year-end 2009 office review & outlook€¦ · 20/1/2009 · leasing market outlook the capital...

The State of the Commercial Real Estate Industry:

Year-End 2009 Office Review & Outlook

© Copyright 2010 CoStar Group, Inc. All Rights Reserved. Although CoStar makes efforts to ensure the accuracy and reliability of

the information contained herein, the following information includes projections that are based on various assumptions by CoStar

concerning future events and circumstances, as well as historical and current data maintained in CoStar’s database. Actual results

may vary from the projections presented. The information in this presentation is provided ‘as is’ and CoStar expressly disclaims

any guarantees, representations or warranties of any kind, including those of merchantability and fitness for a particular purpose.

2 Bethesda Metro Center • Bethesda, MD USA 20814 • (800) 204-5960 • www.costar.com • NASDAQ: CSGP

Today

The Economy

The Property Leasing Market

Leasing Market Outlook

The Capital Market Impact

The Property Sales Market

Investment Market Outlook

New CoStar Analytic Features

© Copyright 2010 CoStar Group, Inc. Presented by Andrew Florance, President and CEO

Federal Stimulus

Residential

Bubble Burst

Credit

Jobs

Absorption

Vacancy

Rent

Net Op Inc

Cap RateDefaults

Supply

Inflation

Values

Taxes

Property Owner’s Perspective: Bad Neutral Good

The Active Drivers of the 2009 Office Market


The Economy


Inflation Adjusted Case-Shiller Index

60

80

100

120

140

160

180

200

220

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

1) 80% of Mortgages Being Purchased By Government2) First Time Homebuyer Tax Credit Extended3) Moratorium on Foreclosures Last Year


Source : Federal Reserve

(1,000)

(500)

0

500

1,000

1,500

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

Households Financial Businesses Government Non-financial Businesses

Quarterly (Billions $, SA)

Private Sector Deleveraging Is Ongoing


Annualized Change in GDP With Forecast

3.1%

4.3%

2.2%

-6.4%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

200

10

q4

200

10

q2

200

9 q

4

2009 q

2

200

8 q

4

200

8 q

2

200

7 q

4

200

7 q

2

200

6 q

4

200

6 q

2

200

5 q

4

200

5 q

2

200

4 q

4

200

4 q

2

200

3 q

4

200

3 q

2

200

2 q

4

2002 q

2

200

1 q

4

200

1 q

2

200

0 q

4

200

0 q

2


Inflation Adjusted S&P 500

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09


U.S. Imports & Exports

$40

$60

$80

$100

$120

$140

$160

$180

$200

Nov-95 Nov-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09

Bil

lio

ns

of

Do

lla

rs

Exports Imports


Federal Reserve’s

Industrial Production Index

75

80

85

90

95

100

105

110

115

Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09


ISM Purchase Managers Index

46.1

56.5

30

35

40

45

50

55

60

65

Dec-96 Nov-97 Nov-98 Nov-99 Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09

Over 50 = ExpansionUnder 50 = Contraction


30-Sep-54

31-Dec-54

31-Mar-55

30-Jun-55

30-Sep-55

31-Dec-55

31-Mar-56

30-Jun-56

30-Sep-56

Sources : Federal Reserve, BEA

-30%

-20%

-10%

0%

10%

20%

30%

40%

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

Business Investment Corporate Profits

Profits Will Come Back Before Investment


Consumer Confidence

87

40

50

60

70

80

90

100

110

120

Nov-78 Nov-80 Nov-82 Nov-84 Nov-86 Nov-88 Nov-90 Nov-92 Nov-94 Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08


Retail Sales

300

310

320

330

340

350

360

370

380

390

2009-122009-062008-122008-062007-122007-062006-122006-062005-122005-062004-12

Mil

lio

ns

of

Do

lla

rs

Source: Commerce Department


Personal Savings Saving As % of

Disposable Income

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2009 3q2005 3q2001 3q1997 3q1993 3q1989 3q1985 3q1981 3q1977 3q1973 3q1969 3q1965 3q1961 3q1957 3q1953 3q1949 3q


Worst Post-War Job Loss Periods –

By % of Workforce

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

Month 1 Month 7 Month 13 Month 19 Month 25 Month 31 Month 37 Month 43

October 1948 - July 1950 August 1953 - June 1955 May 1957 - April 1959

May 1960 - December 1961 August 1974 - February 1976 August 1981 - November 1983

July 1990 - February 1993 March 2001 - February 2005 January 2008 - ???


