appraisal institute sacramento update/2015 outlook january 30, 2015 embassy suites sacramento, ca
TRANSCRIPT
Appraisal InstituteSacramento Update/2015 Outlook
January 30, 2015
Embassy SuitesSacramento, CA
Where are we in theeconomic cycle?
4
Where Are We in the Cycle?
RecessionRecovery/Expansion
PeriodLength of Expansion Following Recession
GDP Growth During Expansion
Monthly Job Growth During Expansion (000s)
1948 Q1 1950 – Q1 1953 13 qtrs 7.4% 182
1953 Q3 1954 – Q2 1957 12 qtrs 4.1% 115
1957 Q3 1958 – Q1 1960 7 qtrs 6.7% 165
1960 Q2 1961 – Q3 1969 34 qtrs 5.1% 169
1969 Q1 1971 – Q3 1973 11 qtrs 5.3% 198
1973 Q2 1975 – Q4 1979 19 qtrs 3.5% 239
1980 Q4 1980 – Q2 1981 3 qtrs 4.4% 145
1981 Q1 1983 – Q2 1990 30 qtrs 4.4% 233
1990 Q2 1991 – Q4 2000 39 qtrs 3.8% 203
2001 Q4 2001 – Q4 2007 25 qtrs 2.7% 83
2007 Q3 2009 – current 20 qtrs+ 2.2% 119
Average (48-01) 19.3 qtrs 4.8% 173.3
Recession-Recovery Table
Source: National Bureau of Economic Research
History is not on our side
5
GDP Solid
Fundamentals All Look Good
Source: BEA/ DTZ Research
Private-sector economy growing by 4%
Current job creation strongest in 15 years
Tech sector actually accelerating into 2015
Household/Corporate balance sheets look fantastic
Unemployment & U-6 falling rapidly
Quit rate is climbing
Business/Consumer confidence at 11 year highs, airport passenger traffic surging….on and on
Q2
12
Q3
12
Q4
12
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
Q4
14
-4%
-2%
0%
2%
4%
6%
Historical Average = 2.5%
Underlying Growth Rate = 4%
U.S. Real GDP, Annualized
7
United States Employment
Change in Payroll Employment/Unemployment Trend
1/4
5/4
9/4
1/5
5/5
9/5
1/6
5/6
9/6
1/7
5/7
9/7
1/8
5/8
9/8
1/9
5/9
9/9
1/1
05
/10
9/1
01
/11
5/1
19
/11
1/1
25
/12
9/1
21
/13
5/1
39
/12
1/1
45
/14
9/1
4
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Change in Payroll Employment (in thousan...
Source: Bureau of Labor Statistics/DTZ Research
8
Sacramento Region Employment
Change in Payroll Employment/Unemployment Trend
Source: Bureau of Labor Statistics/DTZ Research
11
/43
/57
/51
1/5
3/6
7/6
11
/63
/77
/71
1/7
3/8
7/8
11
/83
/97
/91
1/9
3/1
07
/10
11
/10
3/1
17
/11
11
/11
3/1
27
/12
11
/12
3/1
37
/13
11
/13
3/1
47
/14
11
/14
(25)
(20)
(15)
(10)
(5)
0
5
10
15
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Non-farm Employment Growth
9
Sacramento Employment
Challenges Remain
Source: BLS/ DTZ Research
15,900 jobs created in last 12 months
Nearly half of the job creation of the last year has come in the past three months
91,600 jobs lost in recession
63,800 jobs regained since the recession20
04
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
-60.0
-40.0
-20.0
0.0
20.0
40.0
60.0
Sacramento Employment Growth, Annualized
10
How Long Will the Expansion Last?Odds of a Recession Occurring Over Next 6 Months, %
Dec-13
Jan-14
Feb-14
Mar-1
4
Apr-14
May-1
4
Jun-14
Jul-14
Aug-14
Sep-14
Oct-1
4
Nov-14
Dec-14
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
Source: Moody’s Analytics, NABE consensus data point for July
11
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05
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5
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06
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6
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6
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07
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7
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7
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08
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00
8
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8
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09
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9
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9
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11
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2
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4
De
c-1
4
0
20
40
60
80
100
120January
2015 read-ing: 102.9!
