Emerging Trends in US Real Estate
Emerging Trends in US Real Estate
Emerging Trends in US Real Estate
Emerging
Trends
in Real Estate
®
Emerging
Trends 20
in Real Estate
13
®
Contents
1 Executive Summary
90 Appendixes
92 Interviewees
Notice to Readers
Emerging Trends in Real Estate®, a trends and forecast publication now in its 34th Private Property Company Investor or Developer 35.9%
edition, is one of the most highly regarded and widely read forecast reports in the real Real Estate Service Firm 19.6%
estate industry. Emerging Trends in Real Estate® 2013, undertaken jointly by PwC and
the Urban Land Institute, provides an outlook on real estate investment and develop- Institutional/Equity Investor or Investment Manager 16.1%
ment trends, real estate finance and capital markets, property sectors, metropolitan Other 9.5%
areas, and other real estate issues throughout the United States, Canada, and Latin
America. Bank, Lender, or Securitized Lender 9.0%
Publicly Listed Property Company or Equity REIT 6.2%
Emerging Trends in Real Estate 2013 reflects the views of over 900 individuals who
®
completed surveys or were interviewed as a part of the research process for this report. Homebuilder or Residential Land Developer 3.6%
The views expressed herein, including all comments appearing in quotes, are obtained
Throughout the publication, the views of interviewees and/or survey respondents have
exclusively from these surveys and interviews and do not express the opinions of either
been presented as direct quotations from the participant without attribution to any par-
PwC or ULI. Interviewees and survey participants represent a wide range of industry
ticular participant. A list of the interview participants in this year’s study appears at the
experts, including investors, fund managers, developers, property companies, lenders,
end of this report. To all who helped, the Urban Land Institute and PwC extend sincere
brokers, advisers, and consultants. ULI and PwC researchers personally interviewed
thanks for sharing valuable time and expertise. Without the involvement of these many
more than 325 individuals and survey responses were received from over 575 individu-
individuals, this report would not have been possible.
als, whose company affiliations are broken down here:
Recovery Anchored in
Uncertainty
“It’s three yards and a a cloud of dust.”
R
eal estate continues to meander along a slower-than- dull sister of the investment world; earning a 5 percent to 7 per-
normal recovery track, behind a recuperating U.S. cent return is what we do best.”
economy, dogged by ongoing world economic distress. Lingering doubters need to ease up just a bit: the world’s
But for the third-consecutive year, Emerging Trends surveys problems “actually benefit [U.S.] real estate, even though we
indicate that U.S. property sectors and markets will register don’t deserve it.” Low interest rates give the real estate industry
noticeably improved prospects compared with the previous breathing space, and money “pours in from overseas” seeking
year, and the advances now gather some measure of momen- refuge. Real estate assets, meanwhile, continue to command
tum across virtually the entire country and in all property types.
“Decent” though “relatively disappointing” job creation should
be enough to coax absorption higher and nudge down vacancy Exhibit 1-1
rates in the office, industrial, and retail sectors, helped by “next U.S. Real Estate Returns and Economic Growth
to no” new supply in commercial markets. Robust demand for
Total expected returns in 2013
apartments holds up despite ramped-up new construction, and
NCREIF total expected return 7.39%
even the decimated housing sector “turns the corner” in most
regions. Improving fundamentals eventually should prod rents
40% NCREIF GDP FTSE NAREIT 5%
and net operating incomes onto firmer upward trajectories, Composite
building confidence about sustained—albeit tame—growth and 30%
buttressing recent appreciation. 3%
20%
Although these gains seem modest and out of step with
recent boom/bust cycles, restrained progress ultimately fits 10%
GDP change
Index change
1%
real estate’s income-oriented profile. Even though “it’s easy to 0%
be cynical: everybody seems to want what they can’t have” 1997 2000 2003 2006 2009 2012* 2013*
-10% -1%
(“rent spikes,” “high yields with safety,” and “fully leased build-
ings”), interviewees seem to come to terms with the market’s -20%
“muddling-along pace,” expressing “cautious optimism” -3%
-30% NAREIT total
while abandoning hopes for “a big bounce.” Real estate’s
expected return
“make-things-happen” entrepreneurs will stay “frustrated” and -40% 7.52% -5%
hamstrung in creating value—“the IRR [internal rate of return]
model isn’t what it used to be”—but buying, holding, managing, Sources: NCREIF, NAREIT, World Economic Outlook database, Emerging Trends in Real Estate
2013 survey.
and bumping up property revenues usually wins the real estate *GDP forecasts are from World Economic Outlook. NCREIF/NAREIT data for 2012 are annualized
game. What’s that story about tortoises and hares? “We’re the as of second-quarter 2012, and the forecasts are based on the Emerging Trends in Real Estate
2013 survey.