Measures Of Unemployment

17.3

11.4

10.5

10.0

6.3

5.9

13.7

8.5

7.8

7.4

4.4

3.0

0 5 10 15 20

Plus Part-time for Economic Reasons

Plus Other Marginally Attached

Plus Discouraged Workers

Unemployment Rate

Job losers and Persons Who Completed Temporary

Jobs

Persons Unemployed 15 Weeks or Longer

40178 39813

Source: Bureau of Labor Statistics


Total Employment Growth & Forecast

105

110

115

120

125

130

135

140

145

201220112010200920082007200620052004200320022001200019991998199719961995

Mil

lio

ns

Source: BLS, Economy.com

Less People Employed than were a decade ago


Employment Growth By Industry in

Fourth Quarter 2009

172,000

108,000

19,000

(1,000)

(2,000)

(8,000)

(21,000)

(22,000)

(28,500)

(35,600)

(63,400)

(80,000)

(110,000)

(136,000)

(200,000) (150,000) (100,000) (50,000) 0 50,000 100,000 150,000 200,000

Professional & Business Services

Education & Health Services

Government

Utilities

Mining and Logging

Financial Activities

Other Services

Information

Transportation and Warehousing

Wholesale Trade

Retail Trade

Leisure & Hospitality

Manufacturing

Construction


Office Employment Growth Forecast

-1,500

-1,000

-500

0

500

1,000

1,500

20122011201020092008200720062005200420032002200120001999199819971996199519941993199219911990

Th

ou

sa

nd

s o

f J

ob

s

2.2 million Office Jobs Lost in 2008-09

Source: Economy.com and CoStar


(200)

(150)

(100)

(50)

0

50

100

150

Los

An

gele

sW

ash

ingt

on

-N

oV

A -

MD

Ch

icag

oA

tlan

taN

ew Y

ork

Dal

las

-Fo

rt W

ort

hB

ost

on

Ph

oen

ixP

hila

del

ph

iaSe

attl

eO

ran

ge C

ou

nty

Ho

ust

on

No

rth

-C

entr

al N

ew J

erse

ySa

n F

ran

cisc

oM

inn

eap

olis

Den

ver

San

Die

goTa

mp

aEa

st B

aySt

. Lo

uis

Inla

nd

Em

pir

eM

iam

iP

itts

bu

rgh

San

Jo

seD

etro

itK

ansa

s C

ity

Salt

Lak

e C

ity

Au

stin

San

An

ton

ioLo

ng

Isla

nd

Po

rtla

nd

Ch

arlo

tte

Ind

ian

apo

lisO

rlan

do

No

rfo

lkB

alti

mo

reR

alei

ghC

olu

mb

us

Fort

Lau

der

dal

eSa

cram

ento

Ric

hm

on

dLa

s V

egas

Mem

ph

isN

ash

ville

Stam

ford

New

Orl

ean

sP

alm

Bea

ch C

ou

nty

Okl

aho

ma

Cit

yC

inci

nn

ati

Jack

son

ville

Har

tfo

rdC

leve

lan

dH

on

olu

luM

ilwau

kee

Office-Using Jobs (000)

Jobs Added Trough-2014 Office-Using Jobs Lost Peak-09Q3 (Past)

Forecast Office-Using Jobs Lost 09Q3-Trough (To Come)

Source: PPR; Moody’s Economy.com As of 09Q3

Some Markets Will Have Stronger

Recoveries Than Others

Wash DC

New York

Detroit


Year-End 2009 U.S. Office

Leasing Market Review


U.S. Historical Office Leasing Activity

50

60

70

80

90

100

110

120

130

140

150

2009 4q

2009 2q

2008 4q

2008 2q

2007 4q

2007 2q

2006 4q

2006 2q

2005 4q

2005 2q

2004 4q

2004 2q

2003 4q

2003 2q

2002 4q

2002 2q

2001 4q

2001 2q

2000 4q

Mil

lio

ns

of

Sq

ua

re F

ee

t


10% Unemploymentis the same as…

90% Employment

It is Better Being a Broker…

Is this glass10% Emptyor...

