aspe presentation april 21 2014
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Presented toAmerican Society of
Professional Estimators
April 21, 201412 Noon
Builders Exchange
ASPE Annual Economic Forecast
2
1. Rules to Remember
2. National Trends
3. California
4. Bay Area
5. Local Trends
Table of Contents
Economic Forecasting
The only function of economic forecasting is to make astrology
look respectable.
John Kenneth Galbraith
3
3 Rules to Remember
• Construction is one the last industries to go into a recession and one of the last to come out.
• Real Estate and Construction are Dance Partners-what one industry does affects the other
• Overall employment is a key indicator for the health of the construction industry
4
Annual Rate of Construction Spending US (Billions)1
Public ($) Private ($) Total ($)
2005 256.3 904.3 1160.6
2006 280.9 896.8 1177.7
2007 297.8 842.4 1140.2
2008 319.6 737.1 1053.7
2009 309.6 593.0 902.5
2010 301.0 486.9 787.9
2011 286.6 529.7 816.4
2012 270.1 614.9 885.0
2013 275.0 659.4 934.4
5
1Numbers come from December Annual Construction Report for the US Census Bureau, except for 2013 numbers which came from the November Report.
United States Construction Starts
In billons 2012Actual
2013Estimate
2014Forecast
% change 12-13 % change 13-14
Total Construction 485,296 508,050 555,300 +4.7% +9.0%
Residential 165,965 207,500 254,250 +25% +23%
Single Family 125,791 159,525 201,125 +26.8% +26.0%
Multifamily 40,174 47,975 53,125 +19.4% +11.0%
Nonresidential 157,581 163,250 176,700 +3.6% +8.0%
Nonbuildings 161,750 137,300 124,350 -15.1% -9.0%
6ENR Magazine, December 2/9 2013, p2
AIA 2014 Consensus Construction Forecast
Forecast 2014 % Change 2015% Change
Non Residential Total 5.8 8.0
Commercial Total 10.3 10.8
Office 9.2 10.8
Retail & Other Commercial 10.5 11.5
Hotel 13.1 9.2
Industrial Total 7.8 8.7
Institutional Total 7.8 8.7
Health 5.2 7.8
Education 2.8 5.8
Religious -1.7 1.3
Public Safety -0.2 3.1
Amusement/Recreation 9.9 7.57
Dodge ConstructionUS Outlook-2014
• Total Construction up 9% in dollars• Multi Family Housing up 11% in dollars• Single Family Housing up 26% in dollars• Commercial Buildings up 17% in dollars• Public Works down -5% in dollars• Electric Utilities down 33% in dollars• Institutional Buildings up 2% in dollars
8Door and Window Magazine, website
California Housing Starts (in thousands)
Housing Starts0
20406080
100120140160180
70.687.5
124.9
151.7 157.1 161.4
2013 2014 2015 2016 2017 2018
9
Eberhardt School of Business, January 2014, Metro Forecast
Residential Building Permits-Bay Area
Counties New Bldg. Perm. Jan-Oct 2013
Change from Jan- Oct 2012
New Bldg. Perm. Jan-Oct 2013
Change from Jan-Oct 2012
San Francisco, San Mateo and Marin
418 39.8% 5513 82.5%
Santa Clara, San Benito
1,686 35% 4,310 24.6%
Alameda, Contra Costa
2,295 18.8% 1,944 -4.5%
TOTALS 4,399 26% 11,767 38%
10
1”Young Couples Seek Townhouses and condos with an urban feel”, San Jose Mercury News, December 17, 2013 P. A1
Single-Family Units Multi-Family Units
Santa Clara County Residential Building Permits
Year 2007 2008 2009 2010 2011 2012 2013
Buildings 1,938 1,051 618 841 991 1,528 1,933
Units 4,001 3,273 1,024 4001 3,001 5,433 7,511
Construction cost (in millions)
952 618 295 699 680 1,035 1,596
11
US Census Bureau Statistics
Office Vacancy Rates4Q 2014
12
Cornish & Carey Silicon Valley Market Summary, page 2 4th Q 2013
Region Inventory Vacancy Rate (%)
Campbell 2,220,503 10.25%
Cupertino 4,049,215 1.21%
Los Altos 1,163,097 8.57
Los Gatos 1,866,232 5.76%
Milpitas 1,113,735 16.75%
Mountain View 6,925,964 3.03%
Palo Alto 8,075,997 4.51%
San Jose 27,696,775 16.03%
Santa Clara 11,497,211 18.6%
Saratoga 345,231 1.3%
Sunnyvale 10,486,115 6.83%
Summary 75,440,075 10.71%
Santa Clara County Real Estate Trends-Retail
• Construction activity 450,000 sq. ft. in 2013.