Consumer Confidence
Source: Conference Board
5-Year Average = 69
10-Year Average = 76
20-Year Average = 93
12
Two Buck Chuck…
Source: DTZ Research/Gasbuddy.com
Source: Cassidy Turley Research/Gasbuddy.com
06
/20
/14
07
/02
/14
07
/15
/14
07
/27
/14
08
/09
/14
08
/22
/14
09
/03
/14
09
/16
/14
09
/29
/14
10
/11
/14
10
/24
/14
11
/06
/14
11
/18
/14
12
/01
/14
12
/15
/14
12
/29
/14
01
/12
/15
01
/26
/15
02
/09
/15
03
/02
/15
03
/17
/15
03
/31
/15
04
/14
/15
04
/28
/15
$1.25
$1.75
$2.25
$2.75
$3.25
$3.75
$0
$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
US Avg Price Gaso-line (per gal-lon)
Cumulative Savings to Consumers (current pricing vs. peak)
Gas is $2 per Gallon… What Now? $1.80?
13
Oil Prices Boost GDP Growth
Source: DTZResearch/Gasbuddy.com
Now That Gas is $2 per Gallon… What Now?
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Q4 '14
Q1 '15
40
50
60
70
80
90
100
110
WTI, Crude Oil, $ per barrel
Oil Prices Plunge Will add 50-75 bps to GDP
18 msf of new CRE
demand
At $50
per
barre
l
Consumers
save $130B
Boosts
Busines
s Pro
fits
Boosts Job
Growth
Source: U.S. Energy Information Administration, DTZ Research Impact Analysis
14
Oil Benefit Negative to Energy Economies
Canada RAISED INTEREST RATES Last Week
15
What About Interest Rates Here?
Fe
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20
05
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07
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08
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09
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09
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20
10
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20
11
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20
12
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20
13
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20
14
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01
4
90
110
130
150
170
190
0
1
2
3
4
5
6
Moody's/RCA Commercial Property Price Index Fed Funds RateSource: Federal Reserve, Moody’s Analytics
Last time Fed raised rates was
July 2004
And values climbed by 80% over the next 3
years
Fed Funds Rate vs. Commercial Property Values
16
Inflation to Determine Fed Rate HikesWhat Inflation?
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20
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20
07
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7M
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20
08
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20
08
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20
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09
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20
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ep
20
10
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20
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11
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20
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4
0.5
1
1.5
2
2.5
3 Core CPI Core PCE
Source: BLS, Cassidy Turley Research
Fed’s 2% Target
Y-o-Y Change, %
17
Wage Inflation… Is It Coming?
Source: BLS, DTZ Research
Year over Year Change in ECI (Employment Cost Index)
1 2 3 4 5 6 70.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Number of Unemployed Person Per Job Opening
Yr/
Yr
% C
ha
ng
e in
