turning points - transunion · 2019-09-23 · 14.0% 16.0% 18.0% 20.0%-1000-800-600-400-200 0 200...

Turning Points:Multifamily, Other Forms of Rentals, & The Economy

Victor Calanog PhD ,Chief Economist, Moody’s Analytics REIS

SEPTEMBER 18, 2019

• Recent trends in the real and financial economies– Should we be worried?

• How does that all map into how properties performed in the most recent quarter/period?

• Not just short-term concerns – What are the longer term trends?

• Hot topics– WeWork, the so-called ‘retail apocalypse,’ and evidence of late-stage credit

cycle behaviors.

Today’s agenda:

1 | Trends in the Real and Financial Economies

Quarterly GDP Growth & Components

1.3 1.5

0.3

-0.6

2.4

0.8

2.6

0.3

-0.7

2.9

1.5

0.1

2.2

0.1-0.1

-1.1

-0.3 -0.3

0.1

1.5

0.6 0.61.3

0.8 1.1

-0.3

2.3

0.51.1

-1.0-2

-1

0

1

2

3

4

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 Q3 Q4 Q1 Q2

2012 2013 2014 2015 2016 2017 2018 2019

3.2

1.7

0.5 0.5

3.6

0.5

3.2 3.2

-1.0

5.1 4.9

1.9

3.3 3.3

1.3

0.1

2.0 1.9 2.2 2.0 2.3 2.2

3.2 3.5

2.5

3.52.9

1.1

3.1

2.1

-2

-1

0

1

2

3

4

5

6

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 Q3 Q4 Q1 Q22012 2013 2014 2015 2016 2017 2018 2019

GDPPercentage Change at Annual Rate

Business Investment Contributions to Percent Change in real GDP

Source: Bureau of Economic Analysis

1.0%

1.8%

2.8%

3.8%3.3%

2.7%

1.8%

-0.3%

-2.8%

2.6%

1.6%

2.2%

1.8%

2.5%2.9%

1.6%

2.4%

2.9%

2.2%

1.3%

3.0%

2.3% 2.2%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023

Annual GDP Growth2001 - 2023

Forecast

Source: Bureau of Economic Analysis; Moody’s Economy.com

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Jan2007

Jan2008

Jan2009

Jan2010

Jan2011

Jan2012

Jan2013

Jan2014

Jan2015

Jan2016

Jan2017

Jan2018

Jan2019

Payr

olls

(Tho

usan

ds)

Monthly Net Change in Employment Unemployment Rate Yearly Wage Growth NAIRU

Labor Market Dynamics2007-2019

Source: Bureau of Economic Analysis; Moody’s Economy.com

World’s Region North America Other Countries Africa Asia Australia Europe South America Middle East

The World Economy2017 GDP

Source: WorldBank

Nigeria, $0.38 , 0.48%South Africa, $0.35 , 0.44%

Egypt, Arab Rep., $0.24 , 0.30%

India, $2.60 , 3.28%

Thailand,$0.46 , 0.58%

Hong Kong SAR, China, $0.34 , 0.43%Singapore,

$0.32 , 0.40%Malaysia,

$0.31 , 0.39%Phi l ippines,$0.31 , 0.39%Pakistan,

$0.30 , 0.38%Bangladesh, $0.25 , 0.32%

Spain, $1.31 , 1.65%

Sweden, $0.54 , 0.68%Belgium, $0.49 , 0.62%

Austria, $0.42 , 0.53%Norway, $0.40 , 0.50%

Ireland, $0.33 , 0.42%Denmark, $0.32 , 0.40%

Finland, $0.25 , 0.32%

Czech Republic, $0.22 , 0.28%Croatia, $0.05 , 0.06%

Colombia, $0.31 , 0.39%Chi le,

$0.28 , 0.35%

Saudi Arabia, $0.68 , 0.86%

Iran, Islamic Rep.,$0.44 , 0.56%

United Arab Emirates, $0.38 , 0.48%

Israel, $0.35 , 0.44%

United States, $19.39 , 24.46%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

