Commercial Real Estate Insights 2018 Economic Forecast Crowne Plaza - - PowerPoint PPT Presentation

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Commercial Real Estate Insights 2018 Economic Forecast Crowne Plaza - - PowerPoint PPT Presentation

Apr 21, 2023 163 likes •567 views

Commercial Real Estate Insights 2018 Economic Forecast Crowne Plaza Sacramento | February 8, 2018 Colliers Experts Joshua Palmer Tommy Ponder, SIOR Associate Vice President Industrial Specialist Office Specialist Randy Dixon Managing

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Commercial Real Estate Insights

2018 Economic Forecast

Crowne Plaza Sacramento | February 8, 2018

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SLIDE 2

Joshua Palmer

Associate Office Specialist

Greg Thomas

Senior Vice President Retail Specialist

Tommy Ponder, SIOR

Vice President Industrial Specialist

Brian Nelson

Senior Vice President Multifamily Specialist

Colliers Experts

Randy Dixon

Managing Director

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Agenda

  • Overall Economic Outlook
  • Market Overview
  • Tenant Demand
  • Rental Rates
  • Sales Activity
  • Forecast and Commentary
  • Q&A

Key Themes

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SLIDE 4

Economic Outlook

An overall look at 2017 What were major influences

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SLIDE 5

Major Influences

  • Employment
  • Vacancy
  • New Supply

85.0% 90.0% 95.0% 100.0% 105.0% 110.0% 115.0% Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017

PERCENT BASED ON JAN 2008 LEVEL Sacramento MSA California Statewide US National

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SLIDE 6

1. Tempe, AZ 2. Boise, ID 3. Miami, FL 4. Atlanta, GA 5. Tacoma, WA

6. Sacramento, CA

7. Pittsburgh, PA 8. McKinney, TX 9. Richmond, VA 10. Jersey City, NJ 11. Olympia, WA 12. Durham, NC 13. Redding, CA 14. Surprise, AZ 15. Kissimmee, FL 16. Yonkers, NY 17. San Francisco, CA 18. Brooklyn, NY 19. Brandon, FL 20. Edmond, OK 21. Manhattan, NY 22. Saint Cloud, FL 23. Murrieta, CA 24. Prosper, TX 25. Myrtle Beach, SC

  • 1. Texas
  • 2. Florida
  • 3. Arkansas
  • 4. South Carolina
  • 5. Tennessee

…

  • 50. California

Regional Migration – U-Haul Study Top Growth Cities

Growth State Rankings

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SLIDE 7

Major Influences

  • Employment
  • Vacancy
  • New Supply
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SLIDE 8

Demand

Absorption Vacancy New Supply

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SLIDE 9

Absorption, Vacancy and New Supply

Office

14.8% 16.9% 19.1% 20.1% 20.5% 19.1% 17.8% 16.5% 14.9% 14.2% 13.4%

  • 8.0%
  • 6.0%
  • 4.0%
  • 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% (750,000) (250,000) 250,000 750,000 1,250,000 1,750,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 % V % VAC ACAN ANCY TO TOTA TAL S SF

Source: Colliers International Research

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SLIDE 10
  • Product quality and location
  • Urban revival
  • Build to suit development

Office Supply & Demand

Talent War: 77% of CEOs see

availability of key skills as the #1 threat to their business

PwC, 2017

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SLIDE 11

14.6% 18.3% 20.7% 22.1% 21.3% 20.3% 18.8% 17.9% 16.2% 13.6% 11.2% 9.6% 10.3% 11.9% 13.0% 12.6% 12.4% 11.6% 9.9% 9.1% 7.2% 5.2%

  • 14.0%
  • 12.0%
  • 10.0%
  • 8.0%
  • 6.0%
  • 4.0%
  • 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% 24.0% (3,000,000) (2,000,000) (1,000,000) 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

VACANCY RATE TOTAL NET ABSORPTION

Source: Colliers International, CoStar

Total Net Absorption New Supply Flex Vacancy % Warehouse Vacancy %

Absorption, Vacancy and New Supply

Industrial

NEW RECORD

Largest annual net absorption

  • n record
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SLIDE 12
  • Extremely low vacancy
  • E-commerce, cannabis
  • Build-to-suit vs spec development

Industrial Supply & Demand

Key Fact:

Vacancy rate fell 250 basis points to 5.9% overall, the lowest on record.

