beyond the numbers - archive - uliarchive.uli.org/fallmeeting2012/wed/eileenmarrinan.pdf · ecb...
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BEYOND THENUMBERSNUMBERS
Dr. Richard Barkham
OCTOBER 2012OCTOBER 2012
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THE GLOBAL FINANCIAL CRISISTHE GLOBAL FINANCIAL CRISIS
CONTINUES TO LINGER
The legacy of the Global Financial Crisis is still with us
SPARE CAPACITY IN THE OECD
OECD output gap, %
3Source:OECD
US RECOVERY REMAINS SLUGGISH
Unemployment rate, %
4Source: IHS Global Insight
ECB PROPS UP EURO BANKS
ECB lending to
‘peripheral Europe’,
€ billion
5Source: Oxford Economics/Haver Analytics
MONEY, MONEY, MONEY
Central Bank Balance
Sheets, Jan 2007 = 100
6Source: EcoWin, Bank of England, Bank of Japan, US Federal Reserve
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HOW DID WE GET HERE?HOW DID WE GET HERE?
LONG DECLINE IN BOND RATES
Percent
8Source IHS Global Insight
CHINA’S EXPORT DOMINANCE
Change in share of world
manufacturing output, %
9Source: EcoWin
CHINA RECYCLES ITS EARNINGS
Chinese foreign currency
reserves,
US$ mn
10Source: IHS Global Insight, US department of the Treasury
WORLD INTEREST RATES FALL
OECD Real
Interest Rates, %
11Source: IHS Global Insight
CREATING A MOUNTAIN OF DEBT
Household debt to
GDP ratios, %
12Source: OEF
CENTRAL BANK COMPLACENCY
The defeat of inflation was a major policy triumph
But central banks took their eyes off the ball:
Cheap goods from China helped suppress inflation
Cheap capital flooded into bond markets and money
markets
Weak regulation allowed excessive bank gearing and the
emergence of a huge shadow banking industry
Monetary stimulus became a panacea:
Causing a series of asset bubbles
And the build up of a debt mountainp
13
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WHERE DOES THIS LEAVE US?WHERE DOES THIS LEAVE US?
GLOBAL RECOVERY UNCERTAIN
Real GDP, quarterly percent
change year over year
15Source: IHS Global Insight
Source: IHS Global Insight
GLOBAL RETAIL COMPOSITE CAP RATE
Global retail
composite yield, %
16Source: Brokers, Grosvenor Research
GLOBAL OFFICE COMPOSITE CAP RATE
Global office
composite yield, %
17Source: Brokers, Grosvenor Research
Source: Brokers, Grosvenor Research
THE CLOUDS DARKEN
Grosvenor world
economic activity
indicator,
0 is trend growth
18Source: IHS Global Insight, Grosvenor Research, Google
GLOBAL REAL ESTATE RETURNS
% Core Real Estate IRRs – per annum, next 5 years
Sector US Canada CE UK Japan China Australia All
Office 8.1% 5.1% 4.1% 5.0% 6.2% 7.3% 8.4% 6.0%
Retail 8.6% 6.3% 5.2% 4.8% - 7.3% 7.4% 6.6%
Residential 6.2% - - 4.0% - 4.5% - 5.0%
All 7.9% 5.7% 4.5% 4.7% 6.2% 6.4% 7.9% 6.1%All 7.9% 5.7% 4.5% 4.7% 6.2% 6.4% 7.9% 6.1%
19Source: Grosvenor Research, 2012
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BEYOND THENUMBERSNUMBERS
Eileen Marrinan
OCTOBER 2012OCTOBER 2012
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US ECONOMIC OUTLOOKUS ECONOMIC OUTLOOK
US ECONOMIC OUTLOOK
Economic expansion in the US is
slated to strengthen over the
next five years.
Where will it focus?
22
Last Decade Sectors Next Decade Sectors
DRIVERS OF GROWTH
A rotation is occurring in the
Finance Energy
Government Manufacturing
Defense Housing/Construction
Trade Trade
sectors that drive economic
growth.
