trendlines houston

2012

Houston

Presentation available to download:

www.transwestern.net

www.DeltaAssociates.com

AGENDA 1. MegaTrends

2. National Economy

3. Regional Economy

4. Houston’s Commercial Real Estate Markets • Office • Industrial • Apartment • Retail

5. Capital Markets

6. Finding Opportunities

Source: Delta Associates, November 2012.

2012

MEGATRENDS Houston

MEGATRENDS AFFECTING HOUSTON’S COMMERCIAL REAL ESTATE MARKETS

• Uncertainty

• Drive to Efficiency

• Flight to Quality

• Houston’s Strong Economy

Source: Delta Associates, November 2012.

MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

GDP Change in 2013 Unemployment Rate at Year-End 2013

Assuming No Fiscal Cliff

Source: Congressional Budget Office, Delta Associates; November 2012.

Perc

enta

ge

1.7%

8.0%

MEGATREND: UNCERTAINTY The Fiscal Cliff and Projected U.S. Economic Growth

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

GDP Change in 2013 Unemployment Rate at Year-End 2013

Assuming No Fiscal Cliff

Assuming Fiscal Cliff

Source: Congressional Budget Office, Delta Associates; November 2012.

-0.5%

9.0%

Perc

enta

ge

1.7%

8.0%

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Corp

orat

e Pr

ofits

in T

rillio

ns

*12 months ending June 2012.

MEGATREND: DRIVE TO EFFICIENCY Doing More With Less | U.S. Corporate Profits | 2000 - 2012

Source: Bureau of Economic Analysis, Delta Associates; November 2012.

MEGATREND: FLIGHT TO QUALITY Metro Houston Office Absorption: YTD 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

0

1

2

3

Class A

Class B

Mill

ions

of S

F Ab

sorb

ed

MEGATREND: HOUSTON’S STRONG ECONOMY Payroll Job Growth: Houston #1 Since 2000

-200

-100

0

100

200

300

400

500

600

Hou Was NY Phx DFW Den Atl S. Fla Bos LA Basin SF Bay Chi

Payr

oll J

obs i

n Th

ousa

nds

Source: Bureau of Labor Statistics, Delta Associates; November 2012.

505

2012

NATIONAL ECONOMY

Houston

-10%

-5%

0%

5%

10%

15%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Percent Change in GDP Unemployment Rate

Recession Une

mpl

oym

ent R

ate

and

Annu

alize

d G

DP C

hang

e

Recovery

32 months: Recession + Recovery




U.S. ECONOMIC TRENDS AND FORECAST

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0 1 2 3 4 5 6 7 8 9 10 11 12

1982

1991

2001

Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

Cum

ulat

ive

% C

hang

e in

GD

P

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0 1 2 3 4 5 6 7 8 9 10 11 12

1982

1991

2001

Quarters After Trough / Year Recovery Started Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

Cum

ulat

ive

% C

hang

e in

GD

P

2009

NATIONAL ECONOMY Recovery Patterns of GDP | Past Four Recessions

CONTRIBUTORS TO THE NATIONAL ECONOMY

Consumers 70%

Business/ Government

30%


U.S. MEDIAN HOUSEHOLD INCOME

Dropped $777 in 2011

Source: Census Bureau, Delta Associates; November 2012.

$50,054

$50,831

CHANGE IN U.S. HOUSEHOLD NET WORTH

Source: Federal Reserve, Delta Associates; November 2012.

-$6

-$5

-$4

-$3

-$2

-$1

$0

$1

$2

$3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Chan

ge in

Net

Wor

th (i

n tr

illio

ns)

2007 2008 2009 2010 2011 2012

Total Lost = $17.4 trillion

Total Gained = $11.9 trillion

U.S. CONSUMER SENTIMENT

50

60

70

80

90

100

110

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*

Inde

x

Source: University of Michigan, Delta Associates; November 2012. *Preliminary data for September 2012.