Product for Prudent Investment Investment Prospects by Asset Class for 2013
Money slowly wends its way beyond the highly favored global
gateways into “long-neglected” secondary markets where excellent
“tighter pricing will be a true trend in 2013.” Investors “con- Sell
centrate on higher-quality assets” in “search of higher rates of good Hold
return,” but pickings are relatively slim. “You need much more
compelling reasons to go into secondary and tertiary markets, Buy
focusing on niches” and particular local strong suits. fair
For the big institutional investors, venturing out of the top-ten
major markets where they have concentrated their activity “can
be filling but not very satisfying”—historically return expecta- poor
tions do not always pan out, and exit strategies prove more
difficult to execute. Because they have eliminated most regional
staffing, the major money management advisers and invest- abysmal
ment banks typically lack the depth and reach to understand 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
internally the idiosyncrasies of most medium-sized and smaller Source: Emerging Trends in Real Estate 2013 survey.
metropolitan areas. And smaller investment companies mostly Note: Based on U.S. respondents only.
rely on third-party research reports. As they move farther afield
in 2013 hunting for yield, these investors must depend on local
while investors expect bargains. Intensified bank balance sheet
operating partners to make wise investment calls in addition to
clearing should “provide [more] opportunities for well-capitalized”
managing and leasing decisions, or they risk major stumbles.
buyers, but “very little will be available in institutional-class real
Expected stepped-up institutional activity aside, second-
estate.” “If you don’t have to sell, it’s better to hold,” although
and third-tier markets increasingly “become the province” of
hungry investors will pay above replacement cost for pricey, well-
local high-net-worth operators, supported by regional and local
leased core properties. Those buyers will have no choice except
bank capital. “It’s happening, but you don’t hear about it.” The
“to sit on [these acquisitions] for a while. Conditions aren’t right for
locals “look at the micro” (tenant moves and market drivers);
flipping, and there will be no easy plays.” Action picks up in $20
“nobody is talking about the macro” (the global economy). They
million-and-under properties located in suburbs and second-tier
“take more risks,” “buy at low bases,” “invest more of their own
markets “as long as the income is there.”
money,” and they are willing to bet on their communities for the
long term rather than focus on some unachievable short-term
investment return for investors who may never set foot in town. Perplexing Interest Rates:
“These are more buy-and-hold, get-rich-slow investors.”
Restrained absorption and lack of tenant depth in many “the Biggest Risk”
of these markets will force locals to think out of the box and Many real estate players wonder if they have been lulled into
about change of use. Outside of a handful of tech- or energy- complacency after consistently predicting wrongly in Emerging
dominated markets, “they cannot expect much growth.” Trends for most of the past decade an increase in interest rates
over a five-year time horizon and perfunctorily doing so again in
this year’s survey (exhibit 1-7). Lurking ominously in their future,
Transaction Volume Will Tick Up rates must begin to revert to the mean, and cap rates will even-
Forlorn deal makers find hints of more action in 2013. Pricing tually follow. “How long can they stay down?” But the low-growth
continues to strengthen, but increases are “muted” until credit economy forces the Federal Reserve to print money and keeps
markets return to more normal states and transaction volume rates at unprecedented low levels, probably at least through
stays relatively “anemic.” The Emerging Trends barometer reflects 2015. And rock-bottom rates continue to be a boon for real
lack of clear market direction. Buy/hold/sell sentiment continues estate, providing exceptionally low and attractive financing for
to track in a narrowing range with purchase appetites losing some borrowers with good credit at a time of a huge refinancing surge
vim in the face of higher prices, while selling interest increases in commercial mortgage–backed securities—“it makes the tidal
for the same reason (exhibit 1-4). Without pressure from lenders, wave less serious”—in addition to turning properties into a more
“truculent” owner/borrowers continue to hold out for “top dollar” compelling investment relative to fixed-income vehicles. “It’s
Exhibit 1-5
Sales of Large Commercial Properties
$150
$120
Billions of dollars
$90
$60
$30
$0
06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12
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
Source: Real Capital Analytics.
Note: Includes transactions in the Americas for properties $10 million or greater.
the most important trend—changing the investment environ- perplex interviewees, especially in view of ballooning govern-
ment with different rate-of-return expectations.” Asset pricing is ment deficits. They prefer to think any increases “could be four
“modest; repricing debt is where funds will go. A 4 percent to or five years out: just look at Japan” where rates have remained
5 percent mortgage is a pretty good deal, relieves owners with in the cellar for close to two decades (along, not coincidentally,
cash flow issues, and provides a decent return for lenders.” with the Japanese economy). But how long can the Fed keep
As more investors inevitably chase yields in secondary buying up treasuries when other investors back off because of
markets during 2013, doubts about where rates are headed low returns and U.S. debt issues? And what happens if some
Increase5
10% substantially
2% Remain stable3
at current levels
0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
-2%
2
-4% Inflation Short-term Long-term Commercial
rates (1-year rates (10-year mortgage
treasuries) treasuries) rates
Sources: NCREIF, Moody’s Economy.com, Federal Reserve Board, PricewaterhouseCoopers LLP. Source: Emerging Trends in Real Estate 2013 survey.
