Economic and Commercial

Real Estate Outlook

By Lawrence Yun, Ph.D.
Chief Economist, National Association of REALTORS
Presentation at NAR Annual Meetings
San Diego, CA
November 13, 2015

Commercial Property Price Index

Source: Federal Reserve

Green Street Property Price Index

Even Higher

Dow Jones Industrial Average

(Doubling since 2009)

Lifetime Wealth at All-Time High

Consumer Confidence Index

Median Household Income

(Inflation Adjusted)

Annual GDP
Below 3% for 10 straight years

Sluggish Growth + Gap after Recession

($1.7 trillion gap $5,000 per person)
3% Growth Line

2.2% Growth Line

GDP Component on
Commercial Construction and Sales
More inconsistent

Jobs
(8 million lost 13 million gained)
In thousands

Fresh Unemployment Insurance Claims

In thousands

Unemployment Rate Falling

But Employment Rate Not Rising

Part-time and Underemployment

(in thousands)

Which State is Hot in Jobs?

Year-on-year Growth as of Sept 2015

Top and Bottom States for Jobs

The Best

% Gain in 12
months

The Worst

% Gain in 12
months

Utah

3.9

Louisiana

0.0

Idaho

3.2

Alaska

-0.2

South Carolina

3.1

Wyoming

-0.9

Florida

3.0

West Virginia

-1.7

Washington

3.0

North Dakota

-1.8

California

2.9

Nevada

2.8

Oregon

2.7

North Carolina

2.4

Dallas Still Creating Jobs; Houston Not

(job growth rate from a year ago)

Fed Rate Hike in December?

Fed Rate Hike in December

then again in March

Fed Rate Hike in December

then again in March
then again in August
then again in

Fed Policy and Mortgage Rate

What Determines Bond Yields?

Federal Reserves short-term rate changes

Inflation and erosion of purchasing power
Foreign capital flow and demand for dollar
Savings rate
U.S. budget deficit
Printing of money

Federal Deficit - Shrinking

( $ million, 12 month total)

Federal Debt Cumulative

( $ million; debt held by public excluding intra-governmental holdings)

U.S. Dollar
Reversing the Decline Stronger and Stronger

No CPI Inflation Yet

Oil Price

Supply and Demand: Oil in U.S.

9
5

21
19

Rents Rising at 7-year high

Rental Vacancy Rate

(30-year low)

Multifamily Oversupply?

Renters
(8 million more households)

Homeowners
(2.5 million fewer households)

Commercial Real Estate

Commercial Investment Sales of Large Properties

(Properties valued at $2.5 million and over)

REALTOR Deal Size

(Not $2.5 million Properties)

CRE Financing: Small vs. Large CRE Markets

REALTORS CRE Lending

Administrator Maria Contreras-Sweet

SBA Loan for Small Business and Commercial Real Estate

New streamlined process

Match.com concept

CRE Sales: Small vs. Large Markets

Sources: NAR, Real Capital Analytics

REALTORS Vacancy Rates

Source: National Association of REALTORS

REALTORS CRE Construction Picks Up

Source: National Association of REALTORS

CRE Prices: Small vs. Large Markets

Sources: NAR, Real Capital Analytics

CRE Spreads: Small vs. Large CRE Markets

Sources: NAR, Real Capital Analytics

SIOR CRE Index

Source: SIOR, NAR

CCIM Quarterly Market Trends

CCIM Quarterly Market Trends

Forecast and Risks

Economic Forecast
2013

2014

2.2%

2.6%

Job Growth

+2.3 million

+3.0 million

CPI Inflation

1.5%

1.6%

0.3%

3.2%

Consumer
Confidence

73

87

99

101

2.5%

2.6%

2.2%

3.3%

GDP Growth

10-year Treasury

2015
2016
Forecast Forecast
2.3%

3.0%

+2.4 million +2.7 million

REALTORS CRE Outlook

Commercial Real Estate Vacancy Forecast (%)
2014.Q3 2014.Q4 2015.Q1 2015.Q2 2015.Q3 2015.Q4 2016.Q1 2016.Q2 2016.Q3 2016.Q4 2014 2015 2016

Office
Industrial
Retail
Multifamily

15.7
9.9
13.8
6.1

14.9
11.6
12.5
6.8

15.1
11.3
13.7
8.4

15.9
10.8
13.2
6.6

15.8
10.3
13.0
6.7

15.5
9.8
12.7
6.6

15.3
9.4
12.3
6.6

15.1
9.0
12.1
6.6

14.9
8.5
11.9
6.6

14.8
8.4
11.6
6.7

16.0
12.0
13.8
6.6

15.6
11.7
13.2
7.1

15.0
8.8
12.0
7.1

Source: NAR

NCREIF
Green St. Advisors
Sources: NAR, NCREIF, Green Street Advisors

Commercial Property Price Indices Forecast

2008
2009
2010
2011
2012
2013
215.2
165.1
168.2
186.5
195.2
211.9
86.1
63.5
74.4
87.1
92.2
99.4

2014
224.9
106.7

2015
249.8
117.5

2016
249.0
115.5

2/3 of Members used

1031 Like-Kind Exchanges

1031 and Economic Impact

Like-Kind Exchanges: Potential Repeal

REALTORS reported that 40% of 2011-14 transactions
would not have occurred, absent IRC Section 1031