STRUCTU FINANCE Special Report CMBS: Red Yellow Green Update, Fourth Quarter 2008 AUTHS: Keith Banhazl VP-Sr Analyst (212) 553-1485 Keith.Banhazl@moodys.com Jared Noordyk Senior Associate (212) 553-4601 Jared.Noordyk@moodys.com Timothy Clinton Senior Associate (212) 553-1481 Timothy.Clinton@moodys.com Isadora Rothstein Senior Associate (212) 553-7983 Isadora.Rothstein@moodys.com Andrea Daniels VP-Sr Credit Officer (212) 553-4416 Andrea.Daniels@moodys.com MOODY'S CLIENT SERVICES: New York +1-212-553-1653 Tokyo +81-3-5408-4100 London +44-20-7772-5454 Hong Kong +852-3551-3077 Sydney +61-2-9270-8100 Singapore +65-6398-8308 WEBSITE: www.moodys.com CONTENT Overview Multifamily Green Status Intact but Vacancy Continues to Rise Retail Score Drops as Absorption Declines and Vacancy Rises CBD Office Slips Further Into Yellow Territory Suburban Office Score on the Decline Again Industrial Gains a Point as Supply-Demand Mismatch Narrows Full-Service Hotels Dip Into Red Territory Limited-Service Hotel Score Suffers With Negative RevPAR Growth OVERVIEW Moody s quarterly Red-Yellow-Green report measures the health of the commercial real estate markets that support the majority of loans in commercial mortgage backed securities (CMBS). This report is based on data from the third quarter of 2008. Six of the seven property types saw quarter-over-quarter declines in score (industrial gained one point) and all seven are down relative to a year ago (see Figure 1). For the first time since the first quarter of 2003, a composite score entered red territory, as fullservice hotels hit a score of red, 33. Hotels have experienced the most score deterioration, with full-service down 26 points from last year and limited-service down 42 points. Multifamily and retail remain green though they continue to weaken, while both office sectors, the industrial sector, and limited-service hotels have yellow scores. As the economic recession continues to negatively impact commercial real estate, we anticipate further downward movement of red-yellow-green scores across most sectors. Year-over-year RevPAR growth in both hotel sectors and demand projections for both CBD and suburban offices have reached all-time lows, but with consumer spending on the decline and the unemployment rate rising, the already weakened metrics that comprise the scores should continue to deteriorate. In addition, as retailers are shuttering underperforming stores and companies are consolidating, absorption rates should shrink even further. Five of the seven property-types are exhibiting a pullback in demand projections this quarter, which will likely lead to wider supply-demand imbalances in the near future. As supply already outpaces demand in all but the retail sector (retail demand exceeds supply by only 0.1%), increased vacancy rates are also anticipated in the coming quarters. With a bleak macroeconomic outlook for 2009, the red-yellow-green scores are expected to follow a similar trend as fundamentals in commercial real estate worsen. January 15, 2009
Score 100 90 80 70 60 50 40 30 20 10 0 Figure 1 Red-Yellow-Green Scores: Year-over-Year and Quarter-to-Quarter Change Multifamily Retail* CBD Office Suburban Office Dec 2007 (Year-over-year) Dec 2008 Report (current) Yellow-Green Boundary Industrial Full Svc. Hotel Ltd. Svc. Hotel Sept 2008 (quarter-to-quarter) Red-Yellow Boundary *Please note that the methodology used for scoring retail markets changed as of September 2008. See Moody s Red-Yellow-Green Update, Third Quarter 2008 for details. With the exception of the industrial sector, all other property types saw the dispersion of scores shifted downward (see Figure 2). The most significant movements can be seen in the hotel sectors, as their concentrations are now almost completely in the low-yellow and red range. Multifamily, retail and office dispersions are widening, as the recession affects some markets more severely than others. 100 Figure 2 Dispersion of Red-Yellow-Green Scores by Property Type Green 67 Score Yellow 33 Red 0 Multifamily Retail CBD Office Sub'n Office Industrial Line represents composite score for property type Full-Service Hotel Ltd-Service Hotel 2 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
This quarter, the majority, 44% of the individual markets, are still in yellow territory (see Figure 3). However, the share of red markets continues to increase, as 27% are red compared to only 19% last quarter, while the share of green markets is down to 29% from last quarter s 34%. Multi- Family Figure 3 Market Stress Comparison 4th Quarter 2008 and 3rd Quarter 2008 Retail Office: CBD Office: Suburban Industrial Hotel: Full Svc. Hotel: Ltd. Svc. Red 4Q 2008 0 3 6 22 6 35 25 3Q 2008 0 4 4 20 7 23 12 Yellow 4Q 2008 19 23 32 28 23 15 18 3Q 2008 13 17 32 29 26 23 28 Green 4Q 2008 41 27 8 2 22 0 5 3Q 2008 47 32 10 3 18 4 8 No. of Markets 4Q 2008 60 53 46 52 51 50 48 3Q 2008 60 53 46 52 51 50 48 Composite Score 4Q 2008 G: 79 G: 70 Y: 59 Y: 37 Y: 62 R: 33 Y: 35 3Q 2008 G: 81 G: 73 Y: 63 Y: 42 Y: 61 Y: 49 Y: 50 3 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
The multifamily sector slipped two points this quarter, though it remained firmly green with a score of 79. A slight increase in vacancy, from 5.6% to 5.8%, was enough to offset a minor increase in projected absorption, which narrowed the supply-demand imbalance to -0.1% from -0.2%. The score for neighborhood and community centers lost three points this quarter, falling to green, 70. Following suit, 38 markets saw their scores decrease, with the general trend being increased vacancy. Composite vacancy grew from 9.3% last quarter to 9.8%, representing a year-over-year rise of 1.3%. In addition, projected absorption slowed to 1.1% from 1.5%, narrowing demand s margin over supply to 0.1%, in from 0.4% last quarter. Offices in central business districts (CBDs) dropped four points this quarter, to a score of yellow, 59. An absorption projection of -0.9%, combined with an increased supply pipeline of 1.5%, resulted in a -2.4% supply-demand imbalance, the widest it has been since we began reporting scores for this sector. The top ten CBD office markets showed similar