*Ten-year treasury yields based on average of the quarter; 2012 Q2 average is as of July 31, 2012. Note: Based on U.S. respondents only.
builders manage to line up financing. Retail tenants want into to mention against stocks and bonds, and well-leased real
Class A malls and leave second-class centers, while just about estate should produce those levels of returns for the next sev-
everyone avoids half-empty strips and office parks. Interviewees eral years (exhibit 1-8). “It’s the best horse in the glue factory.”
expect little relief from evident market “bifurcation” “until the As deleveraging and refinancing continue to “suck up a lot
economy recovers,” and most resign themselves anxiously to of capital,” at least through mid-decade, yield expectations are
“no huge change.” changing, and real estate looks more like “the income vehicle”
it was meant to be. Within the capital stack, debt investments
should earn better risk-adjusted returns than equity, thanks
Getting a Grip on Return to significant loan-to-value ratios and realistic valuations that
Expectations: Debt Beats Equity combine to provide excellent downside protection. Smart
lenders “should not depend on a lot of growth and [should]
“I roll my eyes if a manager claims he can get more than a 15
underwrite based on current fundamentals.”
percent annualized return” on a commercial real estate fund,
says an interviewee. “They’re picking numbers to try to meet
the market.” Such optimistic—bordering on fanciful—projec- Operating in a Slow-Growth
tions cannot play out in the current environment “without a lot
of leverage [hard to come by] and a lot more [downside] risk.” Environment: Decent Profitability
Individual investments may pan out, but added value and Like other businesses, real estate firms boost profitability at the
opportunistic returns pegged to precrash-era expectations just margins by keeping lean, and Emerging Trends respondents
do not appear viable, and that is bad news for all the general anticipate 2013 will be a reasonably good year for bottom lines
partners and high-growth managers trying to resurrect their (exhibit 1-9). “Staffing-wise they’re doing nothing” after cutting
fund management businesses and earn generous promotes back a bit; incomes inch back toward 2007 levels. Better-
off their optimistic appreciation scenarios. “Getting used to capitalized firms should continue to gain market share at the
less can take a long time.” expense of other failing companies, but “the overall size of the
If they have not already, real estate players reorient to industry will not change.” Compensation relative to the 2007
reality, understanding what property investments are built to peak remains “more modest.” Only a select number of invest-
deliver. “Remember, over time three-quarters of real estate ment managers secure “equity programs that will pop value”
returns derive from income, only one-quarter from value gains.” after “a lot of equity washed out.” Compensation is no longer
Any return in the 6 to 10 percent range looks particularly attrac- determined by peer-group comparisons but by individual
tive in 2013 when compared to interest rates and inflation, not company profitability, with cash awards approaching about 70
percent of peak levels and equity opportunities offering only
Exhibit 1-8
about 50 percent. “Everything had been out of balance.”
Index Returns: Real Estate vs. Stocks/Bonds Top leasing and property management executives get
paid premiums for keeping buildings filled and finding ways to
reduce operating costs. Proven marketing professionals who
FTSE NAREIT Composite can raise capital also remain in high demand, given ravenous
40%
NCREIF competition for skittish client dollars. Deal makers continue
30%
to suffer in lackluster transaction climes and freshly minted
20% MBA job seekers will have better success with some past
bricks-and-mortar credentials. Office developers shift into
10%
apartments, and homebuilders gear up for new activity, but in
0% a slow-growth mode. “It’s not very exciting.”
1998 2000 2002 2004 2006 2008 2010 2012
More CEOs keep themselves up at night figuring out sce-
-10%
nario planning, and many executive teams add risk strategists
-20% Barclays Capital to prepare for potential bolt-out-of-the-blue crises. Cushioning
Government Bond Index
against problems takes precedence over ambitious new
-30%
S&P 500 ventures. At the same time, changing demographics, “Era of
-40% Less” realities, and technology effects force developers and
operators to do business differently in meeting altered demand
Sources: NCREIF, NAREIT, S&P, Barclays Group.
trends. From retail and warehouse to office and apartments,
Note: 2012 data annualized from second-quarter 2012.
tenants do not necessarily settle for old-school layouts and On the office front, companies shoehorn employees into less
designs. Understanding and “staying close to the customer” space—workbenches replace cubicles—and let more people
becomes more important than ever. work from home (avoiding commuting time and expenses) or
out of the office with their laptops and smartphones in tow,
reducing rents and operating expenses. Businesses relying on
Evolving and Ongoing wi-fi can slash space once needed for filing cabinets, computer
Trends
hardware, and credenzas—all that paper stuffed into manila
folders evaporates into data clouds—as fretting office landlords
just hope they can renew leases somewhere close to exist-
real estate owners, the move to less means slackened overall something crowd than spending time and money commuting
demand growth, whereas homebuilders and apartment devel- by car to quiet suburban lanes. Apartment developers home in
opers need to consider new, more efficient models and related on echo boomers’ socialization penchant; they can build smaller
amenities (wi-fi is a must) for projects. units if they supply wi-fi and provide common space like roof
Shortfalls in municipal budgets—from increasing pension decks or event rooms for texting-inspired get-togethers.
costs, reduced federal aid, and resistance to higher taxes— The housing bust may not have destroyed homeownership
forces local officials to come to terms with the economics of dreams, but more people across the age spectrum now feel
planning schemes and zoning. In retrospect, sprawl has turned greater peace of mind renting while many others have no other
into a loser for many suburbs; officials begin to realize how choice; saddled by bad credit or lacking enough equity, they can-
denser development generates greater revenues at lower per not afford to buy. The renter surge extends well beyond multifamily
capita infrastructure costs. The realization finally dawns that and back into suburban single-family residential neighborhoods.