90% Full?

Approximately 10,000,000,000 Sq Ft in Commercial Real Estate Transactions annually

BEFORE

Approximately 9,473,000,000 Sq Ft in Commercial Real Estate transactions annually

After

Some things can not be delayed forever


Vacation to Paradise


(700)

(600)

(500)

(400)

(300)

(200)

(100)

0

100

200

300

400

(50,000,000)

(40,000,000)

(30,000,000)

(20,000,000)

(10,000,000)

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

20

00

4q

20

01

1q

20

01

2q

20

01

3q

20

01

4q

20

02

1q

20

02

2q

20

02

3q

20

02

4q

20

03

1q

20

03

2q

20

03

3q

20

03

4q

20

04

1q

20

04

2q

20

04

3q

20

04

4q

20

05

1q

20

05

2q

20

05

3q

20

05

4q

20

06

1q

20

06

2q

20

06

3q

20

06

4q

20

07

1q

20

07

2q

20

07

3q

20

07

4q

20

08

1q

20

08

2q

20

08

3q

20

08

4q

20

09

1q

20

09

2q

20

09

3q

20

09

4q

Absorption

Net Office Job Change


Net Job Growth Shifted 1 Qtr Versus

Office Absorption 2000 through 2009

2009 Net Absorption –

20 Largest Markets

1.3

1.1

0.5

0.2

0.1

(0.0)

(0.2)

(0.4)

(1.3)

(1.8)

(2.2)

(2.6)

(2.9)

(2.9)

(3.0)

(3.1)

(3.3)

(4.8)

(5.8)

(7.4)

(8) (7) (6) (5) (4) (3) (2) (1) 0 1 2

Minneapolis

Long Island (New York)

Dallas/Ft Worth

Northern New Jersey

Westchester/So Connecticut

Houston

Denver

Washington

Seattle/Puget Sound

Phoenix

Philadelphia

Detroit

Atlanta

South Florida

New York City

Orange (California)

Boston

Los Angeles

Chicago

San Francisco Bay Area

Millions of Square Feet


Fourth Quarter 2009 Net Absorption –

20 Largest Markets

1.6

1.0

0.9

0.9

0.6

0.6

0.5

0.5

0.5

0.5

0.4

0.4

0.2

0.1

(0.1)

(0.3)

(0.5)

(0.9)

(1.0)

(1.6)

(2) (2) (1) (1) 0 1 1 2 2

New York City

Chicago

Washington

Philadelphia

Denver

Northern New Jersey


Boston

Phoenix

Houston

Minneapolis

Dallas/Ft Worth

South Florida

Los Angeles

Seattle/Puget Sound


Atlanta


Orange (California)

Detroit



Office Deliveries by Year – %

2.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

201220092006200320001997199419911988198519821979197619731970196719641961

18%Excess

1%Excess

6%Excess


Record

Low

Under Construction – 20 Largest Markets

9.0

6.0

3.2

3.1

3.1

2.6

2.0

1.7

1.6

1.6

1.3

1.2

1.1

1.1

1.1

0.8

0.7

0.6

0.4

0.2

0 2 4 6 8 10

New York City

Washington

Dallas/Ft Worth

South Florida

Seattle/Puget Sound

Houston

Boston

Atlanta

Phoenix

Los Angeles

Philadelphia

Denver



Chicago

Northern New Jersey

Westchester/So …

Detroit

Orange (California)