8/5/2010 8/5/2011 8/5/2012 8/5/2013 8/5/2014 8/5/2015 8/5/2016 8/5/2017 8/5/2018 8/5/2019

10-Year Treasury Rate

Dow

Jon

es In

dust

rial A

vera

ge

Dow Jones Industrial Average 10 Year Treasury Rate

DJIA vs. 10-Year Treasury RateDaily, 08/2010 – 08/2019

Source: FRED; Federal Reserve Bank of Philadelphia

The Economic Outlook

Key Takeaways for the First Half of 2019:• No shortage of confusing signs• Gross Private Domestic Investment is down; equity markets and businesses appear

spooked about various uncertainties. The Fed saw it fit to lower interest rates for the first time in more than a decade.

• Consumer spending is healthy; household savings rates and balance sheets are solid. Several large firms still posting increasing profitability.

• We maintain our outlook that the US economy will grow at 2.2% in 2019 – at or around its CAGR for the last decade.

• Our record-setting economic expansion period is set to continue at least through the end of the year.

2 | National Market Updates

National Apartment MarketQuarterly & Annual Market Conditions

Source: REIS, Real Estate Solutions by Moody’s Analytics; 79 of 275 Apartment Markets

Year Qtr Asking Rent

Percent Change

Effective Rent

Percent Change

Vacancy Rate

2012 2 $1,089 1.2% $1,043 1.4% 4.9%2012 3 $1,100 1.0% $1,053 1.0% 4.8%2012 4 $1,107 0.7% $1,061 0.7% 4.6%2013 1 $1,114 0.6% $1,068 0.7% 4.4%2013 2 $1,123 0.8% $1,078 0.9% 4.4%2013 3 $1,135 1.1% $1,090 1.1% 4.4%2013 4 $1,146 0.9% $1,100 1.0% 4.4%2014 1 $1,155 0.8% $1,110 0.9% 4.2%2014 2 $1,168 1.1% $1,123 1.2% 4.3%2014 3 $1,183 1.3% $1,137 1.3% 4.3%2014 4 $1,192 0.8% $1,146 0.8% 4.3%2015 1 $1,205 1.0% $1,158 1.1% 4.2%2015 2 $1,226 1.8% $1,178 1.7% 4.2%2015 3 $1,248 1.8% $1,199 1.8% 4.2%2015 4 $1,262 1.1% $1,212 1.1% 4.3%2016 1 $1,273 0.9% $1,223 0.9% 4.3%2016 2 $1,291 1.4% $1,239 1.3% 4.2%2016 3 $1,307 1.3% $1,254 1.2% 4.1%2016 4 $1,313 0.5% $1,260 0.4% 4.2%2017 1 $1,324 0.8% $1,267 0.6% 4.3%2017 2 $1,345 1.6% $1,285 1.3% 4.3%2017 3 $1,363 1.4% $1,301 1.3% 4.4%2017 4 $1,373 0.7% $1,309 0.6% 4.6%2018 1 $1,389 1.1% $1,324 1.1% 4.7%2018 2 $1,410 1.5% $1,342 1.4% 4.7%2018 3 $1,430 1.5% $1,361 1.4% 4.7%2018 4 $1,444 1.0% $1,374 0.9% 4.8%2019 1 $1,453 0.6% $1,382 0.6% 4.7%2019 2 $1,471 1.2% $1,400 1.3% 4.7%

Year AskingRent

Percent Change

Effective Rent

Percent Change

Vacancy Rate

2009 $1,026 -2.3% $969 -2.5% 8.0%2010 $1,045 1.8% $992 2.4% 6.6%2011 $1,070 2.4% $1,019 2.7% 5.3%2012 $1,107 3.5% $1,061 4.1% 4.6%2013 $1,146 3.5% $1,100 3.7% 4.4%2014 $1,192 4.0% $1,146 4.2% 4.3%2015 $1,262 5.8% $1,212 5.7% 4.3%2016 $1,313 4.0% $1,260 3.9% 4.2%2017 $1,373 4.6% $1,309 3.9% 4.6%2018 $1,444 5.2% $1,374 5.0% 4.8%2019 $1,506 4.2% $1,431 4.1% 4.9%2020 $1,558 3.5% $1,479 3.4% 5.0%2021 $1,598 2.6% $1,516 2.5% 5.0%2022 $1,635 2.3% $1,550 2.3% 5.1%2023 $1,671 2.2% $1,583 2.1% 5.2%An

nual

Qua

rterly

– Vacancies flat in the second quarter at 4.7%; still waiting for the bulk of new deliveries to come in the second half of the year.

