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Real Estate Industry Practice GroupJoe Fobert, Real Estate Practice Leader
2013 Economic Outlook for the Real Estate Industry
Keynote Speaker:Ken McCarthyChief EconomistResearch
Real Estate Industry Practice Group - REAL Industry Expertise You Can Trust
Real Estate Industry Practice Group
Highlights
• Write all lines of business: Property, Casualty, Environmental, Excess, D&O and E&O
• Over 11,000 clients and 13,000 policies
• Largest writer of real estate business by GWP in the U.S.
• 2011 paid approx. $266 million in real estate claims
Real Estate Industry Practice GroupAn integrated service platform that provides seamless access to the industry’s foremost real estate insurance products and services. AIG has written insurance for the real estate industry for over 40 years, with substantial market penetration and long-term dedication to many classes.
• Multi-line, high-limit product offerings• Industry-focused claims expertise, loss control capabilities & risk management services
• Transactional insurance products & expertise• Synergies with the Construction Solutions industry practice - for the needs of large construction and development projects
• REITs, Asset, Investment and Fund Managers• Residential & Non-Residential Property Owners, Operators & Managers
• Land Developers & Sub-dividers• Office Buildings, Apartments, Retail Centers and Industrial Parks
• Multinational Coverage – operations in over 90 countries – CMP, Passport, Local policies & services
Real Estate Industry Practice Group
Industry Expertise!
• 2012 Conducted 3 CE Seminars, 3 Webinars, over 300 client meetings
• 2013 5 CE Seminars, 4 Industry White Papers
• Partnership with GlobeSt.com as Industry Thought Leader
• 2013 Economic Outlook for the Real Estate Industry
JANUARY 17, 2013
US AND MANHATTAN OFFICE MARKET
Economic & Market Overview
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OVERVIEW
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US GDP GROWTH IN RECOVERIES AFTER 13 QUARTERS
Source: US Bureau of Economic Analysis
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US PRIVATE SECTOR EMPLOYMENT GROWTHMONTHLY AVERAGE PER QUARTER
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HOUSEHOLD DEBT BURDEN
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Perc
ent o
f Disp
osab
le In
com
e
Source: Board of Governors Federal Reserve
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9
11
13
15
17
19
21
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Mill
ions
of u
nits
US MOTOR VEHICLE SALES
Source: US Bureau of Economic Analysis
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US CORPORATE PROFITS
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Billi
ons o
f Dol
lars
Source: US Bureau of Economic Analysis
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250,000
300,000
350,000
400,000
450,000
500,000
550,000
600,000
650,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
National Recessions Unemployment Claims Healthy Labor Market
US WEEKLY UNEMPLOYMENT CLAIMS
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Cushman & Wakefield ResearchEMPLOYMENT CHANGE SINCE FEBRUARY
2010 BY INDUSTRY SECTOR
1,530 1,523
1,138
860
526 506
274116
-109
-546-575
-75
425
925
1,425
Tho
usan
ds o
f Per
sons
Total Increase: +4.8 mil.Private Sector: +5.3 mil.
December 2012
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178.
3%
145.
2%
139.
3%
117.
5%
107.
8%
91.4
%
82.3
%
74.7
%
72.4
%
71.1
%
63.0
%
52.7
%
50.6
%
50.1
%
47.5
%
46.7
%
45.2
%
44.7
%
43.4
%
37.9
%
36.6
%
33.0
%
26.5
%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
JOBS RECOVERED SINCE TROUGHAS A PERCENT OF JOBS LOST
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135.
6%
114.
8%
112.
5%
103.
8%
101.
3%
91.6
%
88.9
%
78.0
%
74.6
%
67.6
%
65.3
%
65.2
%
60.5
%
52.4
%
48.3
%
48.1
%
43.6
%
37.6
%
36.2
%
31.3
%
31.2
%
24.7
%
18.5
%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
OFFICE-USING JOBS RECOVERED SINCE TROUGHAS A PERCENT OF JOBS LOST
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7.1% 8.
7%
8.8% 9.
9%
10.3
%
10.7
%
11.4
%
11.9
%
12.3
%
13.0
%
13.1
%
13.9
%
14.1
%
14.1
%
15.8
%
15.9
%
16.2
%
17.4
%
17.9
%
18.1
%
18.3
%
18.7
%
20.1
%
20.4
%
21.7
%
22.6
%
22.7
%
23.9
%
24.0
% 27.0
%
27.5
%
0%
5%
10%
15%
20%
25%
30%
VACANCY RATE BY MAJOR METRO
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Cushman & Wakefield ResearchVACANCY RATE BY MAJOR METRO
Change From a Year Ago
2.3%1.9%1.8%1.7%
1.3%1.3%1.3%1.1%
0.7%0.6%0.4%0.4%
0.1%
-0.4%-0.5%-0.6%-0.7%-0.7%-0.7%-0.8%-1.0%-1.0%
-1.9%-2.1%-2.5%
-3.0%-3.0%
-3.6%-3.9%-4.0%
-5.6%-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
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PAYROLL EMPLOYMENT US COMPARED WITH NYC
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
100,000
105,000
110,000
115,000
120,000
125,000
130,000
135,000
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Thou
sand
s of P
erso
ns
National Recessions US Employment NYC Employment
Source: US Bureau of Labor Statistics
NYC Job Change
4/08-11/09 -140,800
11/09-11/12 +195,100
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410
460
510
560
610
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Thou
sand
s of
Per
sons
National Recessions Professional Business Services Financial Services
Employment Change4/08-11/09 11/09-11/12
Business Services -46,100 +84,000Financial Services -44,100 +13,900
NYC EMPLOYMENT: BUSINESS SERVICES AND FINANCIAL SERVICES
