cu real estate forum - university of colorado boulder · cu real estate forum / december 7, 2015 ....

The Game is Still Going… The Longest 7th Inning Ever Presenter: Doug Wulf Monday, December 7, 2015

CU Real Estate Forum

Out! Safe!

CU Real Estate Forum / December 7, 2015

Where Are We in the Cycle?

Recession Recovery/Expansion Period

Length 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 24 qtrs+ 2.2% 130

Average (48-01) 19.7 qtrs 4.8% 169.3

Recession-Recovery Table

Source: National Bureau of Economic Research

History is not on our side


Investors Are Drawn to the U.S. Fundamentals

Office Rent Growth: U.S. Markets vs. Other Cities Around the World

17%

10% 8% 7% 7% 7% 6% 6% 6% 6%

4% 4% 4% 4% 4% 3% 1% 1% 1% 0% 0% 0%

-1% -1%

-35% -40%

-30%

-20%

-10%

0%

10%

20%

San

Fran

cisc

o

Chi

cago

New

Yor

k

Phoe

nix

Hou

ston

Lond

on (c

ity)

San

Jose

Paris

(CB

D)

Dal

las

Den

ver

San

Die

go

Ral

eigh

Min

neap

olis

Bos

ton

Bru

ssel

s

Hel

sink

i

Ber

lin

Sydn

ey

Bei

jing

Fran

kfur

t

Rom

e

Bar

celo

na

Shan

ghai

Mad

rid

Mos

cow

Office Rent Growth, 2015 over 2014 Percent Change

Source: Cushman & Wakefield Research


U.S. Fundamentals Remain STRONG

9

10

11

12

13

14

Q1

81Q

4 84

Q3

88Q

2 92

Q1

96Q

4 99

Q3

03Q

2 07

Q1

11Q

1 15

HH Debt Service Ratio

HH Balance Sheets Fantastic

0.40.60.8

11.21.41.61.8

2

Q2

01Q

4 02

Q2

04Q

4 05

Q2

07Q

4 08

Q2

10Q

4 11

Q2

13Q

1 15

Corporate Profits, $tril.

Soaring Corporate Profits

89

1011121314

Q2

01Q

4 02

Q2

04Q

4 05

Q2

07Q

4 08

Q2

10Q

4 11

Q2

13Q

1 15

Tier 1 capital ratio

Solid Bank Balance Sheets

Source: Federal Reserve, Census Bureau, Cushman & Wakefield Research


Rent Growth: Who’s Hot

Office Asking Rents: 2015 Q3 over 2014 Q3, % Change


17%

10%

6% 6% 5% 5% 5% 4% 4% 4% 2%

0%2%4%6%8%

10%12%14%16%18%

San

Fran

cisc

o

Atla

nta

San

Jose

Den

ver

Oak

land

Nas

hvill

e

Dal

las

Bos

ton

Phoe

nix

Man

hatta

n

U.S

.


Denver’s Office Sector Outlook

Job Growth Forecast Total Nonfarm

28% Office-using

0

1

2

3

2014 2015 2016 2017 2018

Denver Metro

Absorption Forecast

Historical Avg. = 1.2 msf

48,000

37,933 32,833

24,967 17,900

0

10000

20000

30000

40000

50000

60000

70000

2014 2015 2016 2017 2018

CW Moody's Oxford Average



Denver’s Stunning Growth Trajectory

Total Nonfarm Employment

855,000

1.38M

2.11M

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

1990 2000 2015 2020 2025 2030

Nearly the size of San Francisco Today (2.2 M)