50% increase over 2012.• Development pipeline-2 million sq. ft. in San Jose.
(650,000 sq. ft. at Valley Fair)
13
Marcus & Millichap San Jose Metro Area Retail Research Report 3rd Quarter 2013
Santa Clara County Real Estate Trends-Commercial
• Vacancy rate 12.7% in 2nd Q lowest since 2008.• 3,200,000 sq. ft. under way (80% preleased)• 2,100,000 sq. ft. delivered in 2013.• 1,600,000 sq. ft. to be completed in 2014• 5,500,000 sq. ft. planned (1,000,000 for Nvidia)
14
Marcus & Millichap San Jose Metro Area Commercial Research Report 3rd Quarter 2013
Santa Clara County Real Estate Trends-Apartments
• 6,600 units are being built now (6,000 MktRt)• 3,700 units in the pipeline.• 2013-3,500 come online-expanding inventory
by 1.4%-(2012-1,500)• Development expected to accelerate slightly
in 2014
15
Marcus & Millichap San Jose Metro Area Apartment Research Report 4th Quarter 2013
So far in 2014
As of the end of February 2014, contracts have been awarded for $173.7 million worth of future commercial projects in Santa Clara and San Benito County. That is a 72% increase over the same period last year.
16
“McCarthy Construction to open San Jose Office, San Jose Business Journal, April 8, 2014
17
Santa Clara County-ConstructionEmployment Statistics by Month-
Jan.07-Nov.13
Peak Employment- September 2000, 52,200 November 2013 Employment 41,400
05000100001500020000250003000035000400004500050000
Axi
s Titl
e
Employment
Employment
Santa Clara County Construction Employment-Annual Average
In Thousands
44.441.6 43.0 44.5 46.8 47.2
44.2
34.4 32.2 31.434.7
38.8
0.0
10.0
20.0
30.0
40.0
50.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
18
Bureau of Labor Statistics-San Jose, Santa Clara, Sunnyvale Statistical Area
Bay Area Forecast-Unemployment (%)
Metro Area 2013 2014 2015 2016 2017
San Francisco 5.5 5.0 4.7 4.3 3.8
San Jose 6.9 6.4 5.9 5.3 4.6
Oakland 7.4 6.9 6.5 5.8 5.1
Santa Cruz 9.2 8.6 8.0 7.3 6.7
Vallejo 8.3 8.0 7.6 6.6 5.7
California 8.9 8.5 8.0 7.3 6.4
19
Eberhardt School of Business, January 2014, Metro Forecast
20
Plans in Online Plan Room By Month (2009-2013)
1142
143 165
220
221
272
216
244
148
148
138 152
109
144
183
176
233
197
165 176
147
119
109
188
124 138
174 191
218 235
175 185
143
141
131 153
136 16
1
211
202
248
254
211
196
159 181
159
150172
167 185
288
257
220
207
170
163
201
158
204
050100150200250300350400450
2392 plans posted in 2013
21
A few notes about Public Works Construction
• Public Works construction is the last construction sector to go into a recession and last to come out of the recession.
• The Builders Exchange received 30% less CalTrans Plans than in 2013• A new highway bill in Congress should provide at ten-fold increase in
funding of Transportation Infrastructure.1
• 75% of tax revenues are based on property taxes-it takes 3 years between changes in home prices and local construction spending activity. 1
• Many cities are still struggling with the elimination of redevelopment.• Because the government is employing fewer workers now than at the start
of the recession, total employment—private sector plus government workers—is still a half million jobs short of its peak before the recession.2
1“The US Cement Industry:Economic Clouds are Lifting” ,www.worldcement.com San Francisco Federal Reserve Board, Fed Views, April 10, 2014
22
Other Trends
•While speculation fueled the last Internet boom, companies are now profitable indicating a more sustainable, growing economy. 1
•About 280,000 new Construction Jobs are expected to be created over the next four years, about one quarter of the 1.1 million jobs California will add by 2017. Despite leading the state in job growth over the next four years, there will still be fewer construction jobs than before the recession. 2
•Construction Employment forecast employment growth of 29% from 2012-20222
•Construction Employment growth of 1.6 million jobs from 2012-2022 in United States2
• Several corporate campuses underway will return space to market in 2015-2016, but the commercial market should remain strong in 2014. 4
1 Marcus and Millichap Apartment Market Report, 4th Q, 2013 2Eberhard School of Business, Metro Forecast, September 20133 Department of Labor-Labor Projections, Winter 2013-20144 Marcus and Millichap Commercial Market Report, 1st Q 2014
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