Therefore, the metros/regions
that outperform over the next Trade Trade
Tech Tech
Services Services
L t D d B fiti L ti N t D d B fiti L ti
that outperform over the next
decade will differ from those
that led in the past.
Last Decade Benefiting Locations Next Decade Benefiting Locations
Great Plains
Southwest
Gulf Coast
East Coast East Coast
West Coast West Coast
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ENERGYENERGY
ENERGY
Technological innovations US Natural Gas and Oil Production (Source: Moody's Analytics)
have transformed the US energy
industry.
Exploration and production of
both oil and gas are expanding6.00
6.50
2,000,000
2,200,000
(Mil Bbl )(Mil Cu Ft )
(Source: Moody s Analytics)
Oil (R) Natural Gas (L)
both oil and gas are expanding
rapidly.
5.00
5.50
1,600,000
1,800,000
4.00
4.50
1,200,000
1,400,000
3.50 1,000,000
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ENERGY
This trend has a way to run. Natural Gas PricesSource:ycharts com
The US is now the world’s low-
cost producer of natural gas, by
a considerable margin.$14
$16
$18
$20
il B
TU
Source:ycharts.com
$4
$6
$8
$10
$12Sp
ot P
rice
per M
i
$0
$2
$4S
US (Henry Hub) Europe Japan (LNG)
26Source: EcoWin
ENERGY LOCATIONS
Salt Lake City Denver
Pittsburgh
Dallas
New OrleansHouston
New Orleans
27
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MANUFACTURINGMANUFACTURING
MANUFACTURING
Lower labor and energy costs Manufacturing Re-set: Renewed Competiveness of US Industry
have increased
the competitiveness of US
manufacturing.
Both domestic and foreign firms$10
$12
110
115
Renewed Competiveness of US IndustrySource: Moody's Analytics
Manufacturing Unit Labor Costs Index (L) Natural Gas Prices (R)
Both domestic and foreign firms
are expanding, especially
in the auto and
durables industries.$4
$6
$8
100
105
$0
$2
$4
90
95
29Surce: EcoWin
MANUFACTURING
By contrast, Chinese wages are
rising at double-digit rates.
China’s one-child policy will
soon translate into a shrinking
labor forcelabor force.
30
MANUFACTURING LOCATIONS
SeattleS
PortlandMinneapolis
San JoseChicago
Detroit
Los Angeles
Ft. WorthAtlanta
Ft. Worth
Houston
31
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HOUSINGHOUSING
HOUSING
The housing market is finally
coming back to
life, with both home
sales and prices on
the upswing.the upswing.
Historically low interest rates
and the Fed’s QE3 program will
speed and strengthen its
recovery.
33
HOUSING LOCATIONS
MinneapolisBoston
OaklandSan Francisco
Cincinnati
DenverSan Jose Washington, DC
Orange County
Los Angeles
Miami
Austin
34Oakland Cincinnati
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CONSTRUCTIONCONSTRUCTION
CONSTRUCTION
Homebuilding is poised to
expand after several years at a
historically low level.
36
CONSTRUCTION
Commercial real estate will Value of Private Construction Put in Place(Source: Moody's Analytics)
soon follow.
Multifamily – the most improved
sector – is already picking up.
$ 0
$60
$70
($Bil SAAR) (Source: Moody s Analytics)
$30
$40
$50
$0
$10
$20
$
Multifamily Warehouse Office Retail
37
CONSTRUCTION LOCATIONS
Boston
Los AngelesDenver
Chicago
Washington, DC
New York
Riverside
Orange County Phoenix
Dallas Atlanta
Houston
38
CONCLUSION
It’s not just the coasts anymore.
As the economy re-balances, other regions and other
metros are emerging as attractive prospects for
real estate investment.
Economic considerations are the first but not the sole
criterion – characteristics of the investors themselves
and of the markets also come into play.
39