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SLIDE 13

Absorption, Vacancy and New Supply

Retail

10.6% 13.4% 13.6% 13.2% 13.0% 11.9% 10.7% 10.1% 10.3% 8.9%

  • 10.0%
  • 8.0%
  • 6.0%
  • 4.0%
  • 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% (1,000,000) (800,000) (600,000) (400,000) (200,000) 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD % V % VAC ACAN ANCY TO TOTA TAL SF

Total Net Absorption New Supply

Source: Colliers International, CoStar

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SLIDE 14

Retail Concepts

Which quadrant does tenant belong to?

Established Brands Expanding Downsizing Trending

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SLIDE 15

92 92.7% 92 92.7% 94.3 4.3% 94.1 4.1% 94.2 4.2% 95 95.2% 97 97.0% 96 96.1% 95 95.9% 9% 96.4% .4%

90% 92% 94% 96% 98% 100% $600 $700 $800 $900 $1,000 $1,100 $1,200 $1,300 $1,400 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Market Occupancy Average Market Rent

Average Rent Average Occupancy

Occupancy

Multifamily

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Historical apartment supply

1000 2000 3000 4000 5000 6000

# Unit its s under c const structio ion

Unit Count Average Average: : 2 2,409 Un 9 Units

Source: CoStar, MPF

Q4 2017 total: 3,808 units

Note: Totals above based on multifamily construction in four-county Sacramento region.

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Rental Rates

Rates by Class/Type

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Rental Rates and Cost of Occupancy

Office

$201 $182 $116 $117 $79 $115 $141 $143 $163 $157

$1.99 $1.87 $1.80 $1.72 $1.69 $1.68 $1.70 $1.76 $1.80 $1.84 $2.34 $2.26 $2.16 $2.09 $2.10 $2.08 $2.06 $2.16 $2.19 $2.27

$1.00 $1.20 $1.40 $1.60 $1.80 $2.00 $2.20 $2.40 $2.60 $50 $70 $90 $110 $130 $150 $170 $190 $210 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ASKING REN RENTAL L RA RATE

  • Avg. $

$ Paid/ d/Bldg

  • dg. S

SF

Source: Colliers International Research

  • Avg. $ Paid/Bldg. SF

Class B Class A

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SLIDE 19
  • High demand areas
  • Trades, new owners push
  • Rehabs, injecting capital

Office rates

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Rental Rates and Cost of Occupancy

Industrial

$70.71 $84.65 $61.61 $47.94 $47.61 $45.60 $54.31 $48.59 $67.22 $73.87 $69.45

$0 $0.51 .51 $0 $0.47 .47 $0 $0.43 .43 $0 $0.3 .38 $0 $0.3 .36 $0 $0.3 .37 $0 $0.3 .38 $0 $0.3 .37 $0 $0.3 .39 $0 $0.40 .40 $0 $0.43 .43 $1 $1.0 .01 $1 $1.0 .01 $0 $0.8 .88 $0 $0.8 .80 $0 $0.7 .79 $0 $0.7 .78 $0 $0.7 .78 $0 $0.7 .76 $0 $0.7 .77 $0 $0.8 .81 $0 $0.8 .83

$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

RENT $/SF/MONTH

  • AVG. $/SF

Source: Colliers International, CoStar

  • Avg. $ Paid/Bldg. SF

Warehouse Rents Flex Rents

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Industrial Lease Rates

Average warehouse rates in key submarkets

(Q4 2017 compared to Q4 2016) Sunrise/Hwy 50 14.3% $0.56 per sf Power Inn 65.8% $0.63 per sf West Sacramento 7.5% $0.43 per sf Roseville/Rocklin 7.5% $0.43 per sf Natomas/Northgate 14.6% $0.47 per sf

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Rental Rates

Retail

$1.00 $1.20 $1.40 $1.60 $1.80 $2.00 $2.20 $2.40 $2.60 $2.80 ASKING REN RENTAL L RA RATE Overall Avg. Community Neighborhood Power Regional Specialty Strip

Source: Colliers International, CoStar

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SLIDE 23
  • Flight to quality, experiences
  • Updating drives rates
  • Size, location, signage

Retail lease rates

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SLIDE 24

Rental Rates

Multifamily

$989 89 $1, 1,016 16 $1,0 ,042 $1,0 ,046 $1,0 ,062 $1, 1,10 103 $1, 1,13 133 $1, 1,14 143 $1 $1,171 71 $1,222 222 $1 $1,273 73 $1 $1,271 71 $1,284 284 $1,3 ,348 $1 $1,377 77 $1,359 359 4.2 .2% 5. 5.5% 5% 6. 6.9% 9% 7.1 .1% 7.3 .3% 8.6 .6% 9.5 .5% 9.5 .5% 10.4 .4% 11. 11.0% 11. 11.3% 10. 0.5% 5% 9.2 .2% 9.2 .2% 7.8 .8% 6.5 .5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% $900 $1,000 $1,100 $1,200 $1,300 $1,400 YOY Sa Y Same-store re re rent gro rowth Aver erage M e Market et R Ren ent