“creating something high quality and compact produces a
greater yield for any land asset.” Sewer lines and roads ser-
vicing sprawling subdivisions, originally subsidized decades Adapting the ’Burbs
ago by the then-more-revenue-rich federal and state govern- The world “rethinks the suburbs” in the wake of population
ments, now require extensive upgrades or replacements as gains in the major gateway markets and growth in urbanizing
they approach the end of their life cycles. But insufficient local suburban nodes at the expense of fringe areas. “It’s a secular
tax revenues from single-family homeowners will not cover the trend driven by where many young people want to live,” and it
repair bills in most cases, and cash-strapped states and the will have a “very material impact on how real estate is used.”
feds just do not have enough funds to help out. Some “biotech and pharmaceutical companies break up their
suburban campuses and move back into cities because they
property and leasing issues. Be prepared to wait a while before multifamily housing, regional malls, strip centers, office build-
rentals can be converted into a revived sales market. In the ings, and distribution facilities.
meantime, investors should earn good income returns. Buy nonperforming loans, and work out discounted payoffs
Repurpose the surfeit of obsolescent properties. Whether from borrowers. Banks and special servicers tend to shed mort-
abandoned malls, vacant strip centers, past-their-prime office gages on weaker assets, “but you can hit a lot of singles and
parks, or low-ceilinged warehouses, a surfeit of properties doubles” at the right price.
requires a rethink, a teardown, and in many cases a new use.
Creative planners and developers have myriad opportunities
to reconsider how sites can tie into future growth tracks and
integrate into more efficient and desirable models. Many capital-
depleted hotels are ripe for renovations, too.
Enduring Favorites
These investment bets have been highlighted in recent
Emerging Trends reports and continue to be among intervie-
wees’ leading recommendations for 2013.
Recapitalize well-leased, good-quality assets, owned
by overleveraged borrowers, who are upside down finan-
cially. This ongoing “feast of opportunities” has plenty of legs
because banks continue to engage in “extend and pretend”
loan strategies as more mortgages reach their maturities.
“Lots of real estate has income-generation potential but has
been compromised by distressed capital structures.” “Look for
distressed borrowers, not distressed properties.” Mezzanine
debt and preferred equity positions will offer particularly good
risk-adjusted returns.
Lock in long-term, low-interest-rate mortgage debt. Why
tempt the inevitable? “There’s no way the low-interest-rate envi-
ronment lasts,” and your low-rate mortgage could be “a huge
future asset” as soon as interest rates begin to pop. The surge in
mortgage maturities seems perfectly timed for some struggling
borrowers who may be able to refinance at lower costs. Back off
floating-rate debt before you look stupid. The Fed cannot keep
printing money forever.
Hold core properties in 24-hour cities. Whether office towers,
prime hotels, apartments, or skyscraper condominiums, pricing
tests limits, and these markets either have peaked temporarily
or could level off for a while. But premier assets should continue
to outperform over time; if sold, how would you replace them?
Boston, New York City, San Francisco, and Washington, D.C.,
can come off the boil, but they always stay near or at the top of
investor lists. The Bay Area reaches the Emerging Trends rank-
ing pinnacle for 2013.
Buy or hold public REITs. Given their dividends and embed-
ded growth, these stocks should continue to perform well.
Focus on sector-dominating companies that have assembled
blue-chip portfolios of the best income-producing assets in
Real Estate
Capital Flows
“Plenty of capital is available
for people who can earn it.”
F
or 2013, the real estate capital markets throw off con- have no trouble attracting financing from life insurers and banks
fusing, mixed signals amid significant pent-up investor eager to choose from the pick of the litter. As markets improve,
demand, sluggish but mending fundamentals, and more properties will enter this worry-free zone, and rich-can-get-
low interest rates, as lenders continue to hold on to a slew of richer mortgagors easily lock in “exceptionally cheap money.”
underperforming loans in a glacial deleveraging and hundreds But players with bad credit and/or marginal assets, who need
of billions of commercial mortgages reach maturities. Four years capital infusions to keep afloat, continue to find themselves
after the cyclical bottom, “many markets have not been allowed cast aside or placed in extend-and-pretend limbo. “It’s still the
to clear and prices have not been reset,” except in the dominant
24-hour cities and a handful of tech and energy regions.
Expectations for returns decrease on paper, but investors Exhibit 2-1
still push for higher yields than may be possible or reasonable, Moody’s/RCA Commercial Property Price Index
especially given the insipid economy and ongoing political
intransigence. “It’s easy to get ahead of yourself, and some
Major markets
[investors] will lose control of discipline.” “A crazy search for 225 (all-property)
yield” in a low-interest-rate environment leads some intervie-
200 National
wees to argue that sub–5 percent cap rate purchases are (all-property)
rational given spreads to treasuries. But they ignore what may 175
happen to exit cap rates when interest rates inevitably increase,
as well as the extremely checkered and unhappy history of com- 150
pressed cap rate purchases in past market cycles. Emerging
125
Trends survey respondents predict a moderate oversupply of
equity capital and a moderate undersupply of debt capital dur- Nonmajor markets
100 (all-property)
ing the year (exhibit 2-2).
Inevitably in a measured recovery more equity capital will 75
creep into the higher-cap-rate strata—riskier secondary markets
and lower-quality assets—unable to stomach high pricing and 50
2000 2002 2004 2006 2008 2010 2012
minimal yields in core real estate. But the prime gateway mar- Dec Jan Jan Jan Jan Jan Jan
kets will continue to benefit from increased flows from foreign
Sources: Moody’s and Real Capital Analytics.
investors looking for secure wealth islands to protect assets.