Minneapolis


New York & D.C. 42% of all Construction


Office Total Available % vs. Vacant %

13%

18%

9%

10%

11%

12%

13%

14%

15%

16%

17%

18%

2005 1q 2005 4q 2006 3q 2007 2q 2008 1q 2008 4q 2009 3q

Vacancy Rate Availability Rate


Vacancy Rates – 20 Largest Markets

8%

8%

10%

11%

11%

12%

12%

13%

13%

13%

14%

14%

15%

15%

15%

15%

17%

17%

18%

21%

0% 5% 10% 15% 20% 25%

New York City


Minneapolis


Boston

Los Angeles

Philadelphia

Seattle/Puget Sound


Washington

Northern New Jersey

Houston

South Florida

Denver

Chicago

Orange (California)

Atlanta

Dallas/Ft Worth

Detroit

Phoenix


Actual & Inflation Adjusted Quoted Rents

$19

$20

$21

$22

$23

$24

$25

$26

2009 4q

2009 2q

2008 4q

2008 2q

2007 4q

2007 2q

2006 4q

2006 2q

2005 4q

2005 2q

2004 4q

2004 2q

2003 4q

2003 2q

2002 4q

2002 2q

2001 4q

2001 2q

2000 4q

Nominal Rents Real Rents

Down 20%


2009 Leasing Volume vs. Change in Rents

New York City

Washington

Chicago

Los AngelesSan Francisco Bay

Area

Philadelphia

Boston

Northern New Jersey

Dallas/Ft Worth

Atlanta

Houston

South Florida

Detroit

Denver

Seattle/Puget Sound


Phoenix

Long Island

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%

Ch

an

ge

in

Re

nts

Leasing Volume as Percentage of Market Inventory


Leasing Outlook


12/31/80

12/31/81

12/31/82

12/31/83

12/31/84

12/31/85

12/31/86

12/31/87

12/31/88

Source : Bureau of Census; PPR

0

500

1,000

1,500

2,000

2,500

81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11

1.08

1.09

1.10

1.11

1.12

1.13

1.14

New Households Housing Starts

Housing Ratio (Inventory/Households) Average Housing Ratio

New Households and Housing Starts (000) Housing Ratio

Home Building Will Recover From a Low

Base


Source : BLS

(5%)

(4%)

(3%)

(2%)

(1%)

0%

1%

2%

3%

4%

5%

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

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

Total Nonfarm Employment Average Weekly Hours Worked Temp Employment

Temp Employment (Year-Over-Year Grow th)Employment and Hours Worked (Year-Over-Year Grow th)

Leading Indicators Signaling Tentative

Employment Recovery


Forecast Matrix


U.S. Office Vacancy Forecast – PPR

0%

2%

4%

6%

8%

10%

12%

14%

(50)

(40)

(30)

(20)

(10)

0

10

20

30

40

50

60

2001 1q 2002 1q 2003 1q 2004 1q 2005 1q 2006 1q 2007 1q 2008 1q 2009 1q 2010 1q 2011 1q 2012 1q 2013 1q 2014 1q

Va

ca

nc

y R

ate

Mil

lio

ns

of

Sq

ua

re F

ee

t

Absorption Deliveries Vacancy Rate


Key Assumptions:Strong EmploymentPhantom Space offset by Low Construction

U.S. Office Occupancy & Rent Growth

85%

86%

86%

87%

87%

88%

88%

89%

89%

90%

90%

-$2.00

-$1.50

-$1.00

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2001 4q 2002 4q 2003 4q 2004 4q 2005 4q 2006 4q 2007 4q 2008 4q 2009 4q 2010 4q 2011 4q 2012 4q 2013 4q 2014 4q

Oc

cu

pa

nc

y R

ate

Ch

an

ge

in

Re

nt

Year-Over-Year Change in Nominal Rent Occupancy Rate


Renewals Will Not Generate Rent Growth

For Some Time

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

50%

M-9

5S

-95

M-9

6S

-96

M-9

7S

-97

M-9

8S

-98

M-9

9S

-99

M-0

0S

-00

M-0

1S

-01

M-0

2S

-02

M-0

3S

-03

M-0

4S

-04

M-0

5S

-05

M-0

6S

-06

M-0

7S

-07

M-0

8S

-08

M-0

9S

-09

M-1

0S

-10

M-1

1S

-11

M-1

2S

-12

M-1

3S

-13

M-1

4S

-14

Asking Rent % Difference From Five Years Prior

Without Rent Steps With 3% Annual Rent Steps


Office Cash Flows Are Slow To Recover

(15%)

(10%)

(5%)

0%

5%

10%

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Y/Y % Change in NOI


Will Assets Values

Climb with Falling

Cash Flow?

