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

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 Director Greg Thomas Brian Nelson Senior Vice President Senior Vice President Multifamily Specialist Retail Specialist

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

Economic An overall look at 2017 What were major influences Outlook

Major Influences • Employment • Vacancy • New Supply 115.0% PERCENT BASED ON JAN 2008 LEVEL 110.0% 105.0% 100.0% 95.0% 90.0% 85.0% Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sacramento MSA California Statewide US National

Regional Migration – U-Haul Study Growth State Rankings Top Growth Cities 1. Texas 1. Tempe, AZ 14. Surprise, AZ 2. Boise, ID 15. Kissimmee, FL 2. Florida 3. Miami, FL 16. Yonkers, NY 3. Arkansas 4. Atlanta, GA 17. San Francisco, CA 4. South Carolina 5. Tacoma, WA 18. Brooklyn, NY 19. Brandon, FL 6. Sacramento, CA 5. Tennessee 20. Edmond, OK 7. Pittsburgh, PA … 21. Manhattan, NY 8. McKinney, TX 50. California 22. Saint Cloud, FL 9. Richmond, VA 23. Murrieta, CA 10. Jersey City, NJ 24. Prosper, TX 11. Olympia, WA 25. Myrtle Beach, SC 12. Durham, NC 13. Redding, CA

Major Influences • Employment • Vacancy • New Supply

Absorption Demand Vacancy New Supply

Absorption, Vacancy and New Supply Office 22.0% 20.5% 1,750,000 20.1% 20.0% 19.1% 19.1% 18.0% 17.8% 16.9% 16.5% 16.0% 14.9% 14.8% 1,250,000 14.2% 14.0% 13.4% 12.0% 10.0% ANCY SF 750,000 TAL S ACAN 8.0% TOTA % VAC 6.0% TO % V 4.0% 250,000 2.0% 0.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -2.0% (250,000) -4.0% -6.0% (750,000) -8.0% Source: Colliers International Research

Office Supply & Demand Talent War: • Product quality and location 77% of CEOs see availability of key • Urban revival skills as the #1 threat to their • Build to suit development business PwC, 2017

Absorption, Vacancy and New Supply NEW RECORD Industrial Largest annual net absorption on record 24.0% 22.0% 5,000,000 22.1% 21.3% 20.7% 20.3% 20.0% 18.8% 18.3% 18.0% 17.9% 4,000,000 16.0% 16.2% 14.6% TOTAL NET ABSORPTION 14.0% VACANCY RATE 13.6% 3,000,000 13.0% 12.6% 12.4% 12.0% 11.9% 11.6% 11.2% 10.3% 10.0% 9.9% 9.6% 9.1% 2,000,000 8.0% 7.2% 6.0% 5.2% 4.0% 1,000,000 2.0% 0.0% 0 -2.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -4.0% (1,000,000) -6.0% -8.0% (2,000,000) -10.0% -12.0% (3,000,000) -14.0% Total Net Absorption New Supply Flex Vacancy % Warehouse Vacancy % Source: Colliers International, CoStar

Industrial Supply & Demand Key Fact: • Extremely low vacancy Vacancy rate fell 250 basis points • E-commerce, cannabis to 5.9% overall, • Build-to-suit vs spec development the lowest on record.

Absorption, Vacancy and New Supply Retail 1,600,000 14.0% 13.6% 13.4% 13.2% 13.0% 1,400,000 12.0% 11.9% 10.7% 10.6% 1,200,000 10.3% 10.0% 10.1% 8.9% 1,000,000 8.0% % V % VAC SF 800,000 TAL ACAN 6.0% TOTA ANCY 600,000 TO 4.0% 400,000 2.0% 200,000 0.0% 0 -2.0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD (200,000) -4.0% (400,000) -6.0% (600,000) -8.0% (800,000) (1,000,000) -10.0% Total Net Absorption New Supply Source: Colliers International, CoStar

Retail Concepts Which quadrant does tenant belong to? Established Brands Trending Expanding Downsizing

Occupancy Multifamily $1,400 100% $1,300 98% $1,200 96.4% .4% $1,100 Average Market Rent Market Occupancy 97.0% 97 96 96.1% 96% 95 95.9% 9% 95.2% 95 $1,000 94.3 4.3% 94.2 4.2% 94.1 4.1% 94% $900 92 92.7% 92.7% 92 $800 92% $700 $600 90% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Average Rent Average Occupancy

Historical apartment supply Q4 2017 total: 6000 3,808 units 5000 ion structio 4000 const s under c 3000 Average: : 2 2,409 Un 9 Units its 2000 # Unit 1000 0 Unit Count Average Source: CoStar, MPF Note: Totals above based on multifamily construction in four-county Sacramento region.