Notes: Major markets are defined here as Boston, Chicago, Los Angeles, San Francisco, New York,
In the debt markets, it will be “more of the same”—good and Washington, D.C. The Moody’s/RCA CPPI is based on repeat-sales transactions that occurred
at any time up through the month before the current report. Updated August 2012; data through June
assets with solid income streams and good credit borrowers will 2012.
+9.4+26.4+20+34.6+9.6
Real Estate Capital Market Balance Forecast for 2013 senior debt yields fall toward uncomfortably low levels for lend-
ers with an eye on future interest rate moves. At the same time,
Equity Capital for Investing low yields for core real estate pricing look less appealing than
the risk-adjusted returns for the mezzanine debt and preferred
equity. Effectively, investors in these middle-of-the-capital-stack
9.4% 26.4% 20.0% 34.6% 9.6% tranches can obtain “a higher-than-equity cap rate with higher
Substantially Moderately In balance Moderately Substantially cash-on-cash returns and lower risk.” Interviewees expect the
+15.9+44.8+25.0+13.7+0.7
undersupplied undersupplied oversupplied oversupplied
pricing differential to narrow between senior and mezzanine
debt during 2013.
Debt Capital for Acquisitions
Under any circumstances, real estate attracts the attention
of enough—that is, considerable—capital activity, which helps
deleverage fractured legacy investments and move markets
in the direction of regaining equilibrium. Financial-institution
15.9% 44.8% 25.0% 13.7% 0.7% balance sheets “avoid taking hits,” and low interest rates help
Substantially Moderately In balance Moderately Substantially
+13.5+43.5+31.9+9+2.2
undersupplied undersupplied oversupplied oversupplied preserve capital and encourage a deliberate, if admittedly
protracted recovery. Frustration about limited opportunities and
Debt Capital for Refinancing lowering returns logically should be tempered by evident investor
appeal for the asset class as an income generator and potential
inflation hedge. Why else would so much capital prop it up?
Simply, U.S. real estate, properly underwritten, remains as good
13.5% 43.5% 31.9% 9.0% 2.2% a place as any for husbanding assets in an unsettled world.
Substantially Moderately In balance Moderately Substantially
undersupplied undersupplied oversupplied oversupplied
Exhibit 2-3
Source: Emerging Trends in Real Estate 2013 survey. Debt Underwriting Standards Forecast
+39.1+41.5+19.4
Note: Based on U.S. respondents only.
for the United States
what they were buying and the underwriting and risks were Equity Underwriting Standards Forecast
+29.7+50.7+19.6
for the United States
not clearly understood. None of that has been rectified yet,” an
interviewee said.
Complicating matters, the estimated $300 billion of refinanc-
ing required for maturing loans over each of the next three years
will decrease lenders’ ability to write new commercial mortgages
and force a continuation of extend-and-pretend strategies on 29.7% 50.7% 19.6%
existing debt. Lenders also remain extremely disciplined about More rigorous Will remain the same Less rigorous
commercial construction lending: developers “have an easier
Source: Emerging Trends in Real Estate 2013 survey.
time finding equity investors” than financing. Note: Based on U.S. respondents only.
The take-it-gently deleveraging beat goes on. Buyers wait aim- Maturing Loans: Preferred Strategy for Lenders
lessly for banks to shed commercial property assets at cheap
prices; banks maintain a slew of problem assets on their books Extend without
while values ratchet slowly up, reducing their potential losses; mortgage modification
6.9% Foreclose and dispose
borrowers with sterling credit have no problem securing financ- 14.9%
ing; troubled borrowers who need refinancing capital most of
all get the cold-shoulder treatment or, more likely, receive an Extend with
mortgage modification
extend-and-pretend pass; and Federal Reserve–engineered 54.7%
low interest rates “save everyone.” The kabuki theater perfor-
mance plays out ever so slowly with no one sure exactly what’s
Sell to a third party
happening in the bowels of these financial institutions. But 23.6%
more than four years after Lehman, banks apparently have not
bolstered their balance sheets enough to clear the market, or
the government wants them to hold back (in the case of home
foreclosures especially) for fear of shocking prices into a further
decline—a politically and economically risky bet. As a result,
banks feel “no intense pressure” to do much of anything: many
Source: Emerging Trends in Real Estate 2013 survey.
mortgages even on underwater assets may be among “their
Note: Based on U.S. respondents only.
highest-yielding assets.” As long as loans are current, lenders
are better off to extend than sell loans at discounts, foreclose and
recognize losses when markets have further room to improve,
or refinance at lower rates. Under the circumstances, the same
Fewer Banks Drive Harder
beat essentially goes on for another year at least, although bank- Bargains
ers selectively will dribble “a little more from inventory” onto the The credit debacle has shrunk the banking community into “a
market “and take some additional [manageable] hits.” smaller group” of active lenders. Interviewees count only two
major U.S. money-center banks willing to lend on larger deals,
and hobbled European banks, once influential players “are out
Exhibit 2-5 of the picture.” Regional and local banks have been winnowed
Bank Real Estate Loan Delinquency Rates down, and survivors may consolidate and merge to find econo-
mies of scale needed to comply with new banking regulations.