Source : Moody's Economy.com, BLS

Atlanta

Austin

Boston

Charlotte

Chicago

Cincinnati

Cleveland

Dallas - Fort Worth

Denver

Detroit

Fort Lauderdale

Houston

Indianapolis

Inland Empire

Las Vegas

Long Island

Los Angeles

Memphis

MiamiMinneapolis

New Orleans

New York

Oklahoma City

Orange County

OrlandoPalm Beach County

Philadelphia

Phoenix Portland

Raleigh

Sacramento

San Antonio

San DiegoSan FranciscoSan Jose

SeattleTampa

Washington - NoVA - MD

5%

10%

15%

-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

East MidWestSouth West

2010 Job Grow th

2011-14 Job Grow th

Weak Near Term,

Strong Long Term

Strong Near Term,

Strong Long Term

Weak Near Term,

Weak Long Term

Strong Near Term,

Weak Long Term

Tech, Energy & Demographics

Help Drive Performance


West Coast Will Have Strongest

Fundamentals Recovery

(11%)

(9%)

(7%)

(5%)

(3%)

(1%)

1%

Cin

cin

na

tiC

ha

rlo

tte

Pitts

bu

rgh

Hon

olu

luL

as V

ega

sN

ew

Orle

an

sC

leve

lan

dS

an

An

ton

ioO

kla

ho

ma

City

Orla

nd

oL

on

g Isla

nd

Sa

lt L

ake

City

St.

Lo

uis

Ka

nsa

s C

ity

Dalla

s -

Fort

Wo

rth

Hou

sto

nP

hila

de

lph

iaH

art

ford

Milw

au

ke

eS

acra

me

nto

Po

rtla

nd

Ric

hm

on

dD

etr

oit

Me

mp

his

Na

sh

vill

eR

ale

igh

Fort

La

ud

erd

ale

Ja

ckso

nvill

eN

orf

olk

Wash

ingto

n -

NoV

A -

MD

New

Yo

rkS

tam

ford

Mia

mi

Ta

mp

aIn

dia

na

po

lisC

olu

mb

us

Pa

lm B

ea

ch

Cou

nty

De

nve

rN

ort

h -

Cen

tral N

ew

Je

rsey

Bo

sto

nC

hic

ago

Atla

nta

Sa

n D

iego

Ea

st B

ay

Se

att

leL

os A

nge

les

Min

ne

ap

olis

Ora

nge

Cou

nty

Ba

ltim

ore

Inla

nd

Em

pire

Ph

oe

nix

Sa

n J

ose

Sa

n F

ran

cis

co

Au

stin

Difference in Vacancy Rate from 09Q3 to 14Q4

East MidWestSouth West Other


Market Recovery Will Vary OFFICE RENT DECLINE AND RECOVERY

(25%)

(15%)

(5%)

5%

15%

25%

35%

Se

att

le

Min

ne

ap

olis

Rale

igh

Ho

usto

n

Sa

n J

ose

De

nve

r

Dalla

s -

Fort

Wo

rth

Sa

n F

ran

cis

co

Bo

sto

n

Ph

ilad

elp

hia

Ne

w Y

ork

Ora

nge

Cou

nty

Po

rtla

nd

Mia

mi

Wash

ingto

n -

NoV

A -

MD

Ea

st B

ay

PP

R54

Au

stin

Sa

n D

iego

Sa

cra

me

nto

No

rth

-C

en

tra

l N

ew

Je

rse

y

Cha

rlo

tte

Ph

oe

nix

Lo

s A

nge

les

Ch

icago

Atla

nta

Rent Growth

2009Q3 To Trough Trough To 2014 2009Q3 To 2014


Capital Markets


Historical Low For Federal Funds Rate

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Jul-54 Jul-57 Jul-60 Jul-63 Jul-66 Jul-69 Jul-72 Jul-75 Jul-78 Jul-81 Jul-84 Jul-87 Jul-90 Jul-93 Jul-96 Jul-99 Jul-02 Jul-05 Jul-08


