308 Atlanta office opened in 1977
Most Recent Year Lease and Sale Transactions
18 million sf and 900 acres
Cushman & Wakefield Overview
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Cushman & Wakefield Overview