Finding fewer choices, borrowers will continue to confront
20%
Construction and development loans tough lending terms; banks require “a lot of equity” and some
noncurrent rate recourse. Perhaps not surprisingly, bankers appear more willing
15%
to keep these better-underwritten loans on their balance sheets
than try to securitize them. Notes an interviewee, “Banks now
Multifamily mortgages do business the way they should have been doing business all
noncurrent rate
10% along—actually thinking about real estate and not about debt
Commercial mortgages getting flipped or getting paid for origination.” Refinancing takes
noncurrent rate
the breath away from the origination market; the bulk of lend-
5% ing across all sources will continue to focus on dealing with the
$300 billion in loans maturing annually through 2015.
0%
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012* Insurers Cream the Top of
Source: FDIC.
the Market
Note: Delinquent loans are defined here as those that are noncurrent, either 90 days or more past due, After retreating from the precrash overleveraging binge and,
or in nonaccrual status.
*As of Q2 2012. not coincidentally, avoiding the portfolio problems of banks
and CMBS originators, shrewd life insurers still “have the pick”
In foreclosure
4 for bond buyers remains”: the people running CMBS shops
3 have “shuffled around,” underwriting is only marginally better,”
originators and issuers “don’t have enough skin in the game” for
2
an alignment of interests, the ratings agencies still get paid by
1 the issuers, and “attitudes haven’t changed.” In short, “nothing
meaningful has happened” to correct the problems, which sent
0
1990 1994 1998 2002 2006 2010 2012 bond buyers running to the exits.
Some interviewees say regulatory changes—like requiring
Sources: Moody’s Economy.com, American Council of Life Insurers. holding a portion of each loan or delays in realizing fees and
promotes—could lower industry profitability and limit the num-
ber of players willing to enter the business. Some interviewees
of the best senior loan deals in the absence of much competi- remain skeptical, “At first B-piece buyers will be reasonably
tion. They originate record volumes, usually with high-credit disciplined. Then they will gradually loosen credit standards as
clients, and on a risk-adjusted basis conservatively achieve a transactions and money come into the market” until it’s time to
considerable cushion with loan-to-value ratios of 65 percent “revisit underwriting problems” and their consequences. In the
or lower and “a lot of real equity ahead of us” on high-quality meantime, “bond buyers cannot get the same level of detail and
assets. Interviewees claim insurers are not pushing values and disclosure we did pre-2007,” and more hedge funds, not real
base underwriting on current cash flows. “That’s how they have
stayed out of trouble” all along. Uncharacteristically, they move
into multifamily housing and even do some mezzanine lending Exhibit 2-8
and construction to permanent loan deals to get higher yields; U.S. CMBS Issuance
given current markets, these risks seem reasonable. Making
their mark in avoiding commodity properties, insurers will not fill $250
the lending void in helping troubled borrowers owning Class B
or C properties. But in 2013, insurers will try to limit the terms of
$200
loans and offer more floating-rate debt to hedge against the low-
interest-rate environment. Some new insurers may also enter the
Total (millions)
real estate lending space, but this will not be a game changer $150
for borrowers.
$100
CMBS Lurching Forward
New regulatory restrictions on traditional lenders—including $50
Basel III and Dodd-Frank—could open the way for private
equity and hedge funds, as well as start-up lending shops, to
fill some of the void or step in to resuscitate the still-flagging $0
1998 2000 2002 2004 2006 2008 2010 2012*
conduit business. “Sputtering to life” from “a shadow of what it
was,” CMBS may have a chance to lurch back into the financing Source: Commercial Mortgage Alert.
spotlight “once transaction activity increases.” Without enough *Issuance total through August 30, 2012.
8%
Monthly delinquency rate
Searching for Yield in the
6%
Capital Stack
Investors will continue to jockey for position in the capital stack
Average delinquency rate
since 1999 to achieve the best risk-adjusted returns, hoping for as much
4%
upside as possible. A ton of dollars “looking for a home,”
rock-bottom interest rates, and resulting low cap rates push
2%
down mezzanine debt quotes on core real estate into the high
single digits (they remain in the low to mid-teens for secondary
0% markets). Although disappointing for the yield hungry, these
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
deals still promise a core-plus return with a downside cushion
Source: Trepp, LLC
ahead of core equity. Recapitalizing a high-quality, overlever-
Note: Through July 2012.
aged property and taking a preferred equity position may turn
and potential future interest moves could leave them with less Change in Availability of Capital for Real Estate
generous return expectations unless rents escalate ahead of
in 2013
most predictions.