deterioration, as the weighted average supply-demand imbalance moved from -1.2% to -2.4%. Last quarter s slight gain in the suburban office sector was erased as the score fell five points to yellow, 37. Composite vacancy increased from 15.1% to 15.4% and 50 out of the 52 covered markets reported double-digit vacancy rates. In addition, projected absorption pulled back while the supply pipeline increased, further expanding the supply-demand mismatch to -2.5% from -2.0% last quarter. Seven of the top ten markets also saw deterioration in their scores. In contrast to all other property types, the composite score for the industrial sector moved up one point to yellow, 62 this quarter. A slight slowdown in the projected supply pipeline, from 0.9% to 0.7%, met with a similar increase in projected absorption, from 0.3% to 0.5%, narrowing the supply-demand imbalance to -0.2% from last quarter s -0.6%. Twenty-three markets saw their scores improve, largely due to comparable shifts in their supply-demand relationships. The full-service hotel sector slumped into red territory this month as its score fell from yellow, 49 to red, 33. Composite RevPAR posted year-over-year growth of only 0.7%, its lowest rate since at least 2004, and lagged the baseline target by -3.5%. The demand projection for the coming year is weak at -3.4%, while the supply pipeline remains at +3.4%, creating a significant imbalance of -6.8%. The negative score movement of the last five quarters continued, as the limited-service hotel sector shed another 15 points to a score of yellow, 35. The trends behind the deterioration were similar to those in the full-service sector. Year-over-year RevPAR exhibited negative growth at -0.6%, compared to +1.4% last quarter, while trailing the baseline by -8.2%. Similarly, projected demand dropped to 0.4% from 1.1%; so with supply remaining constant, the supply-demand imbalance widened to -1.8%. 4 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Greatest Deterioration Orlando CBD Office Long Island Limited-Service Hotel Fort Lauderdale Limited-Service Hotel Orlando Full-Service Hotel Richmond Limited-Service Hotel Figure 4 Markets with Greatest Deterioration or Improvement Market 4 th Q 08 Score 3 rd Q 08 Score Change R: 0 Y: 44 R: 6 R: 23 R: 13 Y: 59 G: 88 Y: 42 Y: 57 Y: 46-59 -44-36 -34-33 Miami Suburban Office Tampa Full-Service Hotel San Diego Full-Service Hotel Columbus Full-Service Hotel Boston Full-Service Hotel R: 9 R: 10 Y: 41 R: 3 R: 17 Y: 42 Y: 42 G: 72 Y: 34 Y: 48-33 -32-31 -31-31 Hartford Limited-Service Hotel Miami Full-Service Hotel Fort Worth Full-Service Hotel Baltimore Limited-Service Hotel Oakland Limited-Service Hotel R: 0 R: 19 R: 11 R: 7 R: 19 R: 31 Y: 49 Y: 40 Y: 36 Y: 48-31 -30-29 -29-29 Detroit Limited-Service Hotel Nashville CBD Office Sacramento CBD Office Riverside Suburban Office Honolulu Full-Service Hotel R: 6 R: 0 Y: 38 R: 27 Y: 56 Y: 35 R: 29 G: 67 Y: 56 G: 84-29 -29-29 -29-28 Oakland Full-Service Hotel Tampa Limited-Service Hotel Kansas City Limited-Service Hotel Boston Limited-Service Hotel Albuquerque Limited-Service Hotel R: 15 R: 0 R: 25 R: 20 Y: 51 Y: 43 R: 28 Y: 53 Y: 48 G: 78-28 -28-28 -28-27 Trenton Limited-Service Hotel West Palm Beach Limited-Service Hotel Riverside Retail Cleveland Limited-Service Hotel Jacksonville Suburban Office R: 1 R: 18 R: 28 R: 10 R: 0 R: 27 Y: 44 Y: 53 Y: 34 R: 24-26 -26-25 -24-24 Philadelphia Full-Service Hotel Trenton Full-Service Hotel Chicago Limited-Service Hotel Raleigh Limited-Service Hotel Detroit Multifamily R: 19 R: 16 R: 6 R: 17 Y: 66 Y: 42 Y: 39 R: 29 Y: 40 G: 89-23 -23-23 -23-23 5 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Tampa Suburban Office Indianapolis Retail Columbus Limited-Service Hotel San Diego Limited-Service Hotel New York Limited-Service Hotel Figure 4 Markets with Greatest Deterioration or Improvement Market 4 th Q 08 Score 3 rd Q 08 Score Change R: 7 Y: 35 R: 31 Y: 48 Y: 47 R: 30 Y: 58 Y: 53 G: 70 G: 68-23 -23-22 -22-21 Miami Retail Kansas City Full-Service Hotel New Orleans Full-Service Hotel Charlotte Limited-Service Hotel Columbus CBD Office G: 71 R: 26 R: 11 R: 15 Y: 37 G: 92 Y: 46 R: 31 Y: 35 Y: 57-21 -20-20 -20-20 Kansas City Suburban Office Sacramento Retail Hartford Full-Service Hotel Detroit Full-Service Hotel Fort Lauderdale Full-Service Hotel Y: 36 Y: 52 R: 18 R: 10 R: 20 Y: 56 G: 72 Y: 37 R: 29 Y: 39-20 -20-19 -19-19 Phoenix Limited-Service Hotel Long Island Industrial Fort Worth Suburban Office Detroit Retail Cleveland Retail R: 0 Y: 42 R: 30 R: 12 Y: 42 R: 19 Y: 61 Y: 49 R: 31 Y: 61-19 -19-19 -19-19 San Antonio Full-Service Hotel Raleigh Full-Service Hotel West Palm Beach Full-Service Hotel Cincinnati Limited-Service Hotel Philadelphia Limited-Service Hotel R: 5 R: 16 R: 8 Y: 40 Y: 41 R: 23 Y: 34 R: 26 Y: 58 Y: 59-18 -18-18 -18-18 San Diego Suburban Office Newark Industrial Tulsa Multifamily Newark Full-Service Hotel Memphis Full-Service Hotel R: 3 Y: 56 G: 68 R: 2 R: 0 R: 21 G: 73 G: 85 R: 18 R: 16-18 -17-17 -16-16 Tucson Limited-Service Hotel COMPOSITE Full-Service Hotel Raleigh CBD Office Seattle CBD Office COMPOSITE Limited-Service Hotel Las Vegas Multifamily Y: 37 R: 33 Y: 54 R: 30 Y: 35 Y: 34 Y: 53 Y: 49 G: 70 Y: 46 Y: 50 Y: 49-16 -16-16 -16-15 -15 6 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Greatest Improvement Tucson CBD Office* Trenton Retail Austin Industrial Minneapolis Full-Service Hotel Denver Limited-Service Hotel Figure 4 Markets with Greatest Deterioration or Improvement Market 4 th Q 08 Score 3 rd Q 08 Score Change G: 76 Y: 47 Y: 42 Y: 35 G: 73 R: 0 R: 0 R: 10 R: 5 Y: 46 +76 +47 +32 +30 +27 Miami CBD Office Pittsburgh Full-Service Hotel Indianapolis Industrial Austin Full-Service Hotel Nashville Suburban Office R: 28 Y: 60 Y: 66 Y: 55 Y: 57 R: 2 Y: 36 Y: 42 R: 32 Y: 36 +26 +24 +24 +23 +21 Seattle Full-Service Hotel Wilmington Industrial Fort Worth CBD Office Ventura County Suburban Office Indianapolis Full-Service Hotel R: 29 Y: 62 Y: 62 Y: 38 R: 18 R: 9 Y: 42 Y: 43 R: 19 R: 0 +20 +20 +19 +19 +18 Hartford Industrial Dallas Limited-Service Hotel Charlotte Industrial Y: 64 Y: 65 G: 75 Y: 46 Y: 48 Y: 58 * Tucson CBD Office score for 3Q08 was reported in the last RYG report inaccurately due to a data error. The corrected score for 3Q08 is G: 78. +18 +17 +17 7 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
