Economic and Commercial

Real Estate Outlook

By Lawrence Yun, Ph.D.
Chief Economist
National Association of REALTORS
May 14, 2015
Washington, D.C.

Whats the Market Like?

Commercial Investment Sales of Large

Properties
(Properties valued at $2.5 million and over)

Federal Reserve Commercial

Property Price Index

Green Street Price Index

15% above past peak

REALTOR Deal Size

(Not $2.5 million Properties)

Sources of Financing for

Deals

Housing Starts Recovering

Too Slowly
Thousand units

Time to Sell a New Spec Home

(in months)

Dodd-Frank?
Big homebuilders in the game
Small homebuilders not really in the
game
Big commercial deals happening
Small commercial deals slowly happening

Stock Market
S&P 500 Index

Corporate Profits Sky High

$ billion

Hows the Economy?

GDP Quarterly Activity

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

Jobs

(8 million lost 12 million gained)

In thousands

Fresh Unemployment Insurance

Claims
In thousands

Unemployment Rate Falling

But Employment Rate Not

Rising

Part-time Workers
In thousands

Wage Growth

(% change from one year ago)

Slow Productivity Growth

Scale Back Hiring Plans

Top and Bottom States for

Jobs
The Best

% Gain in 12
months

The Worst

% Gain in 12
months

Utah

4.0%

West Virginia

-0.7%

Florida

3.8%

Mississippi

0.5%

Oregon

3.4%

Maine

0.5%

Washington

3.4%

Montana

0.6%

California

3.2%

Alaska

0.6%

Georgia

3.2%

North Dakota

3.2%

Nevada

3.0%

Idaho

2.9%

Consumer Spending
Impact

Oil Price

Supply and Demand: Oil in

U.S.
9
5

21
19

Household Net Worth at AllTime High

Manageable Consumer
Debt
$ trillion

Retail Sales

(excluding autos and gasoline)

% change from one year ago

E-Commerce Retail Sales

% change from one year ago

Jobs in Retail and

Warehousing
% change from one year ago

Strong Dollar Impact

U.S. Dollar The Most Trusted

Imports and Exports

$ billions

Who is Stalking the Dollar?

(U.S. weakening against China)

Trade With China (mostly

deficit)

Jobs Impact on
Office and Apartments

Jobs in Professional Business

Service
thousands

Household Growth Ready to

Pop?

Rental Vacancy Rate

(Census Measurement)

Rents Rising at 7-year high

Affordability Index to Buy a

Home

(based on income, home price, and mortgage rate)

Multifamily Starts
Thousand units

Monetary Policy and

Forecast

Reserve
(zero rate policy 7th and final
year)
%

10-year Treasury Rates

No CPI Inflation Yet

Monetary Policy
Quantitative Easing Finished
Fed Funds Rate hike September 2015
10-year Treasury reaching
2.5% by end of 2015
3.5% by end of 2016

Cap Rates over the next 2

years
Cap rates could hold steady despite rising
interest rates
Bigger than normal gap between cap rates and
interest rates (narrow the gap first)
Increased occupancy and falling vacancy (new
supply lacking)
Rising rents can offset rising rates to support
property values

Value of Non-Residential Construction

($ million)

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

Commercial Real Estate Forecast

OFFICE

2014

2015

2016

Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth

16.2%
36,192
26,450
2.6%

15.8%
50,678
41,799
3.2%

15.6%
57,782
44,862
3.6%

INDUSTRIAL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Inventory ('000,000 sq. ft.)
Rent Growth

2014
8.9%
107,580
83,424
8,468
2.4%

2015
8.5%
104,948
68,755
8,537
2.8%

2016
8.1%
105,044
61,720
8,598
2.9%

RETAIL
Vacancy Rate
Net Absorption ('000 sq. ft.)
Completions ('000 sq. ft.)
Rent Growth

2014
9.8%
11,214
7,275
2.0%

2015
9.7%
19,314
12,196
2.4%

2016
9.4%
24,313
16,342
3.0%

2014
4.0%
223,421
191,481
4.0%

2015
4.0%
170,065
146,461
3.9%

2016
4.2%
140,128
122,381
3.5%

MULTI-FAMILY
Vacancy Rate
Net Absorption (Units)
Completions (Units)
Rent Growth
Sources: National Association of REALTORS / Reis, Inc.