2014 U.S. Economic, Office and Industrial Market Overview and Outlook July 16, 2014
U.S. Economic Overview
U.S. GDP Growth Persistent Despite 1Q Polar Vortex Annualized Quarterly Percent Change 10% 5% 0% -5% -10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * Forecast Sources: Marcus & Millichap Research Services, BEA
Confidence Rising as Headwinds Abate Consumer Confidence Small Business Optimism Consumer Confidence Index 160 120 80 40 0 Budget Set Until Sept 2015 Debt Ceiling Locked In Until Mar 2015 120 110 100 90 80 Small Business Optimism Index 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * Through May Index: December 2002 = 100 Sources: Marcus & Millichap Research Services, The Conference Board, NFIB
Corporate Profits Well Above Prior Peak Fixed Investments Still Lag Corporate Profits** Fixed Investment in Equipment 40% $600 Y-O-Y Change in Investment 20% 0% -20% -40% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 * Through 1Q ** Trailing 12-month average Sources: Marcus & Millichap Research Services, BEA 2010 2011 2012 2013 2014* $450 $300 $150 $0 Corporate Profits ($ Bil.)
Quarterly Employment Steady Full Recovery of Jobs Lost in Recession Quarterly Job Growth (Mil.) 0.9 0.0-0.9-1.8-2.7-8.7 Million 8.2 Million 9.1 Million 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* * Through 2Q Sources: Marcus & Millichap Research Services, BLS
Full Jobs Recovery But Not For All Metros Absolute Change Jan. 2008-May 2014 Top 10 Metros Absolute Change Percent Change 12 Mo s Change* Bottom 10 Metros Absolute Change Percent Change 12 Mo s Change* Houston 289,400 11.2% 96,800 New York 246,400 6.5% 74,800 Dallas-Ft. Worth 208,300 7.0% 115,300 Austin 116,700 15.1% 31,300 San Francisco 80,500 7.9% 28,100 Washington, D.C. 78,500 2.6% 4,800 San Antonio 78,100 9.2% 24,400 Denver 70,000 5.6% 35,900 Boston 67,400 2.7% 38,472 Nashville 62,900 8.2% 25,900 U.S. Total 127,000 0.3% 2,408,000 Chicago -116,000-2.5% 17,900 Phoenix -89,100-4.6% 24,000 Detroit -82,600-4.2% -4,100 Northern NJ -67,200-3.4% 17,900 Las Vegas -59,300-6.4% 25,900 Philadelphia -52,800-1.9% 21,400 Orange County -42,700-2.8% 24,600 St. Louis -40,200-2.9% 15,000 Cleveland -38,200-3.6% 9,000 Sacramento -23,100-2.5% 25,000 U.S. Total 127,000 0.3% 2,408,000 * Trailing 12-month change through May Sources: Marcus & Millichap Research Services, BLS
U.S. Economic Overview
National Office Overview
Office-Using Job Growth Steady; Office Absorption Choppy But Rising 2.4 Job Growth Net Absorption 40 Job Growth (Mil.) 1.2 0.0-1.2 20 0-20 Net Absorption (Mil. of Sq. Ft.) -2.4-40 * Through 2Q Sources: Marcus & Millichap Research Services, BLS, CoStar Group Inc.
160 Office Vacancies Tighten as Construction Creeps Higher Completions Class A Vacancy Class B/C Vacancy 20% Completions (Mil. of Sq. Ft.) 120 80 40 320 bps 170 bps 17% 14% 11% 8% Average Vacancy Rate 0 01 02 03 04 05 06 07 08 09 10 11 12 13 14* 5% * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
2014 Forecast National Office Vacancy Rank by Metro Top 10 Metros 2014* Vacancy Y-O-Y Bps Change Bottom 10 Metros 2014* Vacancy Y-O-Y Bps Change Portland 9.9% -150 San Francisco 10.1% -170 New York 10.2% -70 Nashville 11.0% -70 San Jose 11.0% -130 Austin 11.1% -80 Salt Lake City 11.7% -100 Columbus 12.0% -80 Indianapolis 12.0% -120 Seattle 12.0% -130 U.S. Average 14.8% -120 Las Vegas 20.9% -90 Northern NJ 19.8% -20 Detroit 19.6% -140 Phoenix 18.8% -180 Palm Beach 18.6% -90 Washington, D.C. 18.1% -70 Chicago 17.8% -70 Dallas-Ft. Worth 17.6% -160 Fort Lauderdale 17.5% -60 Sacramento 17.2% -120 U.S. Average 14.8% -120 * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
National Office Overview
National Industrial Overview