Interbank Trust Has Improved

Dramatically

0

50

100

150

200

250

300

350

400

450

500

Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09

TED Spread Long Term Average


Unprofitable Banks By State

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

ME

OK

VT

WV

LA

NM

ND

ARIAKY

MS

MT

NE

SD

WY

TX

WI

IN

MA

KS

OH

MN

MO

PA

CO

NYIL

TN

CT

VAHI

MD

AL

NH

NJ

MI

NC

UT

DE

SCRI

GA

CA

OR

WA

DCIDFL

NV

AZ


(10%)

(5%)

0%

5%

10%

15%

20%

74 79 84 89 94 99 04 09

Bank Credit is Tight

Source: Federal Reserve

Year-Over-Year Growth


CRE Has Become Much More Securitized


0

2

4

6

8

10

12

14

Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09

Delinquency Rate

(%)

Industrial Lodging Multi-Family Office Retail All

Source: Trepp

CMBS Delinquency Rates


CMBS Issuances

$26

$37

$74

$57

$47

$67

$52

$78

$93

$169

$203

$230

$12

$3

$0

$50

$100

$150

$200

$250

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Bil

lio

ns

of

Do

lla

rs in

CM

BS

Is

su

an

ce

s© Copyright 2010 CoStar Group, Inc. Presented by Andrew Florance, President and CEO

Historical Demand for Debt


Source: NAREIT

*As of October 2009

0

10,000

20,000

30,000

40,000

50,000

60,000

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

*

($, Millions)

IPOs Secondary Equity Unsecured Debt Secured Debt

REITS Will Be a Force


$864,839,825

$352,881,808

$133,030,830

-$116,450,000

-$1,204,162,463

-$1,500,000,000

-$1,000,000,000

-$500,000,000

$0

$500,000,000

$1,000,000,000

2009 Net Buying by Investor Type


-$600,000,000

-$500,000,000

-$400,000,000

-$300,000,000

-$200,000,000

-$100,000,000

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

User REIT/Public Private Private Equity Institutional

Net Q1

Net Q2

Net Q3

Net Q4

Net Buy by Group and Qtr Office

Investment Grade 2009


Sales Market Current

Conditions


Average Days on Market Before

Office Property Sells

200

220

240

260

280

300

320

340

360

380

2005 2q 2005 4q 2006 2q 2006 4q 2007 2q 2007 4q 2008 2q 2008 4q 2009 2q 2009 4q


U.S. Office Days on Market vs. Selling

Price as a Percent of Asking Price

82

84

86

88

90

92

94

96

120

170

220

270

320

370

420

2006 q1

2006 q2

2006 q3

2006 q4

2007 q1

2007 q2

2007 q3

2007 q4

2008 q1

2008 q2

2008 q3

2008 q4

2009 q1

2009 q2

2009 q3

2009 q4

Pe

rce

nt o

f As

kin

g P

rice

Da

ys

on

Ma

rke

t

Days on Market Percent of Ask


Dollar Volume of Office Sales Withdrawn

From The Market

$0

$2

$4

$6

$8

$10

$12

2005 2q 2005 4q 2006 2q 2006 4q 2007 2q 2007 4q 2008 2q 2008 4q 2009 2q 2009 4q

Bil

lio

ns

of

Do

lla

rs


Office Cap Rates

8.2

8.1

5.7

10.0

4

5

6

7

8

9

10

11

2009 4q2008 4q2007 4q2006 4q2005 4q2004 4q2003 4q2002 4q2001 4q2000 4q1999 4q1998 4q1997 4q1996 4q1995 4q

Ca

p R

ate

Pe

rce

nta

ge

Average Cap Rate Weighted Average Cap Rate

Up 59%

Up 29%


Class A Office Inflation Adjusted Sales

Price Per Square Foot

$269

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550


Pri

ce P

er

Sq

ua

re F

oo

t

Up 230%(9.3% Annualized)