The previous table, Figure 4, lists those markets where the score changed by 15 points or more from the previous quarter across sectors. The table below, Figure 5, is also a cross-sector summary, but of those markets where one of two conditions is expected to prevail for the next year going forward: Supply Watch. New supply is expected to increase the existing inventory over the next year by 5% or more. Supply-Demand Watch. The growth in supply is expected to exceed the growth in demand over the next year by 5% or more (i.e., the supply-demand imbalance > 5%). These are markets that, by definition, merit watching. Figure 5 Cross-Sector Market Watch: Vigorous Supply or Potential Supply-Demand Imbalance Supply Watch Multifamily Las Vegas 5.2% None Supply-Demand Watch Retail None None CBD Orlando 8.3% Orlando -9.0% Office Seattle 6.6 Seattle -5.9 Nashville 6.2 Charlotte 5.8 Suburban Las Vegas 7.4% Miami -6.7% Office San Jose 6.7 San Jose -6.7 Austin 6.1 Jacksonville -6.3 Jacksonville 5.2 Las Vegas -6.3 Miami 5.0 Orlando -5.2 Industrial None None Full-Service Miami 10.2% Phoenix -20.2% Hotel San Antonio 9.2 Fort Worth -17.4 Charlotte 9.0 Charlotte -16.8 Phoenix 9.0 Houston -16.7 Richmond 8.8 Miami -16.2 Fort Worth 7.7 Memphis -13.5 West Palm Beach 7.3 Portland -13.5 Houston 5.6 Baltimore -13.4 Baltimore 5.4 San Antonio -13.1 Memphis 5.2 Denver -12.8 8 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Figure 5 Cross-Sector Market Watch: Vigorous Supply or Potential Supply-Demand Imbalance Supply Watch Supply-Demand Watch Nashville 5.2 Indianapolis -12.7 Dayton 5.1 Tucson -12.3 Minneapolis -11.7 Pittsburgh -11.4 Fort Lauderdale -11.1 New York -11.0 Seattle -10.9 Richmond -10.7 New Orleans -9.5 Washington DC -9.2 Columbus -7.3 Nashville -6.3 St. Louis -6.1 Cincinnati -5.8 Los Angeles -5.5 Chicago -5.1 Dayton -5.0 Limited-Service Hartford 8.6% Hartford -20.3% Hotel Baltimore 6.1 New York -16.9 Fort Lauderdale 5.7 San Antonio -10.3 Fort Worth 5.7 Indianapolis -8.6 Indianapolis 5.4 Detroit -6.8 Houston -6.2 Dayton -5.8 Chicago -5.1 Newark -5.1 Portland -5.1 9 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
MULTIFAMILY STATUS INTACT BUT VACANCY CONTINUES TO RISE The multifamily composite score fell from 81 in the previous quarter to 79, but the sector remains firmly green. While the supply pipeline is unchanged at 1.5% for the third consecutive quarter, the vacancy rate is up for the fourth straight quarter, increasing from 5.6% to 5.8%. Though the vacancy rate increased only slightly, a 0.1% upswing in projected absorption, from 1.3% to 1.4%, was not enough to offset it. As a result, the supply-demand relationship remains close to equilibrium, although weighted slightly toward supply at -0.1%. Forty-two markets saw their scores decline this period, while scores grew in 15 markets. Altogether, 41 of the 60 covered markets possess green scores, and the remaining 19 are yellow. There are no red multifamily markets for the second quarter in a row. While seven markets slid from green to yellow, one market, Tucson (green, 78) climbed from yellow to green (see Figure 6). Forty-two markets have vacancy rates in excess of 5.0%, versus twenty-one markets from the fourth quarter of 2007. Jacksonville (yellow, 49) is the only market with a double-digit vacancy rate, having increased this quarter from 9.8% to 10.0%. Notable positive and negative score changes occurred during the past quarter. The largest score increase was a 12-point jump in Tucson, from yellow, 66 to green, 78. This significant rise was a result of a 1.8% decline in vacancy, from 9.1% last quarter to 7.3%. The largest score decrease was a 23-point fall in Detroit, from green, 89 to yellow, 66. The substantial decline was due to a 2.6% increase in vacancy, from 5.4% last quarter to 8.0%. Figure 6 Multifamily Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Tucson (66 78) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Chicago (72 64) Detroit (89 66) Greensboro (70 61) Greenville (71 62) Raleigh (72 61) Riverside (75 63) San Antonio (69 66) The Best and the Worst The three multifamily markets of all 60 markets scored with the strongest and weakest measures on several variables are listed below. Highest overall score: Pittsburgh (green, 96); Columbus (green, 92); Boston, San Diego and San Francisco, all green, 91. Lowest overall score: Las Vegas (yellow, 34); Jacksonville (yellow, 49); Phoenix (yellow, 52). Least construction: Detroit, 0.2% (yellow, 66); Cleveland, 0.3% (green, 75); Dayton (green, 76), Pittsburgh and West Palm Beach (green, 84), all 0.4%. Most construction: Las Vegas, 5.2%; Austin, 4.2% (yellow, 59); Charlotte, 4.1% (yellow, 57). Most absorption: Jacksonville, 6.7%; Greensboro, 6.2% (yellow, 61); Raleigh, 5.3% (yellow, 61). Least absorption: Oakland, -0.7% (green, 71); Miami, -0.2% (green, 77); Chicago (yellow, 64), El Paso (yellow, 54) and Portland (yellow, 54), all -0.1%. 10 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Best supply-demand relationship: Greensboro, 4.5%; Jacksonville, 4.2%; Birmingham, 3.2% (green, 85). Worst supply-demand imbalance: El Paso, -2.8%; Las Vegas, -2.3%; Salt Lake City, -2.1% (yellow, 58). Lowest vacancy: Pittsburgh, 2.7%; Newark (green, 79) and San Diego, both 3.4%. Highest vacancy: Jacksonville, 10.0%; Phoenix, 9.8%; Greensboro, 8.6%. Figure 7 Multifamily Market Diagnostic Supply Significantly Greater Than Demand Very High Vacancy High Increased Significantly (0-16) Vacancy Moderate Increased Somewhat (17-33) Vacancy Low Stable to Falling Las Vegas 34 El Paso 54 Supply Somewhat Greater Than Demand Somewhat High Supply No More Than Slightly Greater Than Demand Restrained (17-33) Jacksonville 49 Phoenix 52 Orlando 53 Detroit 66 Houston 54 Portland 54 Charlotte 57 Seattle 57 Salt Lake City 58 Austin 59 Greensboro 61 Greenville 62 Tulsa 68 Memphis 71 Kansas City 72 Nashville 72 Tampa 72 Fort Worth 73 Louisville 74 New York 74 Orange County 74 Cleveland 75 Dallas 75 Indianapolis 75 (67-83) COMPOSITE 79 Raleigh 61 Riverside 63 Chicago 64 Atlanta 65 San Antonio 66 Cincinnati 76 Dayton 76 Los Angeles 77 Philadelphia 78 Tucson 78 Newark 79 Norfolk 79 Denver 80 Honolulu 80 Oklahoma City 81 St. Louis 81 Baltimore 83 Fort Lauderdale 83 (67-83) Edison 71 Oakland 71 Miami 77 Washington DC 82 (84-100) Minneapolis 84 Sacramento 84 San Jose 84 West Palm Beach 84 Birmingham 85 Richmond 87 Albuquerque 88 Boston 91 San Diego 91 San Francisco 91 Columbus 92 Pittsburgh 96 11 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