20-Year Average = 88.2

0%

1%

2%

3%

4%

5%

6%

0%

1%

2%

3%

4%

5%

6%

7%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Pers

onal

Sav

ings

Rat

e

2006 2007 2008 2009 2010

U.S. PERSONAL SAVINGS RATE


2011 2012

0%

1%

2%

3%

4%

5%

6%

7%

0%

1%

2%

3%

4%

5%

6%

7%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Pers

onal

Sav

ings

Rat

e

2006 2007 2008 2009 2010

U.S. PERSONAL SAVINGS RATE


2011 2012

CD In

tere

st R

ates

Compared to CD Interest Rates

-10%

-5%

0%

5%

10%

15%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Percent Change in GDP Unemployment Rate

Recession Une

mpl

oym

ent R

ate

and

Annu

alize

d G

DP C

hang

e

Recovery





U.S. ECONOMIC TRENDS AND FORECAST

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

2012

HOUSTON ECONOMY

Houston

96.6

0

20

40

60

80

100

120

140

NY LA Basin Hou SF Bay DFW Bos Phx Was Chi Denver Atl S. Fla

Payr

oll J

obs i

n 00

0’s

PAYROLL JOB GROWTH: HOUSTON A LEADER Large Metro Areas | 12 Months Ending September 2012


INCREASING PRESENCE IN HOUSTON

CORE INDUSTRIES Houston Metro Area | 2011

Source: BEA, BLS, GMU Center for Regional Analysis, Delta Associates; November 2012.

Total GRP: $399 100%

Energy $108 27% Financial, Professional, Tech $52 13% Construction $36 9% Federal & State Government $32 8% Manufacturing $24 6% Medical/Educational $16 4% Trade/Transportation $16 4%

Core Industries $ (Bil) % GRP

Total Core Industries: $283 71% Other $116 29%

GRP = Gross Regional Product.

CORE INDUSTRY: ENERGY U.S. Rotary Rig Count | 1990 – 2012

Source: Baker Hughes, Delta Associates; November 2012. *Count as of 10/26/12.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

Annu

al A

vera

ge W

orki

ng R

igs

CORE INDUSTRY: ENERGY Top Wind Energy Producing States | September 2012

Source: American Wind Energy Association, Delta Associates; November 2012.

10,929

4,570 4,536

3,153 3,055 2,717 2,699

0

2,000

4,000

6,000

8,000

10,000

12,000

Texas California Iowa Oregon Illinois Minnesota Washington

Win

d Ca

paci

ty (M

egaw

atts

)

CORE INDUSTRY: MEDICAL/EDUCATIONAL Houston Health And Medical Sector Employment | 2005-2012

Source: BLS, Delta Associates; November 2012.

350

370

390

410

430

450

470

490

510

530

2005 2006 2007 2008 2009 2010 2011 2012*

Met

ro A

rea

Empl

oym

ent (

Thou

sand

s)

*Through September

Up 5.9% in 2012

CORE INDUSTRY: TRADE/TRANSPORTATION Top Planned Port Infrastructure Investments to Prepare for Canal Expansion

Source: National Real Estate Investor, Delta Associates; November 2012. *Includes ports of Portsmouth and Newport News.

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

Houston Tampa Charleston Norfolk* Savannah Everglades Gulfport Mobile Miami Jacksonville

Billi

ons

-80

-60

-40

-20

0

20

40

60

80

100

120

Annu

al Jo

b G

row

th (i

n 00

0’s)

PAYROLL JOB GROWTH Houston Metro Area | 1991 –2012

Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.

22-Year Average Job Growth = 39,600/Year

-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Annu

al Jo

b G

row

th

JOB FORECAST Houston Metro Area | 2012 – 2014


22-Year Annual Growth = 39,600/annum

Projected Avg. Annual Growth 2012-14 =

89,000/annum

2012 THE HOUSTON OFFICE MARKET

Houston

10.6% 10.9% 11.2% 11.6% 12.5% 12.9%

13.1% 13.4% 13.6% 14.7%

16.1% 16.9%

20.3%

0%

5%

10%

15%

20%

25%

Bos Hou NY SF Bay Den LA Was OC Chi S Fla Atl DFW Phx

Ove

rall

Vaca

ncy

Rate

OFFICE VACANCY RATES Select Metro Areas | 3rd Quarter 2012


National Vacancy Rate: 13.7%

-3

-2

-1

0

1

2

3

4

5

6

SF Bay Atl Hou LA/OC Bos Phx Den Chi DFW S Fla NY Was

NET ABSORPTION OF OFFICE SPACE Select Metro Areas | January Through September 2012