– Asking and effective rents exhibited their usual seasonal strength in the middle of the year, coming in at 1.2% and 1.3%, respectively.

– We expect a climb down in rent growth relative to 2018.

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-50

0

50

100

150

200

250

300

350

400

1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023

Vacancy Rate

Units

(In

Thou

sand

s)

Completions Net Absorption Vacancy Percent

Forecast

National Apartment MarketSupply & Demand Trends

Source: REIS, Real Estate Solutions by Moody’s Analytics;Top 50 Primary Apartment Markets

0%

1%

2%

3%

4%

5%

6%

7%

8%

0

2

4

6

8

10

12

14

16

1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023

Vacancy Rate

Units

(In

Thou

sand

s)


Forecast

New York Apartment MarketSupply & Demand Trends

Source: REIS, Real Estate Solutions by Moody’s Analytics

0

2

4

6

8

10

12

14

16

2013 2014 2015 2016 2017 2018 2019

Units

(Tho

usan

ds)

Bronx Brooklyn Manhattan Queens

Completions by Submarket (New York)2013-2019, Yearly


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

-10

-5

0

5

10

15

20

25

30

35

40

45

1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023

Vacancy Rate

Units

(In

Thou

sand

s)


Forecast


Los Angeles Apartment MarketSupply & Demand Trends

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018 2019

Units

(Tho

usan

ds)

Downtown Other Hollywood/Silver Lake Marina Del Rey/Venice/Westchester

Completions by Submarket (Los Angeles)2013-2019, Yearly


0%

2%

4%

6%

8%

10%

12%

14%

-9

-6

-3

0

3

6

9

12

1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 2023

Vacancy Rate

Units

(In

Thou

sand

s)


Forecast


Chicago Apartment MarketSupply & Demand Trends

0

2

4

6

8

10

2013 2014 2015 2016 2017 2018 2019

Uni

ts (T

hous

ands

)

City West Other Gold Coast The Loop

Completions by Submarket (Chicago)2013-2019, Yearly


3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

4.8

5.0

19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

Popu

latio

n (M

illio

ns)

Age in 2018

Demographic Tailwinds

Source: U.S. Census Bureau, Population Division

0%

5%

10%

15%

20%

25%

1989 1994 1999 2004 2009 2014 2019 2024

Vaca

ncy

Rate

s

CBD Suburban

Trends in Office Space per Employee


NY 1980 253NY 1981 248NY 1982 246NY 1983 241NY 1984 237NY 1985 234NY 1986 230NY 1987 223NY 1988 224NY 1989 224NY 1980-1989 236