RETAIL SCE DROPS AS ABSPTION DECLINES AND VACANCY RISES The composite score for neighborhood and community centers shed three points this quarter, from green, 73 to green, 70, as the struggling economy continues to take its toll on the sector. The supply pipeline tightened slightly from 1.1% last quarter to 1.0% of current inventory, marking its lowest point since 2005. However, with retailers closing underperforming stores and cutting back on expansion plans as a result of the current recession, projected absorption slowed to 1.1% from last quarter s 1.5%. The result is a near equilibrium between supply and demand, with demand outpacing supply by a mere 0.1%, in from 0.4% last quarter. Although retail is the only property type with a favorable supply-demand relationship, ongoing stress from decreased consumer spending could lead to a reversal of this balance in the coming quarters. Further illustrating this point, the vacancy rate rose to 9.8%, up from 9.3% last quarter and 8.5% one year ago. Following suit, more than two-thirds of the covered markets (36 out of 53 markets) saw a quarterover-quarter increase in vacancy, and year-over-year vacancy is up in 40 markets. Overall, scores decreased in 38 markets this quarter, while 11 increased and four remained the same. Consequently, the number of green markets dropped from 32 to 27, the number of yellow markets increased from 17 to 23 and the number of red markets decreased from four to three. Trenton saw the largest score improvement, moving from red, 0 to yellow, 47 as its projected supply pipeline shrunk to 2.9% from last quarter s 7.2%, reigning in the supply-demand imbalance to -1.1% from -5.4%. Alternatively, Riverside saw the most downward movement, dropping from yellow, 53 to red, 28 as its vacancy rate grew to 9.8% from 8.6% last quarter, which represents a year-over-year increase of 3.6%. Figure 8 Shopping Center Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Trenton (0 47) Las Vegas (62 71) Tucson (33 46) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Cincinnati (67 60) Oakland (70 64) Orlando (69 63) Sacramento (72 52) St. Louis (67 66) Tampa (79 66) Riverside (53 28) The Best and the Worst The three retail markets of all 53 markets scored with the strongest and weakest measures on several variables are listed below. Highest overall score: San Francisco (green, 93); Orange County, (green, 91); Boston and Newark, both green, 84. Lowest overall score: Detroit (red, 12); Riverside (red, 28); Wilmington (red, 31). Least construction: Long Island (green, 81), Newark and Orange County, all with zero construction. Most construction: Fresno, 3.6% (green, 69); Las Vegas (green, 71) and Trenton (yellow, 47), both 2.9%. Most absorption: Fresno, 9.6%; Las Vegas, 3.8%; Seattle, 3.0% (green, 75). 12 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Least absorption: Detroit, -1.4%; Cleveland (yellow, 42) and Riverside, both -1.0%. Best supply-demand relationship: Fresno, 6.0%; Seattle, 1.8%; New York, 1.7% (green, 80). Worst supply-demand imbalance: Riverside, -2.6%; Wilmington, -2.0%; Detroit, -1.6%. Lowest vacancy: San Francisco, 2.9%; Orange County, 3.9%; Honolulu, 4.5% (green, 83). Highest vacancy: Detroit, 18.1%; Columbus, 16.1% (yellow, 38); Forth Worth, 15.5% (yellow, 52). Figure 9 Retail Market Diagnostic Supply Significantly Greater Than Demand Very High Supply Somewhat Greater Than Demand Somewhat High Supply No More Than Slightly Greater Than Demand Restrained Vacancy High Increased Significantly (0-16) Detroit 12 (17-33) Riverside 28 Wilmington 31 Indianapolis 35 Columbus 38 Cleveland 42 Tucson 46 Fort Lauderdale 47 Trenton 47 Chicago 50 Fort Worth 52 Sacramento 52 Kansas City 54 Dallas 55 Jacksonville 57 Charlotte 58 Cincinnati 60 Phoenix 60 Bakersfield 62 Denver 63 Orlando 63 Oakland 64 Houston 66 St. Louis 66 Tampa 66 Vacancy Moderate Increased Somewhat (17-33) (67-83) Oklahoma City 67 Fresno 69 Las Vegas 71 Philadelphia 72 Austin 73 Portland 73 Seattle 75 Washington DC 75 Albuquerque 77 Los Angeles 77 Minneapolis 77 Atlanta 56 COMPOSITE 70 Nashville 77 West Palm Beach 77 San Diego 78 Ventura Country 78 Edison 79 New York 80 Long Island 81 Baltimore 82 Salt Lake City 82 Honolulu 83 San Jose 83 Vacancy Low Stable to Falling (67-83) Miami 71 (84-100) Boston 84 Newark 84 Orange County 91 San Francisco 93 13 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
CBD OFFICE SLIPS FURTHER INTO TERRITY Offices in central business districts (CBDs) continued to decline in score for the third consecutive quarter with a yellow, 59. The supply-demand disparity of -2.4% reverses the improvement from last quarter and is the widest since we started reporting on the sector in the fourth quarter of 2003. The nationwide supply pipeline has increased to 1.5% from 1.1% last quarter. As the economy continues to slow, demand expectations of -0.9% are considerably below the velocity of new construction. At the same time, vacancy decreased slightly to 9.7%, down from 9.8% a quarter ago. Overall the sector has taken a step back as more markets deteriorated in score (31) than improved (13), a reversal from last quarter. Six CBD markets are red, up from four a quarter ago. In addition, the number of green markets declined from ten to eight this quarter. The market with the largest decline in score for CBD markets was Orlando (red, 0). Orlando saw its score drop from yellow to red as vacancy increased from 12.6% to 14.6% and construction grew from 1.7% a quarter ago, to 8.3%. Increased Construction in the Top Ten The top ten markets changed course again and resorted back to showing signs of