Equity Source
The Squeeze-Down of Foreign investors 6.36
Opportunity Funds Institutional investors/ 6.09
As investment banks retreat from funds management in the pension funds
wake of the expensive regulatory “compliance maze,” super- Private equity/opportunity/ 6.04
sized private equity and hedge funds—“the new nonbank hedge funds
banks”—vacuum up pension fund allocations, which charac-
Private local investors 5.79
teristically seek safety in the security of what everybody else is
doing. Managers of these multibillion-dollar funds then “push Public equity REITs 5.66
out dollars promising big returns, which could be hard to real-
ize” in current commercial markets compromised by improving Nontraded REITs 5.57
but still questionable tenant demand. With tremendous buy-
ing power, they target large portfolios and entities, looking to
improve performance and then sell down the line. Lending Source
In these markets where promotes will be more difficult to Insurance companies 5.97
achieve, the megafunds can earn “huge fees on their volumes”
alone, leaving hundreds of smaller “opportunity fund” competi- Mezzanine lenders 5.92
tors, who need promotes to profit, grasping for leftovers and
Securitized lenders/ 5.87
vulnerable to failure. “The simple math proposition of organiza- CMBS
tional expenses for smaller general partners is that without scale
Commercial banks 5.85
and unless you get promotes, you cannot make the businesses
work.” And very few can be successful consistently. They may Nonbank 5.81
time taking advantage of a narrow window for acquisitions at financial institutions
or near the bottom of a cycle and ride a recovery, but the cycle Mortgage REITs 5.49
may not cooperate for subsequent funds, which will miss on any
Government-sponsored 4.92
significant value gains once recovery has played itself out. In the entities
worst-case scenario, late-to-the-game funds buy too close to
the top and sink in any market correction. Because finding good 1 5 9
very large stay the same very large
opportunistic investments in the current environment is difficult, decline increase
more opportunity funds “will be forced into development” to
have any chance of realizing satisfactory performance bonuses,
Source: Emerging Trends in Real Estate 2013 survey.
and many of these fund managers lack development expertise Note: Based on U.S. respondents only.
unless they are fronted by experienced local operators. Plan
sponsors and other investors become hip to the square: they
favor existing managers with good operating histories and
without legacy problems. Other managers “will struggle to raise tion. Generally strong management teams can scale operations,
peanuts.” leading to expense savings over portfolios, and leverage
national tenant relationships, especially in retail and industrial
space. They continue to sell weaker assets, deleverage higher-
REITs Corner the Top-Tier Market cost debt, grow unencumbered assets, get investment-grade
ratings, and float cheaper unsecured financings. Insurance
Sitting pretty at the top of the real estate food chain, public
companies and banks, meanwhile, fall all over themselves
REITs consolidate their holdings in core, institutional-quality
to extend credit to these public companies: “They chase the
real estate and reap the benefits of cap-rate compression on
people who need it the least.”
well-leased properties as well as ongoing solid income genera-
The stock market understandably looks favorably on all continue to wrestle with how to put day-to-day valuation and
these moves. “REITs stack up as a defensive asset with good liquidity mechanisms—cash and public REIT allocations, limita-
earnings and dividend growth”—hard to find amid otherwise tions on investment rights—in place for private equity real estate
choppy equities’ performance. If worse comes to worst, many options in 401(k) plans. Then marketing real estate to benefi-
of these companies look well positioned to ride out any prob- ciaries presents its own challenges, competing among all the
lems: prime holdings inevitably perform better in most market various stock, bond, and cash options.
scenarios, losing less value in down markets and appreciating For now, pension funds tie themselves in knots over strate-
more in recoveries. But companies concentrated in certain gies and return expectations after securing “relatively good”
weak sectors like suburban office face tough sledding, and the recent real estate performance and wondering if it can continue.
overall industry pushes up against the limits of supply in top-tier They need alpha to fill funding gaps, but also require steady
properties. There are only so many to go around. When Class A income to meet current payout requirements. For most pension
assets come to market, expect well-heeled REITs to pounce on fund investment managers, fundraising has been “brutal” and
any opportunities. should remain difficult in 2013. Uncertainty leads plan spon-
sors to “write fewer and bigger checks to bigger, safer [brand]
names.” And although overall allocations remain up, “getting
High-Net-Worth Hesitation invested remains an issue with queues into core funds just about
Hungry for capital gains and less motivated by income, high- everywhere” and other managers struggling to find product to
net-worth investors temporarily display less enthusiasm for meet ambitious return parameters. “A lot of pension fund money
commercial real estate. They tend to recoil from all the nega- was attracted into real estate by promises of 15 percent or better
tive “never-in-my-life-have-I-seen” economic indicators and returns, and that’s not happening.” The biggest public funds
stockpile cash. Exceptions are entrenched local real estate fami- “grow more conservative” and bring direct investment capabili-
lies, who have built up fortunes over time developing, owning, ties in house after a past round of cost cutting and shedding
and managing properties for the long term. They remain very staff experts.
much in the game and look to take advantage of any bargains, “Open questions” abound.
especially in secondary markets where big players have been
relatively scarce. They will try to use their marketplace knowl-
edge and considerable local connections, including tenant
relationships, to best advantage. Exhibit 2-12
Percentage of Your Real Estate Global Portfolio
in World Regions
Pensions in Flux
On the front burner for pension funds, “serious underfunding”
2013
plagues public plan sponsors, potentially upending retirements United States/Canada
of aging baby boomers. “In a pure numbers game,” states and 2018
local governments move toward a reality check: taxpayers ulti-
mately may not be able to afford the current public pension fund Europe
system. Over time they likely must follow the lead of corporate
plan sponsors and transform defined-benefit plans into defined-
contribution programs self-managed by the beneficiaries, and Asia Pacific
401(k)s, whose liquidity requirements make investment in equity
real estate unwieldy and “could diminish real estate’s role.”