Post-Recession Retail Sales by Store Type; ecommerce Reshaping Industrial Landscape Post-Recession Growth Change from Dec. 2008 to May 2014 Electronic Shopping as % of Retail Sales 12.0% Nonstore Retailers Apparel Restaurants/Bars Building Materials Health/Personal Grocery Miscellaneous General Merchandise 24.7% 22.3% 18.8% 17.9% 16.6% 15.7% 12.0% 57.3% Percent of Sales 9.5% 7.0% 4.5% Furniture & Electronics 8.9% Sporting Goods 7.4% 2.0% 0% 15% 30% 45% 60% 1993 1996 1999 2002 2005 2008 2011 2014* * Through April Excludes auto & gas sales Sources: Marcus & Millichap Research Services, U.S. Census Bureau
Amazon Distribution Centers and Population Density * As of June 26, 2014 Sources: Marcus & Millichap Research Services, U.S. Census Bureau, Amazon.com
Top 10 Online Retailers Business Models Evolving Top 10 Retailers Online Sales* ($ Mil.) Y-O-Y Bps Change Amazon $67,855 20.3% Apple $18,300 24.0% Staples $10,400 1.0% Wal-Mart $10,030 30.3% Sears $4,900 16.7% Liberty Interactive (QVC/HSN) $4,800 11.6% Netflix $4,375 21.2% Macy's $4,150 31.0% Office Depot $4,100 1.0% Dell $3,550-9.0% *2013 Sources: Marcus & Millichap Research Services, MPF Research
Industrial Vacancies Tighten Construction Begins to Ramp Up Completions Vacancy Rate 280 14% Completions (Mil. of Sq. Ft.) 210 140 70 12% 10% 8% Average Vacancy Rate 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14* 6% * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
National Industrial Vacancy Rank by Metro Top 10 Metros 2014* Vacancy Y-O-Y Bps Change Bottom 10 Metros 2014* Vacancy Y-O-Y Bps Change Salt Lake City 3.9% -60 Orange County 4.4% -70 San Antonio 4.5% -120 Los Angeles 4.7% -50 Denver 4.9% -10 Inland Empire 5.1% -10 Houston 5.2% 20 New York 5.3% -50 Seattle 5.3% -40 Kansas City 5.6% -50 U.S. Average 7.1% -100 Phoenix 11.5% -150 Las Vegas 10.5% -130 Sacramento 10.3% -190 Atlanta 10.2% -120 Charlotte 10.2% -140 Jacksonville 10.0% -110 Detroit 9.4% -100 Tampa-St. Petersburg 9.0% -90 San Jose 8.9% -70 Orlando 8.8% -70 U.S. Average 7.1% -100 * Forecast Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
National Industrial Overview
National Sales Trends Overview
U.S. Office and Industrial Investment Trends Annual Transactions by Price Tranche Office $1M-$10M $10M-$20M $20M+ Industrial $1M-$10M $10M-$20M $20M+ 12 12 Total Transactions (000s) 9 6 3 0 02 03 04 05 06 07 08 0910 11 1213 1H13 1H14 * Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics Total Transactions (000s) 9 6 3 0 02 03 04 05 06 07 08 0910 11 1213 1H13 1H14
National Office and Industrial Price and Cap Rates Office Industrial $250 Average Price Cap Rate 10% $80 Average Price Cap Rate 10% Average Price per Square Foot $200 $150 $100 9% 8% 7% Average Cap Rate Average Price per Square Foot $60 $40 $20 9% 8% 7% Average Cap Rate $50 02 04 06 08 10 12 14* 6% $0 02 04 06 08 10 12 14* 6% * YTD Estimate Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc.
Office and Industrial Cap Rate Trends by Market Type Office Cap Rates Primary Secondary Tertiary Industrial Cap Rates Primary Secondary Tertiary 10% 10% Average Cap Rate 9% 8% 7% 6% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 9% 8% 7% 6% 2004 2005 * YTD Estimate Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, Real Capital Analytics, CoStar Group, Inc. Average Cap Rate 2006 2007 2008 2009 2010 2011 2012 2013 2014*
Office and Industrial Cap Rate Trends Average Cap Rates vs. 10-Year Treasury 12% Office Cap Rate 10-Year Treasury Rate Cap Rate Long-Term Avg. 12% Industrial Cap Rate 10-Year Treasury Rate Cap Rate Long-Term Avg. Average Rate 9% 6% 3% 480 bps 490 bps 10-Yr Treasury Long-Term Avg. 530 bps 230 bps 630 bps 470 bps Average Rate 9% 6% 3% 450 bps 500 bps 10-Yr Treasury Long-Term Avg. 520 bps 270 bps 650 bps 490 bps 0% 1993 1996 1999 2002 2005 2008 2011 2014* 0% 1993 1996 1999 2002 2005 2008 2011 2014* * Through July 7 Includes sales $1 million and greater Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics
National Sales Trends Overview
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2014 U.S. Economic, Office and Industrial Market Overview and Outlook July 16, 2014