weakening. This quarter only five of the top ten markets are green while four of the remaining five are yellow, with one falling to red as Seattle (red, 30) shed 16 points. As the ten largest CBD markets account for roughly threefourths of all the CBD space, the conditions in those markets can greatly impact the sector s composite score. As in the case of the overall sector, the supply-demand relationship widened for top ten markets. The main drivers were increases in supply pipelines and decreases in demand, which left a mismatch in eight of the top ten markets. The largest imbalance is in Seattle, where the supply-demand relationship is -5.9%. Raleigh (yellow, 54) and Pittsburgh (green, 69) are the only two top ten markets with a positive supplydemand relationship. The weighted average vacancy for the top ten remained constant at 7.7%, with six reporting a year-overyear increase in vacancy. In addition, three markets have vacancy rates in the double digits: Raleigh, 13.0%, Pittsburgh, 12.6% and Chicago, 10.8% (yellow, 51). Figure 10 CBD Office Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Cincinnati (66 68) Tucson (0 76) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Baltimore (70 63) New York (69 66) Raleigh (70 54) Sacramento (67 38) The Best and the Worst Denver (46 33) Orlando (59 0) Seattle (46 30) The three CBD office markets of all 46 markets scored with the strongest and weakest measures on each of several variables are listed below. Highest overall score: Boston (green, 84); Portland (green, 80); Tucson and Houston, both green, 76. Lowest overall score: Detroit, Nashville and Orlando, all red, 0. 14 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Least construction: Twenty markets have zero construction, including Dallas (yellow, 43), Minneapolis (yellow, 61) and Philadelphia (green, 69). Most construction: Orlando, 8.3%; Seattle, 6.6% (red, 30); Nashville, 6.2%. Most absorption: Raleigh, 5.9% (yellow, 54); Charlotte, 1.5% (yellow, 57); Baltimore (yellow, 63) and Dallas, both 1.4%. Least absorption: Detroit, -2.7%; St. Louis, -2.5% (yellow, 34); New York, -2.4% (yellow, 66). Best supply-demand relationship: Raleigh, 1.8%; Baltimore and Dallas, both 1.4%. Worst supply-demand imbalance: Orlando, -9.0%; Seattle, -5.9%; Nashville and Sacramento (yellow, 38), both -4.9%. Lowest vacancy: Charlotte, 3.2%; New York, 4.8%; Fort Worth, 5.3% (yellow, 62). Highest vacancy: Detroit, 26.9%; Dallas, 22.2%; San Jose (yellow, 48) and St. Louis, both 18.1%. Figure 11 CBD Office Market Diagnostic Supply Significantly Greater Than Demand Very High Supply Somewhat Greater Than Demand Somewhat High Vacancy High Increased Significantly (0-16) Detroit 0 Nashville 0 Orlando 0 (17-33) Miami 28 Denver 33 Vacancy Moderate Increased Somewhat (17-33) Vacancy Low Stable to Falling Seattle 30 Charlotte 57 Fort Worth 62 New York 66 Sacramento 38 Salt Lake City 38 Chicago 51 Washington DC 53 COMPOSITE 59 Raleigh 54 Oakland 55 Honolulu 61 (67-83) Supply No More Than Slightly Greater Than Demand Restrained St. Louis 34 Columbus 37 Tampa 38 Cleveland 41 Dallas 43 Phoenix 43 Wilmington 45 San Diego 47 Fort Lauderdale 48 San Jose 48 Albuquerque 49 Indianapolis 49 Memphis 49 Hartford 50 Jacksonville 50 Atlanta 51 Kansas City 52 Los Angeles 54 Minneapolis 61 Baltimore 63 Las Vegas 63 Austin 64 (67-83) Cincinnati 68 Philadelphia 69 Pittsburgh 69 San Francisco 74 Houston 76 Tucson 76 Portland 80 (84-100) Boston 84 15 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
SUBURBAN OFFICE SCE ON THE DECLINE AGAIN The suburban office sector dropped five points this quarter to 37 and remains yellow. Vacancy in the sector remains high at 15.4%, up from 15.1% last quarter, as 50 of the 52 covered markets exhibit double-digit rates. In addition, six markets have vacancies above 20%: Edison (red, 32), Chicago (red, 27), Cincinnati (red, 20), Detroit (red, 19), Jacksonville (red, 0) and Phoenix (red, 0). The supply-demand imbalance widened this quarter from -2.0% to -2.5% as both the rate at which new supply is being added increased slightly from 1.9% to 2.1% and expected demand growth weakened as it fell to -0.4% from 0.0% a quarter ago. Similar to its CBD counterpart, the suburban segment is expected to continue to see increasing supply met with diminishing demand. The total number of red markets increased by two this quarter, with four markets falling from yellow to red but only two improving from red to yellow (see Figure 12). The number of green markets dropped from three to two as Stamford (yellow, 57) slipped to yellow. Overall 11 markets improved, 38 deteriorated and three stayed the same. Top Ten Slips Due to Weakening Demand Accounting for approximately half (47%) of all the space, the ten largest suburban markets are less dominant within this sector than they are on the CBD side. However, scores in the top ten reflect this quarter s composite sector performance and remain primarily yellow. This quarter eight of the ten largest markets are yellow as Dallas (yellow, 42) improved from red to yellow, while the remaining two are red. Seven of the ten markets deteriorated in score as two improved. In all ten markets supply is expected to outpace demand growth over the next year. The largest supply-demand imbalance is in Houston (yellow, 35), -4.2%, as a large construction pipeline of 4.6% is expected. The smallest supply-demand disparity is in Dallas, -0.4%. Vacancy for all the top ten markets is in the double-digits with five markets increasing from a quarter ago. The three markets with the highest vacancies consist of Chicago, 20.1%, Dallas, 19.8% and Orange County, 17.7% (red, 16). On a year-over-year basis, most of the movement within the top ten has been within a narrow band. Orange County is the one outlier with the vacancy rate surging from 11.4% last year to 17.7%. Figure 12 Suburban Office Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Dallas (33 42) Ventura County (19 38) WSE: Green Yellow WSE: Yellow Red WSE: Green Red The Best and the Worst Stamford (71 57) Edison (44 32) Fort Worth (49 30) Miami (42 9) Riverside (56 27) The three suburban office markets of all 52 markets scored with the strongest and weakest measures on several variables are listed below. Highest overall score: Honolulu (green, 72); Trenton (green, 71); Long Island (yellow, 60). Lowest overall score: Jacksonville, Las Vegas, Phoenix and San Jose, all red, 0. 