Average Rent YOY Change in Avg Rent

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  • As predicted, rent growth decelerated
  • New development will push top-of-market rents
  • Value-add rehabbers still active but diminishing

Apartment rents

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Sales Activity

Sales Volume Number of Transactions

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Annual Sales Volume & Number of Transactions

Office

17 14 15 44 11 18 19 27 25 27 26 31 24 28 30 42 25 34 39 59 37 39 27 40

10 20 30 40 50 60 70 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 # OF T F TRANS NSACTIONS NS SALES LES VOLU LUME ME (IN MI MILLI LLIONS)

Source: Colliers International Research

Rolling 12-Month Total Qtrly Sales Volume #of Transactions

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  • Class A trades
  • Price per SF below replacement cost
  • Limited new supply

Office sales activity

Government Properties Income Trust

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Annual Sales Volume & Number of Transactions

Industrial

305.9 .9 197.6 97.6 100. 00.5 129.7 9.7 195 95.5 .5 166. 66.2 339.4 9.4 224 224.0 503.7 .7 304 04.2 856. 6.4

130 30 76 76 52 52 73 73 111 111 209 09 120 20 137 37 19 195 159 59 303 03 34 34 22 22 14 14 13 13 23 23 53 53 50 50 29 29 75 75 54 54 44 44

  • 30

20 70 120 170 220 270 320 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 # OF TRANSACTIONS IN MILLIONS

Source: Colliers International, CoStar

Sacramento Sales Activity (Millions) # of Warehouse Transactions # of Flex Transactions

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  • Limited inventory
  • More buyers than buildings
  • Investment buyers, especially Bay Area
  • Marijuana growers push traditional users to outlying areas
  • Land

Industrial sales

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Annual Sales Volume & Number of Transactions

Retail

81 118 100 220 69 94 107 93 81 94 88 174 139 121 168 132 117 117 133 154 124 166 173 214 50 100 150 200 250 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 # OF T F TRANS NSACTIONS NS SALES LES VOLU LUME ME (IN MI MILLI LLIONS)

Rolling 12 Month $ Total $ Volume # Transactions

Source: Colliers International, CoStar

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1431-1441 Howe Ave Renaissance Plaza

Sale Date: Jan 2, 2018 Price: $7 million Size: 10,600 sq ft $/SF: $660.33 Buyer: GCG Properties LLC Seller: Howe Renaissance Partners LLC

2450 Watt Ave Macy's @ Country Club

Sale Date: Jan 3, 2018 Price: $5 million Size: 156,595 sq ft $/SF: $31.93 Buyer: EDM Realty Seller: Macy's West Stores

Retail Sales

Disparity

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SLIDE 33

Sacramento Sales Exceeding $20MM Price

Multifamily

10 6 6 8 11 11 13 12 16 23 22 26 25 25 25 21 18 17 19 21 2 5 8 11 14 17 20 23 26 29 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014 1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017

Numbe mber o

  • f

f Prope perties Sale les V Volu

  • lume (

($ m milli lion

  • n)

Sales Volume # Properties

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  • Limited inventory, competitive bidding
  • More amenities, community vibe
  • Record per-unit price

Apartment sales

NEW RECORD

Median price per unit in Q4 2017: $106,571

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Forecast

What do we see in 2018?

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2018 Forecast

  • Summary from each product type
  • Major signals of change
  • New Supply
  • Employment and Recruiting
  • Internet Disruption
  • Political Climate
  • Healthcare Spending
  • Housing Affordability
  • Federal Tax Reform
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Federal Tax Reform

“The landmark tax reform legislation enacted in December included numerous important victories for commercial real estate, but the signing of the bill by President Trump doesn’t end Congress’ work… Given the size and scope of the law, the Bill’s language will have to be clarified in several areas to function as intended.”

  • National Multifamily Housing Council
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SLIDE 38

Questions?

Joshua Palmer

Associate Office Specialist

Greg Thomas

Senior Vice President Retail Specialist

Tommy Ponder

Vice President Industrial Specialist

Brian Nelson

Senior Vice President Multifamily Specialist

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