EC
I
Today
18
ThreatsBlack Swans vs. Weird Ducklings
19
Global Conflicts Rarely Rock U.S. BoatUS Real GDP, Annualized Growth
19701973
19761979
19821985
19881991
19941997
20002003
20062009
2012-4%
-2%
0%
2%
4%
6%
8%
Arab oil Embargo
Iran-IraqWar
Soviet War in Afghanistan
Mexican Peso Crisis
Asian Financial Crisis
Israeli – Palestinian Conflicts
IraqWar
Greece/Portugal bailout
Arab Spring
S&P Downgrades France & 8 other
countries
Cyprus Crisis
2014 2015 Annual Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015US Economy Real GDP, % 4.6 5.0 3.3 5.5 3.2 3.4 3.6 1.9 2.4 3.5Nonfarm Employment, ths. 755 723 829 778 725 812 690 2,264 2,527 3,005Office-using Employment, ths. 212 239 223 196 212 256 231 737 805 895Unemployment Rate 6.2 6.1 5.7 5.6 5.5 5.3 5.2 7.4 6.2 5.4Retail Sales & Food Services, % 9.7 4.3 1.8 5.8 4.8 4.1 5.3 4.2 3.9 5.0CPI Inflation, % 3.0 1.1 -0.5 0.1 0.5 1.5 1.9 1.5 1.8 1.0CCI 83 91 93 96 103 108 116 73 87 106Fed Funds Rate 0.1 0.1 0.1 0.1 0.3 0.5 0.8 0.1 0.1 0.410-year Gov't Bond 2.6 2.5 2.3 1.9 2.1 2.3 2.4 2.4 2.5 2.3ISM Manufacturing Index 55.2 57.6 57.7 53.1 55.0 57.1 56.4 53.9 56 55West Texas Intermediate 103 98 73 44 49 58 67 98 93 60
U.S. Macro Forecast Tables
2014 2015 Annual Q2 Q3 Q4 Q1 Q2 Q3 Q4 2013 2014 2015Office Net Abs. (MSF) 16.6 21.3 22.4 17.9 18.9 22.1 21.2 51.6 71.3 80.1Vacancy (%) 15.1 14.8 14.5 14.4 14.3 14.1 14.0 15.3 14.9 14.2Asking Rents ($) 22.36 22.52 22.63 22.71 22.91 23.09 23.29 21.96 22.44 23.00Industrial Net Abs. (MSF) 36.9 42.1 45.4 31.8 40.2 43.6 33.1 137.9 150.6 148.7Vacancy (%) 8.1 8.0 7.8 7.7 7.5 7.3 7.2 8.5 8.0 7.4Asking Rents ($) 5.17 5.23 5.28 5.34 5.39 5.46 5.51 5.07 5.21 5.43Retail** Net Abs. (MSF) 19.2 22.1 20.9 18.0 21.6 24.3 20.9 72.0 81.4 84.8Vacancy 6.5 6.3 6.2 6.1 6.0 5.8 5.8 6.9 6.4 5.8Asking Rents 15.44 15.47 15.51 15.59 15.64 15.70 15.77 15.15 15.42 15.68 Apartments** Net Abs. (MSF) 37.6 37.7 41.3 34.5 42.1 36.3 33.9 164.8 157.4 146.8Vacancy (%) 4.1 4.2 4.2 4.3 4.4 4.5 4.5 4.3 4.2 4.4Asking Rents ($) 1,152 1,164 1,173 1,182 1,196 1,204 1,211 1,117 1,157 1,198
U.S. Macro Forecast Tables
Does Tech Boom 2.0 Have Staying Power?
23
Is Sacramento Still the Bay Area’s Pressure Valve?
24
PE Ratios – Not Alarmingly HighS&P 500 PE Ratio
Average = 15.5
Source: Shiller PE 10 Ratio
19.15
Tech bubble burst: 44.00Today: 19.15Average: 15.50
25
Strong Economic EnginesVenture Capital Funding
Silicon Valley
NY Metro
New Eng-land
LA/Or-
ange Count
y
SouthWest
Midwest
TexasNorthwest
San Diego
DC/Metroplex
Southeast
Col-orado
North Cen-tral
South Cen-tral
Phil-adel-phia
Metro
Sacramento/N.Cal
Up-state NY
AK/HI/PR
$ $ 1,000,000,000$ 2,000,000,000$ 3,000,000,000$ 4,000,000,000$ 5,000,000,000
Source: PricewaterhouseCoopers Money Tree Survey
$9.9 billion in Q3$13 billion in Q2,
26
Bay Area Now Accounts for Most VCBay Area Accounts for 52% of All VC Funding
Source: Global Insight, DTZ Research
Q3 2014 YTD U.S. VC funding: $30.8 BillionU.S. should close year with close to $40 Billion total
Q3 2014 YTD Bay Area VC funding: $15.7 Billion2014 likely to be strongest year for local VC activity since $30B in 2010
“Over the long run, on average since 1970, one job has been created for every $12,309 of VC investment” –DRI-WEFA, (now Global Insight)
Assuming DRI-WEFA numbers hold true, current VC funding levels in the Bay Area could eventually translate into 1.27 million jobs