16 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Least construction: Hartford (yellow, 39), Honolulu and Tucson (yellow, 51), all with zero construction. Most construction: Las Vegas, 7.4%; San Jose, 6.7%; Austin, 6.1% (red, 11). Most absorption: Charlotte, 2.3% (yellow, 53); Trenton, 1.7%; Baltimore, 1.6% (yellow, 40). Least absorption: New York, -3.5% (yellow, 40); Orange County, -3.0% (red, 16); Detroit, -2.4%, (red, 19). Best supply-demand relationship: Charlotte, 1.2%; Trenton, 0.1%; Dallas (yellow, 42), Edison (red, 32) and Tucson, all -0.4%. Worst supply-demand imbalance: Miami (red, 9) and San Jose, both -6.7%; Jacksonville and Las Vegas, both -6.3%. Lowest vacancy: Honolulu, 8.7%; Long Island, 9.9%; San Francisco, 10.6% (yellow, 47). Highest vacancy: Phoenix, 22.0%; Detroit and Edison, both 21.1%. Figure 13 Suburban Office Market Diagnostic Supply Significantly Greater Than Demand Very High Supply Somewhat Greater Than Demand Somewhat High Supply No More Than Slightly Greater Than Demand Restrained Jacksonville 0 Las Vegas 0 Phoenix 0 San Jose 0 San Diego 3 Vacancy High Increased Significantly (0-16) (17-33) Sacramento 18 Detroit 19 Cincinnati 20 Salt Lake City 22 West Palm Beach 22 Chicago 27 Kansas City 36 Ventura County 38 Hartford 39 Indianapolis 40 Dallas 42 Newark 44 Atlanta 45 Philadelphia 45 COMPOSITE 37 Tampa 7 Miami 9 Austin 11 Orlando 15 Orange County 16 Denver 27 Riverside 27 Fort Worth 30 Edison 32 Fort Lauderdale 32 Wilmington 32 Washington DC 46 Columbus 47 Portland 48 Minneapolis 50 Oakland 50 Boston 51 Tucson 51 Charlotte 53 Vacancy Moderate Increased Somewhat (17-33) Houston 35 Baltimore 40 New York 40 Albuquerque 41 Seattle 42 St. Louis 45 (67-83) Trenton 71 Honolulu 72 Cleveland 46 San Francisco 47 Los Angeles 52 Nashville 57 Stamford 57 Long Island 60 Vacancy Low Stable to Falling (67-83) (84-100) 17 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
INDUSTRIAL GAINS A POINT AS SUPPLY-DEMAND MISMATCH NARROWS The industrial sector ended its four-quarter drop, as the only property-type with positive movement this quarter ticked up one point to yellow, 62. In contrast to the score improvement, composite vacancy continued to increase for the fourth straight quarter, to 10.7% from 10.3% last period. This represents a year-over-year rise of 1.4%. However, a slight contraction of the supply pipeline, to 0.7% from last quarter s 0.9%, coupled with a mild boost in projected absorption, from 0.3% to 0.5%, led to a narrower supply-demand mismatch this quarter. The resulting -0.2% imbalance is in from last quarter s -0.6% and is the primary cause of the minor composite score growth. Market-by-market score movement was fairly evenly split, as 23 markets saw some improvement while scores decreased in 21 markets, with seven remaining the same as last quarter. Consequently, the market composition consists of 22 green markets, 23 yellow markets, and six red markets. Austin (yellow, 42), which saw the largest score decline last quarter, made up all of its lost points as it returned to yellow territory due to a 2.1% shift in its supply-demand imbalance, from -3.5% to -1.4%. Similarly, all but one of the improving markets experienced change for the better in their supply-demand imbalances this quarter. There was also a common trend among most of the worsening markets, as the vacancy rate increased in all but two. Figure 14 Industrial Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Austin (10 42) Washington DC (30 35) Charlotte (58 75) Denver (61 69) Fort Lauderdale (58 67) Las Vegas (64 70) Nashville (62 70) Philadelphia (59 71) Portland (65 74) San Francisco (61 67) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Albuquerque (74 64) Newark (73 56) Sacramento (67 53) San Diego (67 65) Stamford (42 31) The Best and the Worst The three industrial markets of all 51 markets scored with the strongest and weakest measures on several variables are listed below. Highest overall score: Los Angeles (green, 84); Salt Lake City and Kansas City, both green, 79. Lowest overall score: Trenton (red, 0); Phoenix (red, 6); Jacksonville (red, 10). Least construction: Cleveland (green, 75) and Hartford (yellow, 64), both have zero construction; Eight markets have 0.1% construction, including Minneapolis (green, 73). Most construction: Jacksonville, 3.7%; Austin, 2.3% (yellow, 42); Fort Worth (yellow, 51) and Riverside (red, 26), both 2.0%. Most absorption: Albuquerque, 4.1% (yellow, 64); Houston (green, 73) and Las Vegas (green, 70), both 2.6%. Least absorption: Long Island, -2.5% (yellow, 42); Trenton, -2.3%; Detroit, -1.0% (red, 29). Best supply-demand relationship: Albuquerque, 2.9%; Las Vegas, 1.7%; West Palm Beach, 1.6% (yellow, 58). 18 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Worst supply-demand imbalance: Jacksonville, -3.1%; Long Island and Trenton, both -2.6%. Lowest vacancy: Los Angeles, 5.4%; Salt Lake City, 6.3%; Tucson, 6.4% (green, 74). Highest vacancy: Trenton, 19.0%; Detroit, 17.5%; Stamford, 15.9% (red, 31). Figure 15 Industrial Market Diagnostic Supply Significantly Greater Than Demand Very High Vacancy High Increased Significantly (0-16) Trenton 0 Phoenix 6 Jacksonville 10 Vacancy Moderate Increased Somewhat (17-33) Vacancy Low Stable to Falling Supply Somewhat Greater Than Demand Somewhat High (17-33) Riverside 26 Detroit 29 Stamford 31 Austin 42 Long Island 42 Fort Worth 51 (67-83) Supply No More Than Slightly Greater Than Demand Restrained Washington DC 35 Orlando 39 Dallas 42 Columbus 44 Chicago 45 Sacramento 53 Boston 54 Newark 56 Atlanta 58 Baltimore 58 St. Louis 58 West Palm Beach 58 Edison 59 Miami 61 Wilmington 62 Albuquerque 64 Hartford 64 Tampa 64 San Diego 65 Indianapolis 66 COMPOSITE 62 (67-83) Fort Lauderdale 67 Orange County 67 San Francisco 67 Denver 69 Oakland 69 San Jose 69 Cincinnati 70 Las Vegas 70 Nashville 70 New York 71 Philadelphia 71 Houston 73 Minneapolis 73 Portland 74 Tucson 74 Charlotte 75 Cleveland 75 Seattle 77 Ventura County 77 Kansas City 79 Salt Lake City 79 (84-100) Los Angeles 84 19 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