Rental Rates Rates by Class/Type

Rental Rates and Cost of Occupancy Office $210 $2.60 $190 $2.40 $2.34 $2.27 $2.26 $170 $2.20 $2.19 $2.16 $2.16 $2.10 $2.09 $2.08 $2.06 RATE $150 $2.00 $1.99 SF L RA dg. S RENTAL $1.87 d/Bldg $1.84 $130 $1.80 $1.80 $1.80 $1.76 ASKING REN $ Paid/ $1.72 $1.70 $1.69 $1.68 $110 $1.60 Avg. $ $90 $1.40 $70 $1.20 $201 $182 $116 $117 $79 $115 $141 $143 $163 $157 $50 $1.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Avg. $ Paid/Bldg. SF Class B Class A Source: Colliers International Research

Office rates • High demand areas • Trades, new owners push • Rehabs, injecting capital

Rental Rates and Cost of Occupancy Industrial $90 $1.20 $80 $1 $1.0 .01 $1 $1.0 .01 $1.00 $70 $0 $0.8 .88 $0.8 $0 .83 RENT $/SF/MONTH $60 $0.8 $0 .81 $0.80 $0 $0.8 .80 $0 $0.7 .79 AVG. $/SF $0 $0.7 .78 $0.7 $0 .78 $0 $0.7 .77 $0 $0.7 .76 $50 $0.60 $40 $0.51 $0 .51 $0 $0.47 .47 $0 $0.43 .43 $0.43 $0 .43 $30 $0.40 $0.40 $0 .40 $0.3 $0 .39 $0 $0.3 .38 $0.3 $0 .38 $0 $0.3 .37 $0.3 $0 .37 $0 $0.3 .36 $20 $0.20 $10 $70.71 $84.65 $61.61 $47.94 $47.61 $45.60 $54.31 $48.59 $67.22 $73.87 $69.45 $0 $0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Avg. $ Paid/Bldg. SF Warehouse Rents Flex Rents Source: Colliers International, CoStar

Industrial Lease Rates Average warehouse rates in key submarkets (Q4 2017 compared to Q4 2016) Roseville/Rocklin 7.5% $0.43 per sf Natomas/Northgate 14.6% $0.47 per sf Sunrise/Hwy 50 14.3% $0.56 per sf West Sacramento 7.5% $0.43 per sf Power Inn 65.8% $0.63 per sf

Rental Rates Retail $2.80 $2.60 $2.40 $2.20 RATE L RA $2.00 RENTAL $1.80 ASKING REN $1.60 $1.40 $1.20 $1.00 Overall Avg. Community Neighborhood Power Regional Specialty Strip Source: Colliers International, CoStar

Retail lease rates • Flight to quality, experiences • Updating drives rates • Size, location, signage

Rental Rates Multifamily $1,400 12.0% 11. 11.3% 11. 11.0% 10. 0.5% 5% 10.4 .4% 10.0% $1,300 9.5 .5% 9.5 .5% rowth 9.2 .2% 9.2 .2% ent Ren 8.6 .6% rent gro 8.0% et R 7.8 .8% e Market $1,200 7.3 .3% 7.1 .1% re re 6. 6.9% 9% 6.5 .5% Y Same-store erage M 6.0% 5. 5.5% 5% $1,100 Aver 4.2 .2% YOY Sa 4.0% $1,000 2.0% $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 $900 0.0% Average Rent YOY Change in Avg Rent

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

Sales Volume Sales Activity Number of Transactions

Annual Sales Volume & Number of Transactions Office $1,400 70 $1,200 60 59 $1,000 50 LLIONS) 44 NSACTIONS NS 42 MILLI $800 40 40 39 37 39 ME (IN MI 34 F TRANS LUME 31 $600 28 30 30 LES VOLU 27 25 27 26 27 # OF T 25 24 SALES $400 20 18 19 17 14 15 11 $200 10 $0 0 Rolling 12-Month Total Qtrly Sales Volume #of Transactions Source: Colliers International Research

Office sales activity • Class A trades • Price per SF below replacement cost • Limited new supply Government Properties Income Trust

Annual Sales Volume & Number of Transactions Industrial $900 320 303 03 $800 270 $700 # OF TRANSACTIONS 220 $600 209 09 IN MILLIONS 195 19 $500 170 159 59 137 37 $400 130 30 120 120 20 111 111 $300 76 76 75 75 73 73 70 54 54 53 53 $200 52 52 50 50 44 44 34 34 29 29 23 23 22 22 20 14 14 13 13 $100 305.9 .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 $0 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Sacramento Sales Activity (Millions) # of Warehouse Transactions # of Flex Transactions Source: Colliers International, CoStar

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

Annual Sales Volume & Number of Transactions Retail $1,000 250 $900 220 214 $800 200 LLIONS) $700 174 173 168 166 # OF T MILLI 154 $600 150 F TRANS ME (IN MI 139 133 132 $500 NSACTIONS 124 LUME 121 118 117 117 LES VOLU 107 $400 100 100 94 94 93 NS 88 SALES 81 81 $300 69 $200 50 $100 $0 0 Rolling 12 Month $ Total $ Volume # Transactions Source: Colliers International, CoStar