2.9

0

2

4

6

8

10

12

14

NY Was Bos Hou SF Bay LA Atl DFW Den OC Chi Phx

SF Available

SF Pre-Leased

3.6

Mill

ions

of S

F

Nation: 64.8 million SF at 62% pre-leased

OFFICE SPACE UNDER CONSTRUCTION Select Metro Areas | 3rd Quarter 2012


0

2

4

6

8

10

OFFICE SPACE DEMAND AND DELIVERIES Houston Metro Area | Two Years Ending September 2014


SF in

Mill

ions

Houston Metro

8.0 million SF

= Deliveries

= Demand

Total = 4.2 million SF

U/C = 3.6 million SF

Planned and may deliver by 9/14: 0.6 million SF

Note: Excludes ExxonMobil‘s campus U/C in The Woodlands.

Rent Equilibrium Zone = 12% - 14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2014

Ove

rall

Vaca

ncy

Rate

OFFICE VACANCY RATE Houston Metro Area | 2000 – 3rd Quarter 2014

Source: Delta Associates’ analysis of CoStar data; November 2012. *As of 3rd quarter 2012.

10.9%

9.3%

-5%

0%

5%

10%

15%

20%

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

CHANGE IN OFFICE ASKING RENTS Houston Metro Area | All Classes And Submarkets | 1997 – 2014


15-Year Average Rent Growth = 3.9%

OFFICE SUBMARKETS LIKELY TO OUTPERFORM

Source: Delta Associates; November 2012.

• Energy Corridor

• Westchase

• West Loop/Galleria

• CBD

• Greenway Plaza

• The Woodlands

Houston Metro Area

Select Submarkets with Declining Vacancy, Rising Rents During Remainder of 2012 and into 2013

2012 THE HOUSTON INDUSTRIAL MARKET

Houston

0%

2%

4%

6%

8%

10%

12%

Hou LA Basin NY/NNJ Chi DFW Was/Bal

INDUSTRIAL VACANCY RATES Select Metro Areas | 3rd Quarter 2012

Source: Delta Associates’ analysis of CoStar data; October 2012.

4.6%

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Chi DFW Hou LA Basin NY/NNJ Was/Bal

NET ABSORPTION OF INDUSTRIAL SPACE Select Metro Areas | January – September 2012


3.3

0

2

4

6

8

INDUSTRIAL SPACE DEMAND AND DELIVERIES Houston Metro Area | One Year Ending September 2013


SF in

Mill

ions

6.5 million SF

= Deliveries

= Demand

Total = 3.6 million SF

U/C = 2.3 million SF

Planned and may deliver by 9/13: 1.3 million SF

Houston Metro

INDUSTRIAL VACANCY RATES Houston Metro Area | 2001 – 3rd Quarter 2013

2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ove

rall

Vaca

ncy

Rate


4.6% 4.1%

ANNUAL INDUSTRIAL RENT CHANGE Houston Metro Area | 1997 – 2013

-8%

-6%

-4%

-2%

0%

2%

4%

6%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Annu

al C

hang

e in

Ask

ing

Rent

(per

SF,

NN

N)

Source: Delta Associates’ analysis of CoStar and REIS data; November 2012.

15-Year Average Rent Growth = 1.7%

INDUSTRIAL SUBMARKETS LIKELY TO OUTPERFORM


• North

• Northwest

• West

Houston Metro Area

Select Submarkets with Declining Vacancy, Rising Rents During the Remainder of 2012 and into 2013

2012 THE HOUSTON APARTMENT MARKET

Houston

Source: MPF, Delta Associates; November 2012.

0

2

4

6

8

10

12

14

16

18

20

Hou LA DFW Chi Atl Phx Was

Thou

sand

s of

Uni

ts

NET ABSORPTION OF APARTMENTS – ALL CLASSES Select Metro Areas | 2012*

*Washington = 12 months ending 9/12. All other markets are estimated for 12 months ending 6/12.