27
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
25
50
75
100
125
150
175
200
225
250
275
$41.3
$33.7
$42.2
$49.0
$24.5
$21.9
$38.7$36.3
$42.7
$54.9
$85.2216
192 196214
3163
154125
128
222
275
Proceeds ($B) Number of IPOs
Strong Economic EnginesIPO Activity
2014 Strongest US IPO Activity in 15 Years
28
IPOs Driving GrowthSignificant Bay Area IPOs (Public)
29
IPOs Driving Tech GrowthIPO Activity at Highest Levels in 15 Years
“The average IPO creates 822 new jobs.” –Kauffman Center for Entrepreneurial Leadership
215 IPOs thru Q3 valued at $70.6 Billion27 Bay Area IPOs valued at 3 Billion
Highest level of IPO activity since 2000
US IPOs this year expected to create at least 250,000 new jobs
Source: Cohn Resnick, Kauffman Center for Entrepreneurial Leadership, Cassidy Turley Research
30
The “Flat World” View
“Thanks to technology and competition in telecoms, distance will soon be no object...” – The Economist Magazine, 1995
“The wireless revolution is ending the dictatorship of place in a more profound way…” –The Economist Magazine, 1999
Technology is making place irrelevant… isn’t it?WRONG
31
Rich Product Pipeline…
SENSORS DEVICES
SCREENSDATA
Tech 20/20 Data
Increased Data Processing Power
Increased Data Compression & Storage
Cloud Computing Services
Massive Searchable Behavioral Databases
Faster & More Secure Networks
32
Rich Product Pipeline…
SENSORS DEVICES
SCREENSDATA
Tech 20/20 Screens
Thinner, & Energy Efficient Displays
Plastic Electronics / Electronic Paper
Augmented Reality
Screenless Visual Systems3D Holographic Imaging
Visual Retinal Display
33
Rich Product Pipeline…
SENSORS DEVICES
SCREENSDATA
Tech 20/20
Devices
Smarter Mobile Devices
Consumer Robotics
Advanced Battery Technologies
Wireless Power Transmission
34
Rich Product Pipeline…
SENSORS DEVICES
SCREENSDATA
Tech 20/20
Sensors
Machine Vision
Multi-touch and Gestural Interfaces(Brainwave Interfaces)
Undetectable CamerasSmart Dust
Embedded Sensors & Computational Devices
35
Tech: Clustering = Collaboration = Innovation
36
“The 20 Minute Rule”Venture Capital Funding
Only companies within a 20-minute commute of
the venture capital firm’s office are considered worthy of a high-risk
investment… Given the hands-on demands of
venture capitalism, proximity to clients,
investors and colleagues is highly
prioritized.”--Dr. Richard Florida
Sacramento Office Market
38
2007
2008
2009
2010
2011
2012
2013
2014
Q4 20
14
(400,000)
(200,000)
0
200,000
400,000
600,000
800,000
10%
12%
14%
16%
18%
20%
Net Absorption New Construction Vacancy
Net Absorption, New Construction (SF) & Vacancy Trend
Sacramento Office Market
Source: DTZ Research
Vacancy now at lowest level since Q4 2000!
39
Sacramento Office Market
Q4-2
006
Q2-2
007
Q4-2
007
Q2-2
008
Q4-2
008
Q2-2
009
Q4-2
009
Q2-2
010
Q4-2
010
Q2-2
011
Q4-2
011
Q2-2
012
Q4-2
012
Q2-2
013
Q4-2
013
Q2-2
014
Q4-2
0148%
10%
12%
14%
16%
18%
$1.50
$1.60
$1.70
$1.80
$1.90
$2.00
Vacancy Avg. Asking (FSG)
Vacancy & Average Asking Rate (FSG) Trend
Source: DTZ Research
40
Sacramento Office Deal VolumeDemand Outpacing Supply
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4.0%
5.0%
6.0%
7.0%
8.0%
$0
$5,000,000,000
$10,000,000,000
$15,000,000,000
$20,000,000,000
$25,000,000,000
41
Sacramento Office Sales Core Selling at Sub 4% Cap Rates… in San Francisco!