Metrocode YearOcupied Stock per Employee

US 2013 127US 2014 126US 2015 124US 2016 123US 2017 122US 2018 121US 2013-2018 124

Metrocode YearOcupied Stock per Employee

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

$0

$2

$4

$6

$8

$10

2004 2006 2008 2010 2012 2014 2016

Billi

ons o

f Dol

lars

in S

ales

Electronics and appliance stores

Sporting goods, hobby, musical instrument, and book stores

Clothing Stores

% of Retail Revenue from E-commerce

Retail e-commerce trends


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

4Q 2008 4Q2010 4Q2012 4Q2014 4Q2016 4Q2018

Overall Mall Vacancy General Growth Properties Vacancy

Simon Property Group Vacancy SPG/GGP Excluded

Mall Vacancy TrendsSPG & GGP Vacancy vs. Overall Mall Vacancy

Source: REIS, Real Estate Solutions by Moody’s Analytics; Simon; Brookfield

3 | Other Rental Types

Demographic Tailwinds


Seniors Housing in the Second Quarter


8.2%

8.3%

8.4%

8.5%

8.6%

8.7%

8.8%

8.9%

9.0%

9.1%

9.2%

9.3%

9.4%

9.5%

9.6%

2017Q2 2017Q4 2018Q2 2018Q4 2019Q2

Aggregate Vacancy Rate

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

2.1%

2.4%

2.7%

2017Q2 2017Q4 2018Q2 2018Q4 2019Q2

Subsector Rent Growth Rates

Independent Living

Assisted Living

Memory Care

Skilled Nursing

0

10

20

30

40

50

60

70

80

1996 1998 2000 2002 2004 2006 2008 2010 2012 20140

20

40

60

80

100

120

ThousandsA Slide That Will Remain UntitledHow Did That Slide Get In There?

Source: Center for Disease Control

– Tables present Fall 2018 to Fall 2019 expected trends in vacancies and rent change.

– We expect a moderate decrease in vacancies, despite strong supply growth (particularly for properties that rent by the Bed).

– We expect a relatively good year (Fall 2018 to Fall 2019) for student housing properties –recent performance suggests that rent growth for properties that rent by the Bed will be strongest in the South Atlantic.

0% 1% 2% 3% 4% 5%

National

Northeast

South Atlantic

Midwest

Southwest

West

Regional Rent Growth, Fall 2018 – Fall 2019

Unit Bed

Vacancy Rate Vacancy Chg, BPS Rent Growth Inventory GrowthBed 4.9% -10 3.8% 4.7%Unit 2.5% -10 2.5% 1.4%

National Student Housing Market, Fall 2018 – Fall 2019

Student Housing in the Second Quarter


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0.0%

0.3%

0.6%

0.9%

1.2%

1.5%

1.8%

2.1%

2.4%

2.7%

3.0%

Orlando Atlanta Nashville Jacksonville New Orleans US Aggregate

Vacancy RateR

ent G

row

th

Top Five Affordable Housing Markets by 2019Q2 Rent Growth

Affordable Rent Growth Market Rate Rent Growth Affordable Vacancy Market Rate Vacancy

– National aggregations for vacancies of LIHTC properties dipped by 10 bps in the second quarter, to 2.3%.

– Because of relative supply and rent levels, rent growth for at least five LIHTC markets (see chart to the right) show stronger performance relative to comparable market rate multifamily units

– The shortage of affordable housing remains a hotly debated issue, prompting four states to enact rent regulation – with potentially adverse effects.

LIHTC in the Second Quarter


4 | Credit Markets

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Milli

ons

Debt Originations by YearThe Risk Allegedly Posed By Non-Bank Lenders

Source: Mortgage Bankers Association

Other

Life Co.

FHA

Freddie

Fannie

CMBS

Bank

5 | Closing Remarks

Summary & Parting Thoughts

‒ GDP growth slowed sharply in the second quarter relative to the first, but this was not unexpected. We expect the US economy to grow by 2.2% over 2019, well in line with the average rate over the last 10 years.

‒ Looser monetary policy: will it translate to a confirmation of underlying weakness, or a hopeful sign of monetary policy actively trying to forestall a recession? The jury is still out.

‒ Ongoing trade wars are depressing consumer and business sentiment.‒ Multifamily displaying resilience amidst a potential record year for new supply. Office

and retail fundamentals still dealing with pressures from economic, demographic, and technological change. Increasing evidence of industrial fundamentals being weighed down by trade war-related issues. Self-Storage dealing with oversupply. Senior still dealing with less demand than expected. Student and LIHTC with very tight vacancies and relatively strong rent growth, given latent demand.

Turning Points: Multifamily, Other Forms of Rentals, & The EconomyVictor Calanog PhDChief EconomistMoody’s Analytics [email protected]

mailto:[email protected]

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turning points - transunion · 2019-09-23 · 14.0% 16.0% 18.0% 20.0%-1000-800-600-400-200 0 200...

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