Down 50%


Class B Office Inflation Adjusted Sales

Price Per Square Foot

$169

$50

$100

$150

$200

$250

$300

$350


Pri

ce P

er

Sq

ua

re F

oo

t

Down 62%


Case-Shiller Index & CoStar’s Office Repeat Sale

Price Index (100=Year 2000)

80

100

120

140

160

180

200

2009 4q2008 4q2007 4q2006 4q2005 4q2004 4q2003 4q2002 4q2001 4q2000 4q

Case Shiller Index CoStar Office Repeat Sales Index


Government Stimulus:Residential $700BCommercial $3B?

55

60

65

70

75

80

85

90

95

100

105

t0 t1 t2 t3 t4 t5 t6 t7 t8 t9 t10 t11 t12 t13 t14 t15 t16 t17 t18 t19 t20 t21 t22 t23 t24

Value Index

1990s Dow nturn 2001 Dow nturn Current Dow nturn NCREIF Forecast

Sources: NCREIF; PPR

NCREIF Value Index


2009 Sales Prices/SF – 20 Largest Markets

$383

$305

$274

$210

$199

$179

$158

$151

$148

$142

$139

$115

$109

$108

$106

$91

$81

$80

$75

$54

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450

New York City

Washington


Seattle/Puget Sound

Los Angeles

Orange (California)

Boston

Northern New Jersey

Chicago


South Florida

Denver

Phoenix

Minneapolis

Houston

Atlanta


Philadelphia

Dallas/Ft Worth

Detroit


3/31/03

6/30/03

9/30/03

12/31/03

3/31/04

6/30/04

9/30/04

12/31/04

3/31/05

6/30/05

9/30/05

12/31/05

3/31/06

6/30/06

0

1,000

2,000

3,000

4,000

5,000

6,000

03Q2 03Q4 04Q2 04Q4 05Q2 05Q4 06Q2 06Q4 07Q2 07Q4 08Q2 08Q4 09Q2 09Q4

Number of

Transactions

$0

$50

$100

$150

$200

$250

Total Value

($ billions)

Number of Transactions Price

Source: CoStar Group, Inc. * As of 09Q4

Transactions Greater Than $5 Million


Class A Office Number of Sales

100

0

50

100

150

200

250



Class B Office Number of Sales

600

0

200

400

600

800

1,000

1,200



2009 Sales Volume vs. Change in Price/SF

New York City

Washington

Chicago

Los Angeles


Philadelphia

Boston

Northern New Jersey

Dallas/Ft Worth

Atlanta

Houston South Florida

Detroit

Denver

Minneapolis

Seattle/Puget Sound

Westchester/So ConnecticutPhoenix


Orange (California)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000

Ch

ange

in P

rice

/SF

Millions of Dollars in Sales Volume


Index of Vacancy Adjusted Rents & Sales

Prices (Both Inflation Adjusted)

50

60

70

80

90

100

110

120

130

140

2009 4q2008 4q2007 4q2006 4q2005 4q2004 4q2003 4q2002 4q2001 4q2000 4q

Vacancy Adjusted Office Rent As An Index Office Sales Prices As An Index


Multifamily And Retail Assets Make Up Nearly

Two-Thirds of Distressed Transactions

Hospitality2% Industrial

14%

Multifamily34%

Office19%

Retail31%


Office Accounted For Disproportionate

Share Of 2009 Distressed Dollar Volume

Hospitality13%

Industrial8%

Multifamily25%

Office43%

Retail11%


Distressed Sales Are Happening

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

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

Millions

$ Volume of Distressed Transactions* Percent of Transaction Volume Considered Distressed

*Includes all transactions with sale condition listed as Distressed Sale, REO Sale, or Short Sale

Source: CoStar Group


Investment Market Outlook


More Pain For Office In Near Term But

Sizable Returns On The Horizon (new invest)

(30%)

(25%)

(20%)

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

25%

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Income Return Appreciation Return Total Return