FULL-SERVICE HOTELS DIP INTO TERRITY The full-service hotel sector dropped 16 points this quarter, breaching the red-yellow border with a score of red, 33 and erasing the slight resurgence seen last quarter when the score increased from yellow, 43 to yellow, 49. While last quarter s upturn was a result of improvement in both year-over-year RevPAR growth and RevPAR relative to its baseline target, both metrics deteriorated this quarter. Year-over-year RevPAR growth fell from 3.3% last quarter to a meager 0.7%, marking the lowest growth rate since Moody s began reporting separate full- and limited-service hotel scores in 2004. In fact, 28 of the 50 covered markets saw a decrease in year-over-year RevPAR. In addition, composite RevPAR again landed below its baseline target (the average of 1998 and 1999 RevPAR adjusted for inflation and seasonality) by -3.5%, reversing course from last quarter s +1.7%. On the supply-demand side, the construction pipeline held steady at 3.4% but the demand forecast, measured by projected RevPAR growth, dipped further to -3.4%, down from -1.8% last quarter. The resultant supply-demand imbalance is -6.8%, a further widening from last period s -5.2%. Forty-two markets reflect the same sentiment as the composite score, with supply outpacing demand. Scores decreased in 37 markets this quarter, while nine increased and four remained flat, bringing the total number of red markets to 35 from 23, and leaving the remaining 15 markets in yellow territory. Fifteen markets slumped from yellow to red, while last quarter s four green markets all fell to yellow. Eleven markets dropped by more than 20 points, with the common trend among them being a pullback in year-over-year RevPAR growth coupled with worsening RevPAR relative to their baseline targets. Orlando (red, 23) experienced the most significant decrease, shedding 34 points as year-over-year RevPAR growth retreated from 0.8% to -5.8% and the baseline RevPAR lag fell to -18.5% from -3.0% last quarter. Figure 16 Full-Service Hotel Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Austin (32 55) Dallas (33 35) Minneapolis (5 35) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Albuquerque (67 57) Honolulu (84 56) New York (67 56) San Diego (72 41) Boston (48 17) Miami (49 19) Columbus (34 3) Oakland (43 15) Edison (39 27) Orlando (57 23) Fort Lauderdale (39 20) Philadelphia (42 19) Fort Worth (40 11) Raleigh (34 16) Hartford (37 18) Tampa (42 10) Kansas City (46 26) Trenton (39 16) Long Island (43 29) US COMPOSITE (49 33) The Best and the Worst The three full-service hotel markets of all 50 markets scored with the strongest and weakest measures on each of several variables are listed below. Highest overall score: Pittsburgh, (yellow, 60); Albuquerque (yellow, 57); Honolulu and New York, both yellow, 56. Lowest overall score: Baltimore, Charlotte, Memphis, Phoenix and Richmond, all red, 0. Least construction: Seven markets have zero construction, including Austin (yellow, 55), Edison (red, 27) and Oakland (red, 15). 20 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Most construction: Miami, 10.2% (red, 19); San Antonio, 9.2% (red, 5); Charlotte and Phoenix, both 9.0%. Most expected growth in RevPAR: Orlando, 11.7% (red, 23); Oakland, 7.7%; Long Island, 7.6% (red, 29). Least expected growth in RevPAR: Phoenix, -11.2%; Denver (yellow, 55) and Houston (yellow, 42), both -11.1%. Best supply-demand relationship: Orlando, 8.5%; Oakland, 7.7%; Long Island, 7.6%. Worst supply-demand imbalance: Phoenix, -20.2%; Fort Worth, -17.4% (red, 11); Charlotte, -16.8%. Highest margin over baseline RevPAR: New York, 23.5%; Orange County, 21.0% (yellow, 40); Los Angeles, 20.6% (yellow, 53). Smallest margin over baseline RevPAR (or greatest lag): New Orleans, -36.6% (red, 11); Cleveland, -30.7% (red, 3); Trenton, -29.8% (red, 16). Supply Significantly Greater Than Demand Very High Supply Somewhat Greater Than Demand Somewhat High Supply No More Than Slightly Greater Than Demand Restrained Figure 17 Full-Service Hotel Market Diagnostic RevPAR Year-over-Year Declined Down Significantly From Base (0-16) Baltimore 0 Dayton 10 Charlotte 0 Detroit 10 Memphis 0 Tampa 10 Phoenix 0 Fort Worth 11 Richmond 0 New Orleans 11 Newark 2 Chicago 14 Cleveland 3 Oakland 15 Columbus 3 Atlanta 16 San Antonio 5 Raleigh 16 Tucson 7 Trenton 16 West Palm Beach 8 (17-33) Boston 17 Hartford 18 Philadelphia 19 St. Louis 19 Fort Lauderdale 20 San Diego 41 Honolulu 56 Orlando 23 Kansas City 26 Edison 27 Long Island 29 RevPAR Year-over-Year Increased Somewhat Down Somewhat From Base (17-33) Indianapolis 18 Miami 19 Nashville 24 Seattle 29 Portland 32 COMPOSITE 33 Dallas 35 Minneapolis 35 San Francisco 51 (67-83) Los Angeles 53 Austin 55 Albuquerque 57 RevPAR Year-over-Year Increased Significantly Up From Base Cincinnati 40 Orange County 40 Washington DC 40 Houston 42 Denver 55 New York 56 Pittsburgh 60 (67-83) (84-100) 21 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
LIMITED-SERVICE HOTEL SCE SUFFERS WITH NEGATIVE REVPAR GROWTH The limited-service hotel sector continued its decline for the sixth straight quarter, shedding another 15 points this quarter to a new low of yellow, 35, just above the red-yellow border. Similar to last quarter, the full- and limited-service composite scores remain close, reinforcing the fact that the hotel sector is suffering across the board in this recession. The causes of the limited-service deterioration reflect parallel trends from the full-service sector as well. Year-over-year RevPAR growth fell two percentage points, from 1.4% last quarter to -0.6%. This marks the first occurrence of negative year-over-year RevPAR growth for either hotel sector since the initiation of separate full- and limited-service scores in 2004. Along the same lines, RevPAR lagged the baseline target by -8.2%, a sharp decline from last quarter s -2.1%. Also like the full-service sector, upcoming supply remained flat at 2.2%. Projected demand tapered