Trends, Demand and Locales: State of the Office Market

Transcription

1 Trends, Demand and Locales: State of the Office Market Michael Knott Greg Kraut Matt Lituchy Howard Stern Moderator Panelist Panelist Panelist NAIOP. Do not distribute or reproduce without permission.

2 Today s Panel Michael Knott, CFA Greg Kraut Matt Lituchy Howard Stern Green Street Advisors Avison Young Jay Paul Company Hudson Pacific Properties NAIOP. Do not distribute or reproduce without permission. 2

3 State of the Office Market NAIOP. Do not distribute or reproduce without permission. 3

4 US Employment Growth and Office Demand Annual Changes in Overall U.S. Employment and Office Demand 6% 4% Employment Office Demand '88-'12 = 1.5:1 '13-'17 = 1.1:1 2% 0% -2% -4% '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E '16E Source: Bureau of Labor Statistics, Reis, Green Street Advisors forecasts NAIOP. Do not distribute or reproduce without permission. 4

5 US Top 50 Net Absorption Quarterly Net Absorption: US Top 50 Markets (% of Inventory) 0.4% 0.2% 0.2% 0.2% 0.0% -0.2% -0.4% '05-'07 Average: 1.9% -0.6% -0.7% -0.8% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Source: Green Street Advisors; Reis data. NAIOP. Do not distribute or reproduce without permission. 5

6 Overall Office Supply Growth 5% U.S. Office Completions as % of Existing Stock 4% 3% 2% Historical Avg: 1.7% 1% 0% '88 '92 '96 '00 '04 '08 '12 '16E Source: Reis, Green Street Advisors NAIOP. Do not distribute or reproduce without permission. 6

7 US Top 50 Vacancy Quarterly Vacancy: US Top 50 Markets 18% 17% 17.6% 3Q07 Low: 12.2% 3Q10 Peak: 17.6% 16.8% 16% 15% 15.0% 14% 13% 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Source: Green Street Advisors; Reis data. NAIOP. Do not distribute or reproduce without permission. 7

8 Change in Effective Rent Change in Effective Rent (Y/Y): US Top 50 Markets 4% 2% '05-'07 Average: 8.2% 1.1% 1.8% 2.2% 2.3% 2.2% 1.9% 2.1% 2.2% 2.4% 0% -2% -1.7% -0.2% -4% -6% -8% -10% -3.9% -6.0% -7.9% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Source: Green Street Advisors; Reis data. NAIOP. Do not distribute or reproduce without permission. 8

9 Leasing Costs Leasing Costs per Sq. Ft. per Year of Lease - as % of First-Year Rent* 15% Office Avg. High-Barrier 14% 12% 12% 13% 10% 11% 9% 8% 10% 9% 6% 3% 4% 5% '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 NAIOP. Do not distribute or reproduce without permission. 9

10 YTD Absorption vs. YTD Effective Rent Change Select Top Markets: Effective Rent Change vs. Net Absorption, YTD Effective Rent Change, YTD 3% 3% 2% San Fran New York Houston Better Austin Rent Growth 2% US Top 50 Mkts. Leaders Seattle San Diego Dallas 1% Chicago OC Denver Boston NoVa Suburban MD 1% DC Phoenix Raleigh Los Angeles Atlanta Nashville Philadelphia 0% NoNJ Worse -1% -1% 0% 1% 2% Net Absorption as % of Stock, YTD Source: Green Street Advisors; Reis data. Due to Reis data, some important markets are lumped in as part of larger metros (e.g., West LA is in "Los Angeles"). NAIOP. Do not distribute or reproduce without permission. 10

11 Market Fundamentals Forecasts '13-'17 "Market RevPAF" Growth Forecast 7% 6% 5% 4% 3% 6.6% 6.2% 5.9% 5.3% 5.3% 5.2% 4.8% 4.7% 4.5% 4.4% 4.3% 4.3% 4.3% 4.0% 4.0% 3.9% 3.8% 3.8% 3.7% 3.6% 3.4% 2% 1% 0% West LA San Fran NY (Midtown) Boston (CBD) OC Houston US Top 50 Mkts. Boston (Suburbs) San Diego Atlanta Austin Raleigh Chicago Nashville Downtown LA Dallas NY (Downtown) Suburban MD Philadelphia NoNJ NoVa Source: Green Street Advisors; Reis data; M-RevPAF is the product of market rent and occupancy NAIOP. Do not distribute or reproduce without permission. 11

12 Office REIT Same-Property NOI Growth 8% 6% Historical and Projected Same-Property NOI Growth Resilient in the downturn, slower coming out 4% 2% 0% % -4% Office Major Sector Average -6% '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E '16E Source: Green Street Advisors NAIOP. Do not distribute or reproduce without permission. 12

13 How Does the Public Market Value Office Real Estate? Historical Unlevered Asset Value Premiums (Office vs. Major Sectors) 20% 15% 12.3% 10% 5% 0% -5% -10% -4.1% -15% -20% -16.9% '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Source: Green Street Advisors NAIOP. Do not distribute or reproduce without permission. 13

14 Conclusions Office demand is slow but hopefully improving Rent growth is nil, leasing costs remain elevated Supply growth has been muted, but may move higher Some markets are hot, many are not The strong likely to keep getting stronger? The public market is not impressed! Office cash flow growth should finally improve soon NAIOP. Do not distribute or reproduce without permission. 14

15 Panel Discussion NAIOP. Do not distribute or reproduce without permission. 15

16 Q&A This is your opportunity to make this session exactly what you need it to be Ask the question. Please note that this session is being recorded, so before speaking, please either proceed to a standing microphone or raise your hand and wait until a mic runner reaches you. Thank you! NAIOP. Do not distribute or reproduce without permission. 16

17 Thank You! Michael Knott Managing Director Green Street Advisors (949) Matt Lituchy Chief Investment Officer Jay Paul Company Phone Greg Kraut Principal and Managing Director Avison Young (212) Howard Stern President and Director Hudson Pacific Properties (310) NAIOP. Do not distribute or reproduce without permission. 17