A Few Markets Offer Relative Value OFFICE CAP RATES VERSUS FORECAST RENT GROWTH

Rent Growth, 2009Q3 - 2013Q4

Cap Rate (2009Q3)

Source: PPR

New YorkOrange County

Boston

North - Central New Jersey

San Francisco

East Bay

Los Angeles

PPR54

San Diego

Phoenix

Raleigh

Minneapolis

Sacramento

Austin

San Jose

Seattle

Miami

PhiladelphiaDallas - Fort Worth

Charlotte

Atlanta

PortlandWashington - NoVA -MD

Chicago

DenverHouston

(15%)

(10%)

(5%)

0%

5%

10%

15%

20%

6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50%

Re

nt G

row

th 2

00

9 -

2014

Cap Rate


2007-01-03

2007-01-10

2007-01-17

2007-01-24

2007-01-31

2007-02-07

2007-02-14

2007-02-21

2007-02-28

Source: Federal Reserve

0

500

1,000

1,500

2,000

2,500

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09

600

700

800

900

1,000

1,100

1,200

1,300

U.S. Treasury Securities Federal Agency Debt

RMBS Repurchase Agreements

Direct Bank Lending Bear Stearns & AIG Rescue Funds

Commercial Paper/Money Market Facilities Term Asset-Backed Securities Loan Facility (TALF)

Central Bank Liquidity Swaps Other Credit

Gold Price

Balance Sheet ($ Billions) Gold Price ($/Troy Oz.)

Federal Reserve Bank Credit

(Balance Sheet)


Sources : BLS; Moody's Economy.com

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

16%

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Total Core

Year-Over-Year Change

Prices Already Rebounding


Source : Federal Reserve

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

1 Month 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 7 Years 10 Years

11/30/09 05/30/09 11/30/08 05/30/08

Treasury Yield Curve is Increasingly Steep


Sources: Moody's Economy.com; Federal Reserve; PPR

0%

2%

4%

6%

8%

10%

12%

14%

16%

67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13

60%

65%

70%

75%

80%

85%

90%

Core Inflation M2 Growth Capacity Utilization

Co

re In

flat

ion

an

d M

2 G

row

th

Cap

acit

y U

tiliz

atio

n

But the Economy’s Awash in Spare Capacity

Money, Capacity Utilization and Inflation


Sources: OFHEO; NCREIF; PPR

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Inflation Home Prices (OFHEO) Commercial Property Prices (NCREIF)

Y/Y

Ch

ange

Inflation

Real Estate Performed Well in the 1970’s

U.S. Real Estate and Inflation


3/31/2007 0:00

6/30/2007 0:00

9/30/2007 0:00

12/31/2007 0:00

3/31/2008 0:00

6/30/2008 0:00

9/30/2008 0:00

12/31/2008 0:00

3/31/2009 0:00

6/30/2009 0:00

9/30/2009 0:00

12/31/2009 0:00

3/31/2010 0:00

6/30/2010 0:00

Source : PPR

50

60

70

80

90

100

110

07 08 09 10 11 12 13 14

Apartment Office Retail Warehouse

Value Indices


Summary


Federal Stimulus

Residential

Bubble Burst

Credit

Jobs

Absorption

Vacancy

Rent

Net Op Inc

Cap RateDefaults

Supply

Inflation

Values

Taxes

Property Owner’s Perspective: Bad Neutral Good

The Active Drivers of the 2009 Office Market


CoStar.com Release

New Features


Charts That Show Scatter Plot Data

Average Cap Rate

Median Cap Rate

Gross Rent Multiplier

Average Time to Sale

Average Price per Building SF

Average Price per Land SF

Average Price per Acre

Average Price per Room

Average Price per Unit

Average Sale Price

Median Price per Building SF

Median Price per Land SF

Median Price per Acre

Median Price per Room

Median Price per Unit

Median Price per Acre

Sale Price to Asking Price Differential


San Diego – Selected Retail Properties

San Diego

San Diego – Selected Retail Properties

Scatter Chart

Over Heated Market Spreads Increase

Thank You


year-end 2009 office review & outlook€¦ · 20/1/2009 · leasing market outlook the capital...

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