off, dropping to a scant 0.4% from last quarter s 1.1%. Though the demand forecast remains positive, it still fails to keep up with new supply, leading to an increased supply-demand mismatch of -1.8%, out from -1.0% last quarter. This quarter stands in stark contrast to one year ago, when RevPAR growth was 6.5% and demand outpaced supply by 3.9%. Consequently, the composite score is down 42 points. Three-fourths of the covered markets (36 of 48) experienced quarter-over-quarter downward movement in their scores. The resulting distribution is concentrated in red markets, with 25 in red territory as compared to 12 last quarter. There are 18 yellow markets and the remaining five are holding on to green status. Pittsburgh (green, 78) is the pack leader with the highest score, as its supply pipeline remains at 0.0% while RevPAR grew a significant 11.2%. Denver (green, 73), Dallas (yellow, 65), Minneapolis (yellow, 51) and Houston (yellow, 65) saw notable improvement in their scores due to RevPAR growth; however their scores are skewed by non-recurring events in the third quarter. Denver and Minneapolis hosted the Democratic and Republican National Conventions respectively, while Dallas and Houston received an influx of evacuees from various Gulf Coast regions affected by this year s hurricanes. Their upward score movement is unlikely sustainable in the forthcoming quarters. Figure 18 Limited-Service Hotel Markets That Improved or Deteriorated BETTER: Red Yellow BETTER: Yellow Green BETTER: Red Green Denver (46 73) WSE: Green Yellow WSE: Yellow Red WSE: Green Red Albuquerque (78 51) Long Island (88 44) New York (68 47) San Diego (70 48) The Best and the Worst Baltimore (36 7) Boston (48 20) Charlotte (35 15) Cleveland (34 10) Columbus (53 31) Detroit (35 6) Fort Lauderdale (42 6) Kansas City (53 25) Nashville (37 29) Oakland (48 19) Raleigh (40 17) Richmond (46 13) West Palm Beach (44 18) The three limited-service hotel markets of all 48 markets scored with the strongest and weakest measures on several variables are listed below. Highest overall score: Pittsburgh (green, 78); Denver (green, 73); Portland (green, 70). Lowest overall score: Hartford, Orlando, Phoenix and Tampa, all red, 0. 22 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
Least construction: Eight markets have zero construction, including Miami (yellow, 49), Minneapolis (yellow, 51), and San Francisco (green, 67). Most construction: Hartford, 8.6%; Baltimore, 6.1% (red, 7); Fort Lauderdale (red, 6) and Fort Worth (yellow, 40), both 5.7%. Most expected growth in RevPAR: Atlanta, 6.5% (red, 19); Albuquerque, 4.9% (yellow, 51); Miami and Oakland (red, 19), both 4.8%. Least expected growth in RevPAR: New York, -14.0% (yellow, 47); Hartford, -11.6%; Detroit, -5.8% (red, 6). Best supply-demand relationship: Atlanta, 5.9%; Albuquerque, 4.9%; Miami, 4.8%. Worst supply-demand imbalance: Hartford, -20.3%; New York, -16.9%; San Antonio, -10.3% (yellow, 54). Highest margin over baseline RevPAR: Los Angeles, 20.4% (yellow, 44); Houston, 18.7% (yellow, 65); San Antonio, 16.4%. Smallest margin over baseline RevPAR (or greatest lag): Orlando, -34.2%; Cleveland, -27.3% (red, 10); Edison, -24.3% (red, 21). Figure 19 Limited-Service Hotel Market Diagnostic Supply Significantly Greater Than Demand Very High Supply Somewhat Greater Than Demand Somewhat High Supply No More Than Slightly Greater Than Demand Restrained RevPAR Year-over-Year Declined Down Significantly From Base (0-16) Hartford 0 Orlando 0 Phoenix 0 Tampa 0 Trenton 1 Chicago 6 Detroit 6 (17-33) Raleigh 17 West Palm Beach 18 Atlanta 19 Oakland 19 Boston 20 Edison 21 Tucson 37 Long Island 44 Los Angeles 44 San Diego 48 Miami 49 COMPOSITE 35 Fort Lauderdale 6 Baltimore 7 Cleveland 10 Indianapolis 12 Richmond 13 Charlotte 15 Kansas City 25 Memphis 25 Nashville 29 Columbus 31 Dayton 32 Newark 32 Washington DC 50 Albuquerque 51 Minneapolis 51 Seattle 54 Orange County 56 RevPAR Year-over-Year Increased Somewhat Down Somewhat From Base (17-33) Cincinnati 40 Fort Worth 40 Philadelphia 41 St. Louis 50 Dallas 65 (67-83) San Francisco 67 RevPAR Year-over-Year Increased Significantly Up From Base New York 47 San Antonio 54 Houston 65 (67-83) Austin 68 Denver 73 Portland 70 Pittsburgh 78 (84-100) 23 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008
DISPARATE FULL-SERVICE AND LIMITED-SERVICE SEGMENTS IN SAME MARKET CONTINUE TO CONVERGE A number of markets show a significant variance in their full- and limited-service scores. Figure 20 lists those markets in which the scores differ by more than 16.7 points (one-half of a color) as well as a composite or aggregate score for the entire hotel market (full- and limited-service combined) in each of those markets. The combined score in the table below is a weighted average of both segments of each market. Since there is some degree of interchangeability between demand for full- and limited-service hotels, the aggregate scores for these markets provide further insight as to where the combined full- and limited-service hotel market falls in the Red-Yellow-Green spectrum. This quarter the number of disparate markets remained the same as last quarter, 18. However, the average difference between the full- and limited-service scores was 27, as opposed 33 last period. Though there are still 18 markets on this list, the tightening of the average difference illustrates the continued convergence of the full- and limitedservice sectors during the current recession. Market Figure 20 Comparison of Scores for Full-Service and Limited-Service Hotel Sectors Full-Service Hotel Score Limited-Service Hotel Score Difference (Limited Minus Full) Combined Score Columbus 3 31 28 R: 15 Dallas 35 65 30 Y: 46 Dayton 10 32 22 R: 22 Denver 55 73 18 Y: 60 Fort Worth 11 40 29 R: 26 Hartford 18 0-18 R: 4 Houston 42 65 23 Y: 52 Memphis 0 25 25 R: 11 Miami 19 49 30 R: 31 Newark 2 32 30 R: 9 Orlando 23 0-23 R: 19 Philadelphia 19 41 22 R: 26 Pittsburgh 60 78 18 Y: 66 Portland 32 70 38 Y: 48 San Antonio 5 54 49 R: 31 Seattle 29 54 25 Y: 38 St. Louis 19 50 31 R: 33 Tucson 7 37 30 R: 22 24 Moody s Investors Service CMBS: Red Yellow Green Update, Fourth Quarter 2008