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
5.0%
6.0%
7.0%
8.0%
9.0%
$50
$75
$100
$125
$150
$175
$200
$225
$250
Average Cap Rate Avg. Price PSF
42
Sacramento Office Cap Rate Trend
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Cap Rate* 10-Tbill*
43
What About Shrinking Space Usage?The Rise of Creative Space
From corner offices…To cubicle…
To corner space…
44
How Space Efficient Will We Get? US Office Space per Worker, Average Square Feet
2010 2011 2012 2013 2014 2015 2016 2017150
160
170
180
190
200
210
220
230 225
176
164
151
Office space per worker, sf
The 250 SF user tenant is on the way to becoming
the 150 SF user…
45
But is it Overblown? Cost Still the Biggest Factor
Market Current Vacancy
Current Average Asking Rent
User Ratio2000
User Ratio2014
San Francisco 6.1% $61.97 4.0 6.00
Boston 11.0% $31.30 4.0 5.50
Dallas 18.6% $22.22 4.0 4.50
Houston 13.0% $27.03 4.0 4.50
Los Angeles 16.0% $33.86 4.0 5.00
New York 9.3% $70.19 4.0 6.00
Phoenix 19.1% $22.13 4.0 4.25
Sacramento 14.2% $20.89 4.0 4.25
San Diego 16.0% $31.62 4.0 5.25
St. Louis 13.8% $18.81 4.0 4.00
Washington DC 11.2% $50.37 4.0 5.50
SacramentoApartment Market
47
Sacramento Apartment MarketSo Hot it Burns…
4Q
20
05
2Q
20
06
4Q
20
06
2Q
20
07
4Q
20
07
2Q
20
08
4Q
20
08
2Q
20
09
4Q
20
09
2Q
20
10
4Q
20
10
2Q
20
11
4Q
20
11
2Q
20
12
4Q
20
12
2Q
20
13
4Q
20
13
2Q
20
14
4Q
20
14
2%
3%
4%
5%
6%
7%
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
$2,400
$2,600
$2,315
Vacancy Avg. Asking Rent
53.6% Rental Rate Growth Since 2010
50
Sacramento Multifamily Deal VolumeMore Product Becoming Available…
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4.0%
5.0%
6.0%
7.0%
8.0%
$0
$200,000,000
$400,000,000
$600,000,000
$800,000,000
$1,000,000,000
$1,200,000,000
51
Sacramento Multifamily Sales Core Selling at Sub 4% Cap Rates…
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
4.0%
5.0%
6.0%
7.0%
8.0%
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Average Cap RateAvg. Price Per Unit
52
Sacramento Apartment Cap Rate Trend
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1%
2%
3%
4%
5%
6%
7%
8%
Cap Rate* 10-Tbill*
Sacramento Industrial Market
54
(4,000,000)
(3,000,000)
(2,000,000)
(1,000,000)
0
1,000,000
2,000,000
3,000,000
2%
4%
6%
8%
10%
Net Absorption New Construction Vacancy
Net Absorption, New Construction (SF) & Vacancy Trend
Bay AreaWarehouse Supply Vs. Demand
Source: DTZ Research
Annual Occupancy Growth
2010: 80K SF2011: 915K SF2012: -32K SF2013: 3.0 MSF2014: 5.0 MSF
2014 = Most Occupancy Growth Ever Recorded
55
Bay Area Warehouse Market
Q4-2
007
Q2-2
008
Q4-2
008
Q2-2
009
Q4-2
009
Q2-2
010
Q4-2
010
Q2-2
011
Q4-2
011
Q2-2
012
Q4-2
012
Q2-2
013
Q4-2
013
Q2-2
014
Q4-2
0143%
4%
5%
6%
7%
8%
9%
10%
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
Vacancy Avg. Asking (NNN)
Vacancy & Average Asking Rate (NNN) Trend
Source: DTZ Research
Virtually No Modern Space Available = Rents Skyrocketing
56
(2,000,000)
(1,500,000)
(1,000,000)
(500,000)
0
500,000
1,000,000
1,500,000
2,000,000
4%
6%
8%
10%
12%
14%
16%
Net Absorption New Construction Vacancy
Net Absorption, New Construction (SF) & Vacancy Trend
SacramentoWarehouse Supply Vs. Demand
Source: DTZ Research
Annual Occupancy Growth