Source: BLS


Population and Office Supply

0

30

60

90

120

150

180

210

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,00019

80

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

MSF

of O

ffice

Dev

elop

men

t

Popu

latio

n

Population MSF of Office Development


Single Tenant and Multi Tenant

Office Building Deliveries

0

10

20

30

40

50

60

70

1980-1990 1991-2000 2001-2016

MS

F of

Offi

ce D

evel

opm

ent


Denver Metro: Deliveries

Supply Trends: Office Sector

Source: CoStar, Cushman & Wakefield Research

0

1

2

3

4

5

6

7

820

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

MSF

15 Year Historical Average = 2.2M


10%

11%

12%

13%

14%

15%

2006

1Q

2007

1Q

2008

1Q

2009

1Q

2010

1Q

2011

1Q

2012

1Q

2013

1Q

2014

Q1

2015

Q1

2016

Q1

Denver Metro Vacancy

Office Vacancy Remains Tight

Historical Average = 13.2%

Source: CoStar, Cushman & Wakefield Research

9.9%


Denver’s Office Sector Trends

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2000

2003

2006

2009

2012

YTD

201

5

MSF

Net Absorption

Historical Avg. = 1.2 msf


Demand (Net Absorption)


Denver Office Rent Trends

$15$17$19$21$23$25$27$29$31

Q1

00Q

3 00

Q1

01Q

3 01

Q1

02Q

3 02

Q1

03Q

3 03

Q1

04Q

3 04

Q1

05Q

3 05

Q1

06Q

3 06

Q1

07Q

3 07

Q1

08Q

3 08

Q1

09Q

3 09

Q1

10Q

3 10

Q1

11Q

3 11

Q1

12Q

3 12

Q1

13Q

3 13

Q1

14Q

3 14

Q1

15Q

3 15

Class A Class B

2014 Q3 15

Class A 5.5% 5.0%

Class B 5.0% 4.8%

Rent Growth, Yr./Yr.



Southeast Denver vs. Downtown Denver

Historical and Projected Rent and Vacancy Trends

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

SES Denver Vacancy

Denver CBD Vacancy

SES Denver Avg Rate

Denver CBD Avg Rate


The Rent Gap

$0

$10

$20

$30

$40

$50

$60

Upper CBD &Existing Buildings

New Construction CBD& Lower CBD

Suburban ABuildings

Suburban TODA Buildings

$/SF


Metro Denver 100,000 SF and Larger

Large Blocks of Space – They Are Old

0

5

10

15

20

25

Num

ber o

f Pro

perti

es


Yr./Yr. Percent Change.

Construction Costs Forecast

Source: ENR, Cushman & Wakefield Research

3.3%

4.0% 4.5%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016


Southeast Denver vs. Downtown Denver

Downtown and Southeast Denver Projected Construction Costs


Denver is NOT Houston

Percent of Gross Metro Product

Source: BEA, Cushman & Wakefield Research

17%

Oil & GasOther

6%

Houston Denver

Mild Headwinds

• Only 6% of economy links to energy

• 96% of jobs created in Denver are in non-energy

• 20% of CBD leased to energy tenants

• Only 2.3 msf of office u/c

Major Headwinds

• 17% of economy links to energy

• 51% of CBD leased to energy tenants

• 17 msf of office u/c


Oil and Gas Occupancy

Downtown Denver



Oil and Gas Sublease Space

9 Subleases

38 Subleases

1.2 Million RSF Vacant

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

Jan. 2015 Dec. 2015 Sublease SpacePlus "Shadow

Space"

RSF

3,000 Jobs


Where Will the Market Still be Hot?

• RiNo

• LoDo and Platte Valley

• Cherry Creek North

• SoBo to Gates

• Southeast TOD


Conclusions

• Vibrant, TOD/Amenity rich sites will capture the majority of office tenant demand and absorption going forward

• The emerging “rent gap” will widen • Projected speculative office construction deliveries of 1-2 million SF

per year during 2015-2018 for Metro Denver will NOT exceed tenant demand

• Limited well located sites and increasing land/construction costs will further limit new supply

• Energy is the wild card and 2016 will be the swing year one way or the other

• The game is not over, it will just be a little less exciting

The Game is Still Going… The Longest 7th Inning Ever Presenter: Doug Wulf Monday, December 7, 2015

CU Real Estate Forum

cu real estate forum - university of colorado boulder · cu real estate forum / december 7, 2015 ....

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