17.3

-10

0

10

20

2006 2007 2008 2009 2010 2011 2012*

NET ABSORPTION OF APARTMENTS – ALL CLASSES Houston Metro Area | 2006 Through 2012

Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.

Thou

sand

s of

Uni

ts

7-Year Average = 8,000 units

-10

0

10

20

2006 2007 2008 2009 2010 2011 2012* 2013

NET ABSORPTION OF APARTMENTS – ALL CLASSES Houston Metro Area | 2006 Through 2013

Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.

Thou

sand

s of

Uni

ts

7-Year Average = 8,000 units

Source: MPF, Delta Associates; November 2012.

0%

2%

4%

6%

8%

10%

12%

14%

2005 2006 2007 2008 2009 2010 2011 2012* 2013

Vaca

ncy

Rate

APARTMENT VACANCY RATE – ALL CLASSES Houston Metro Area | 2005 Through 2013

7.4% 6.8%

* As of 2nd quarter 2012.

Source: MPF, ADS, Delta Associates; November 2012.

$0.78

$0.83

$0.88

$0.93

$0.98

$1.03

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Aver

age

Rent

al R

ate/

SF/M

onth

AVERAGE APARTMENT RENTAL RATE Houston Metro Area | 2006 Through 3rd Quarter 2012

2011 2010 2009 2008 2007 2006 2012

$0.98

5.1% increase in the last 12

months

2012 THE HOUSTON RETAIL MARKET

Houston

Ove

rall

Vaca

ncy

Rate


VACANCY RATE: SHOPPING CENTERS Select Metro Areas | 3rd Quarter 2012

5.1% 5.4% 5.4% 6.2%

7.5%

8.6% 8.9% 9.9%

11.4%

12.7% 13.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Was SF Bos NY LA/OC Den Hou Chi DFW Atl Phx

National Average = 9.2%

Note: Includes shopping centers of all types.

10%

11%

12%

13%

14%

15%

16%

17%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vaca

ncy

Rate

11.2%

VACANCY RATE: ALL RETAIL Houston Metro Area | 2000 – 2nd Quarter 2012

Source: O’Connor & Associates, Delta Associates; November 2012.

$50

$60

$70

$80

$90

$100

$110

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Tota

l Gro

ss R

etai

l Sal

es

(in B

illio

ns o

f Dol

lars

)

$109.7

$101.4

$87.9

$55.3

GROSS RETAIL SALES Houston Metro Area | 2002 – 2012

Source: Texas Comptroller’s Office, Delta Associates; November 2012. *2012 figure is annualized.

RETAIL MARKET FORECAST


• Growing population driving market expansion

• Continued improvement in occupancy rates

• Focus on grocery-anchored and mixed-use development

• Increasing urban infill development

Houston Metro Area

2012

CAPITAL MARKETS

Houston

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

2009 2010 2011 2012*

Billi

ons o

f $’s

Hou

Den

DFW

COMPARATIVE INVESTMENT SALES VOLUME Office Buildings | 2009 – 2012

Source: Real Capital Analytics, graphic by Delta Associates; November 2012. *YTD through September, annualized.

INDUSTRIAL INVESTMENT SALES Houston Metro Area | 2002 Through 2012

$0

$200

$400

$600

$800

$1,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Mill

ions

of $

*YTD through August, annualized. Sources: Real Capital Analytics, graphic by Delta Associates; November 2012.

$826

3%

4%

5%

6%

7%

8%

9%

Source: Transwestern, Delta Associates; November 2012.

Aver

age

Cap

Rate

CORE CAP RATES Houston Metro Area | 2005 – 2012

Office Industrial Garden/Mid-Rise Apartments

Shopping Centers

2012

FINDING OPPORTUNITIES

Houston

1. Lock in interest rates while they remain low

2. Invest in renovation to compete and reposition

3. Buy / prepare land for this round of development

4. Narrow acquisition search to product that accommodates the modern tenant

MINING A GROWING MARKET: FINDING OPPORTUNITIES Houston Metro Area


2012

Houston

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