2010: -2.1 MSF2011: -89K SF2012: 136K SF2013: 1.2 MSF2014: 2.8 MSF
Growth Accelerating… But Only Over Last Two Years
57
Sacramento Warehouse Market
Q4-2
006
Q2-2
007
Q4-2
007
Q2-2
008
Q4-2
008
Q2-2
009
Q4-2
009
Q2-2
010
Q4-2
010
Q2-2
011
Q4-2
011
Q2-2
012
Q4-2
012
Q2-2
013
Q4-2
013
Q2-2
014
Q4-2
0143%
5%
7%
9%
11%
13%
15%
$0.30
$0.35
$0.40
$0.45
$0.50
Vacancy Avg. Asking (NNN)
Vacancy & Average Asking Rate (NNN) Trend
Source: DTZ Research
Rental Rate Growth? Not Yet…
58
Sacramento Industrial Deal VolumeLack of Available Product Hampering Activity
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4.0%
5.0%
6.0%
7.0%
8.0%
$0
$50,000,000
$100,000,000
$150,000,000
$200,000,000
$250,000,000
$300,000,000
$350,000,000
59
Sacramento Industrial Sales Little Quality Product Available
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
$30
$35
$40
$45
$50
$55
$60
$65
$70
$75
$80
Average Cap Rate Avg. Price PSF
60
Sacramento Industrial Cap Rate Trend
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Cap Rate* 10-Tbill*
Sacramento Retail Market
62
(1,000,000)
(500,000)
0
500,000
1,000,000
1,500,000
6%
8%
10%
12%
14%
16%
Net Absorption New Construction Vacancy
Net Absorption, New Construction (SF) & Vacancy Trend
Shopping Center Supply Vs. Demand
Source: DTZ Research
63
Sacramento Shopping Center Market
Q4-2
007
Q2-2
008
Q4-2
008
Q2-2
009
Q4-2
009
Q2-2
010
Q4-2
010
Q2-2
011
Q4-2
011
Q2-2
012
Q4-2
012
Q2-2
013
Q4-2
013
Q2-2
014
Q4-2
0140%
1%
2%
3%
4%
5%
6%
7%
8%
9%
$19.00
$21.00
$23.00
$25.00
$27.00
$29.00
$31.00
$22.01
Vacancy Avg. Asking (NNN)
Vacancy & Average Asking Rate (NNN) Trend
Source: DTZ Research
64
Sacramento Retail Deal VolumeQuality Product Scarce
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
4.0%
5.0%
6.0%
7.0%
8.0%
$0
$100,000,000
$200,000,000
$300,000,000
$400,000,000
$500,000,000
$600,000,000
65
Sacramento Retail Sales Core Selling at Sub 4% Cap Rates…
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
4.0%
5.0%
6.0%
7.0%
8.0%
$100
$120
$140
$160
$180
$200
$220
$240
$260
$280
$300
Average Cap Rate $141.00
66
Sacramento Retail Cap Rate Trend
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20141%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Cap Rate* 10-Tbill*
What’s On the Horizon?
68
Bay Area Apartment MarketSo Hot it Burns…
4Q
20
05
2Q
20
06
4Q
20
06
2Q
20
07
4Q
20
07
2Q
20
08
4Q
20
08
2Q
20
09
4Q
20
09
2Q
20
10
4Q
20
10
2Q
20
11
4Q
20
11
2Q
20
12
4Q
20
12
2Q
20
13
4Q
20
13
2Q
20
14
4Q
20
14
2%
3%
4%
5%
6%
7%
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
$2,400
$2,600
$2,315
Vacancy Avg. Asking Rent
53.6% Rental Rate Growth Since 2010
69
Housing AffordabilityPercent of Residents That Can Afford to Purchase Median Priced Home
2012 2013 2014
Alameda 28 25 18
Contra Costa 27 24 19
Marin 22 20 14
Napa 38 34 25
San Francisco 19 17 14
San Mateo 19 17 14
Santa Clara 27 24 19
Solano 56 53 41
Sonoma 33 31 27
California 46 43 41
United States 60 58 56
70
4Q
20
06
2Q
20
07
4Q
20
07
2Q
20
08
4Q
20
08
2Q
20
09
4Q
20
09
2Q
20
10
4Q
20
10
2Q
20
11
4Q
20
11
2Q
20
12
4Q
20
12
2Q
20
13
4Q
20
13
2Q
20
14
4Q
20
14
2%
3%
4%
5%
6%
7%
$1,900
$2,100
$2,300
$2,500
$2,700
$2,900
$3,100
$3,300
$3,500
$2,315
Vacancy Avg. Asking Rent
San Francisco Apartment MarketRents Finally Flattening?