Source: US Bureau of Labor Statistics
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HIGH TECH EMPLOYMENT: NEW YORK METRO AREA
170
180
190
200
210
220
230
240
250
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Tho
usan
ds o
f Per
sons
Source: Moody’s Analytics
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VENTURE CAPITAL FUNDING CHANGE: 2007-2011
22
-52.5%
-50.2%
-42.5%
-31.0%
-20.5%
-7.6%
3.1%
4.7%
6.8%
24.8%
44.7%
-65.0% -45.0% -25.0% -5.0% 15.0% 35.0% 55.0%
Philadelphia
San Diego
Southeast
DC/Metroplex
New England
US
Silicon Valley
LA/Orange County
Midwest
Texas
NY Metro
Source: PricewaterhouseCoopers Money Tree Report
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5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
1,100
1,120
1,140
1,160
1,180
1,200
1,220
1,240
1,260
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Tho
usan
ds o
f Per
sons
Office Using Employment Vacancy Rate
MANHATTAN OFFICE USING EMPLOYMENT VS. VACANCY
Source: US Bureau of Labor Statistics
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MANHATTAN NEW LEASING
5.0
6.5
4.2
3.4 3.1 3.3
5.0 5.0 5.7
7.1 6.6
7.5 7.6
10.1
6.4 6.0 5.8
5.4 5.7
6.4
0.0
2.0
4.0
6.0
8.0
10.0
Mill
ions
of S
quar
e Fe
et
10-Year Average 6.0 msf
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MANHATTAN QUARTERLY NEW LEASING
4.02
0.89 1.12
3.50
1.021.29
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Mill
ions
of S
quar
e Fe
et
10-Year Average 2012 Average
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10.3%
8.8%
7.1%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Midtown Downtown Midtown South
MANHATTAN OFFICE MARKET: VACANCY RATE
All Classes
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10.9%
8.2%
4.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Midtown Downtown Midtown South
MANHATTAN OFFICE MARKET: VACANCY RATE
Class A
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Overall Rental Rates
MANHATTAN OFFICE MARKET
$67.36
$49.69
$40.75
$25.00
$35.00
$45.00
$55.00
$65.00
$75.00
$85.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Midtown Midtown South Downtown
$/s
f
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Class A Rental Rates
MANHATTAN OFFICE MARKET
$72.54
$63.59
$45.16
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Midtown Midtown South Downtown
$/s
f
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$88.
79
$80.
42
$78.
75
$63.
89
$63.
32
$50.
08
$49.
77
$51.
60
$46.
54
$50.
22
$47.
07
$50.
37 $57.
82
$51.
86
$52.
06
$56.
47
$57.
84
$57.
69
$55.
88
$86.
12
$92.
30
$92.
59
$86.
40
$79.
13
$71.
58
$67.
64
$65.
61
$65.
54
$65.
85
$66.
24
$67.
27
$67.
77
$68.
47
$69.
75
$71.
22
$72.
08
$71.
67
$71.
76
35
40
45
50
55
60
65
70
75
80
85
90
95
100
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12
$/SF
Net Effective Rent Asking Rent
Midtown Class A Rents
Net Effective Change
1Q08 - 1Q10 -47.6%
1Q10 - 3Q12 +20.1%
RENTAL RATES:Asking versus Net Effectives
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MIDTOWN CLASS A RENTS
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
$/s
f
1996-2001 +98%
2004-2008 +83%
2010-2012 +9.4%
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NYC MONTHLY EMPLOYMENT
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
3,900
4,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Th
ou
san
ds
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NYC OFFICE-USING EMPLOYMENT FORECAST
1,000
1,050
1,100
1,150
1,200
1,250
1,300
1,350
1,400
1,450
1,500
Tho
usan
ds o
f Per
sons
Source: US Bureau of Labor Statistics, Moody’s Analytics
Projected NYC Job Growth
2011 35.32012 40.72013 11.62014 42.22015 46.6
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MANHATTAN INVENTORY OVER TIME
321
337
348
361 364 37
339
2 396 400
398
400
394
392
389
389 392
392
379 38
738
939
139
038
939
1 395
393
393
393
392 39
839
940
140
440
4 409
409
409
300
320
340
360
380
400
420
1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
MSF
Expected Additions:2013: 55 West 46th (292,500 sf)330 Hudson Street (395,000 sf)51 Astor Place (307,839 sf)One World Trade Center (3.0 msf)Four World Trade Center (2.0msf)2014:250 West 55th (1.0 msf)7 Bryant Park (434,000 sf)2015: Hudson Yards (1.7 msf)2016:Three World Trade Center (2.5 msf)2018:Manhattan West (2.5 msf)
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MIDTOWN CLASS A ASKING RENT AND VACANCY FORECAST
$72.54
$74.84
$83.07
$92.36
$99.75
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
Va
can
cy
psf
/ yr
Rent Vacancy
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MIDTOWN CLASS A RENTAL RATES:Asking versus Net Effectives
$65.
61
$67.
27
$71.
22
$72.
54
$74.
84 $83.
07 $92.
36 $99.
75
$51.
60
$50.
37
$56.
47
$58.
16
$59.
62
$67.
84 $76.
53 $85.
21
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
$20
$30
$40
$50
$60
$70
$80
$90
$100
Vaca
ncy
psf /
yr
Asking Rents Net Effective Rents Vacancy Rate
2012-2016 ChangeVacancy: -6.5ppAsking Rents +36.5%Net effective Rents +46.5%
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The data contained in this presentation is for general informational purposes only. The advice of a professional insurance broker and counsel should always be obtained before purchasing any insurance product or service. The information contained herein has been compiled from sources believed to be reliable. No warranty, guarantee, or representation, either expressed or implied, is made as to the correctness or sufficiency of any representation contained herein.
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