55.2% Rental Rate Growth Since 2010
71
4Q
20
06
2Q
20
07
4Q
20
07
2Q
20
08
4Q
20
08
2Q
20
09
4Q
20
09
2Q
20
10
4Q
20
10
2Q
20
11
4Q
20
11
2Q
20
12
4Q
20
12
2Q
20
13
4Q
20
13
2Q
20
14
4Q
20
14
0%
1%
2%
3%
4%
5%
6%
7%
8%
$1,100
$1,300
$1,500
$1,700
$1,900
$2,100
$2,300
$2,315
Vacancy Avg. Asking Rent
Alameda County Apartment MarketRents Finally Flattening?
Pace of Rental Rate Growth Accelerating… Not Slowing
72
The Brooklynification of Oakland?Maybe Dis Happens, I Dunno…
73
Manhattan Multifamily MarketSimilar Trends at Work in Bay Area Today…
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0%
1%
2%
3%
4%
5%
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
$2,200
$2,400
$2,600
Vacancy Avg. Asking Rent
Double Digit Rental Rate1995 to 2000
74
Millennial Lifestyle ShiftsThe Oldest Millennials Are Now 34 Years Old…
Millennials Don’t Prefer Smaller Spaces
Millennials Don’t Prefer Renting to Owning
Millennials Won’t Put Off Starting Families Forever
Don’t Mistake Current Millennial Preferences or Patterns of Necessity for
Being Permanent
75
First Comes Love…Mean Age of First Marriage
1980 1990 2000 2010 2014 (est)
20
22
24
26
28
30
32
34
36
WomenMen
Americans are Waiting Longer to Marry… but the Oldest Millennials are Starting to Run Up Against the Biological Clock
76
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (p)
12.5
13
13.5
14
14.5
Get Ready for a New Baby BoomUS Birth Rate per 1,000 Population
Birth Rates Fell During the Recession and Have Yet to Increase… What Will Happen with an Improving Economy?
77
Millennial Preferences Likely to ChangeYes, Even the Millennials Will Get Old and Fat…
The Current Average Age of Employee At:
Google 29Facebook 29Twitter 27Apple 30
Will They Still Prefer Urban Living Once They Marry Up and Have Kids?
78
What About Driverless Cars?They’re Coming!
79
Safety Will Help Drive Adoption…Over 500,000 Americans Have Died in Traffic Accidents Since 2000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130
10,000
20,000
30,000
40,000
50,000
U.S. Traffic Fatalities
80
But Convenience Will Seal the DealLongest US Commute Times
City Avg. Time
City Avg. TIme
1. Contra Costa, CA 43.4 11. Chino Hills, CA 39.8
2. Staten Island, NY 43.1 12. Dale City, VA 39.3
3. Palmdale, CA 42.9 13. Elsinore Valley, CA 39.1
4. Brooklyn, NY 42.4 14. Hesperia, CA 39.1
5. Bronx, NY 42.2 15. Pittsburg, CA 37.3
6. Tracy, CA 41.9 16. Perris Valley, CA 36.2
7. Antioch, CA 41.6 17. Kendale Lakes, FL 35.5
8. Queens, NY 41.4 18. Victorville, CA 35.4
9. Antelope Valley, CA 40.9 19. Vallejo, CA 35.4
10. New York, NY 40.0 20. Graham Thrift, WA 35.3
81
Less Painful Commutes
82
Return of Super Commuter?% of Income Median Earner Needs to Spend to Afford Median Mortgage
City 2014 Affordability
2010 Affordability
Median Income
Density
1. San Francisco, CA 78.1% 75.2% $73,802 17,341
2. Kings County, NY 76.9% 77.7% $45,215 35,763
3. Teton County, WY 75.4% 84.3% $69,020 5.4
4. New York County, NY 75.3% 79.2% $68,370 70,172
5. Bronx County, NY 67.5% 73.0% $34,300 33,067
6. Pitkin County, CO 64.6% 82.2% $68,621 17.6
7. San Mateo County 57.4% 57.9% $87,751 1,621.8
8. Marin County 56.1% 59.4% $90,962 490.2
9. Taos County, NM 51.0% 53.5% $33,835 14.9
10. Los Angeles County, CA
50.0% 50.4% $56,241 2,437.0
Garrick Brown
Vice President, ResearchWestern United States
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