In the meantime, some plan sponsors downgrade real estate Latin America
from “its own little province” into an asset-allocation category
lumped together with other real assets like infrastructure, natural
resources, and farmland. These plan sponsors “look for greater Other
efficiency and pricing; in theory, if timber offers better returns,
then allocations to real estate may be reduced.” 0% 20% 40% 60% 80% 100%
For pension fund managers, the handwriting is on the wall,
though the ramp-down of defined-benefit plans will happen Source: Emerging Trends in Real Estate 2013 survey.
gradually and not begin immediately. “With mixed results,” they
$1,000 markets. And U.S. real estate certainly compares favorably with
$0 T-bill yields or other alternative investments. Chinese institutions
just begin to look offshore under new government rules. “They
Canada
Asia
Germany
Middle East
Other
Europe, excluding the U.K. and Germany
United Kingdom
-$1,000 will concentrate in the most familiar coastal markets, the one’s
they know and feel safe in.” Wealthy Chinese individuals “are
recreational investors willing to make high-risk investments” in
-$3,000
fancy homes and skyscraper condos. Chinese banks “can be
extremely competitive if they choose” as Japanese and South
-$5,000 Koreans also “keep their hands in the game.”
Canada. Buoyed by their strong fiscal condition, Canadians
look south of the border after running out of real estate oppor-
-$7,000 tunities in their relatively constrained markets where institutions
buy and hold on to the best properties. “The grass is always
greener,” and the amount of Canadian capital trying to find its
-$9,000
way into the United States “is mind-boggling.” The big public
Source: Real Capital Analytics.
pension funds have been joined by public vehicles and some
Note: Net capital flows from second-quarter 2011 through second-quarter 2012.
All dollars in millions. private funds in the hunt for returns. Investment banks and
money managers “crank out” new funds “like cookie cutters”
with stretched yield promises and may buy inferior properties.”
Safe Haven Influx There’s just a ton of pent-up capital that needs to get invested.”
But the institutions know the markets: “They won’t be reckless.”
In a world of economic hurt and fear, the United States still
Middle East. Oil money focuses on “the four food groups and
“represents good relative value” and ranks internationally as the
hotels,” but has no interest in niche or specialized property
“premier” safe real estate investment haven. Europeans cope
strategies. Business is conducted quietly with longtime part-
uneasily on shaky domestic turf and seek relative stability and
ners. “They are willing to take outsized risk for outsized returns.”
some measure of yield across the pond, while wealthy Chinese
Israelis have always had close ties to the United States and
and Russians park assets outside of their countries. Middle
increase their activity. “It’s the most secure place for them to
East investors and affluent Israelis play smart by offshoring
invest.”
wealth away from backyard hotspots, and nouveau riche Latin
Americans diversify fortunes into south Florida condos. Asian Latin America. As South American economies comparatively
sovereign wealth funds are flush with cash and could pick flourish and a wealthy class emerges, the United States naturally
up any slack if domestic pension funds pull back. Anticipate attracts increasing amounts of Latin American capital. South
that foreign money will continue ample inflows into American Florida pieds-á-terre or New York apartments not only make
property markets from all compass points unless the federal good investment candidates for securing assets, but also are
government fails to address the fiscal cliff. Concentrating their status builders. Expanding Hispanic demographics also make
activities in the très chère gateways, most foreign sources “may the United States an increasingly comfortable place to invest as
not get great returns, but with low interest rates, they’ll take their well as do business.
Exhibit 2-14
Exhibit 2-15
-$4,000
$0
$2,000
$4,000
$6,000
$8,000
-$6,000
$10,000
–$2,000
–$1,500
–$1,000
–$500
$0
$500
$1,000
$1,500
-$2,000
Apartment
Cross-border Office
2,886.8
Canada
Institutional Retail
3,206.4
Hotel
Nonlisted REIT
Apartment
Public Office
User/other Industrial
Asia
Retail
Hotel
Cross-border
Apartment
Equity fund Office
Institutional Industrial
Nonlisted REIT Retail Germany
Hotel
Note: Net capital flows from second-quarter 2011 through second-quarter 2012.
Private
Industrial
Public Apartment
User/other Office
Industrial
Retail
Middle East
Cross-border Hotel
Note: Net capital flows from second-quarter 2011 through second-quarter 2012. All dollars in millions.
Equity fund Apartment
Institutional Office
Nonlisted REIT Industrial
Europe,
Retail
Germany
Office
excluding
Private
the U.K. and
Hotel
Public
Foreign Net Real Estate Investments in the U.S. by Property Type
User/other Apartment
Office
Industrial
United
Cross-border Retail
Kingdom
Hotel
Equity fund
U.S. Buyers and Sellers: Net Capital Flows by Source and Property Sector
Institutional Apartment
Nonlisted REIT Office
Industrial
Retail
Private
Other
Retail
Public
Hotel
User/other
Apartment
Office
Cross-border Industrial
Canada
Retail
excluding
Equity fund
Americas,
Hotel
Institutional
Nonlisted REIT Apartment
Hotel
Private Office
Public Industrial
Retail
Australia
User/other
–5,370.5
Hotel
23
c h a p t e r 3
Markets toWatch
“Look where other people aren’t, and smart money
will follow micro-fundamentals.”
I
n 2012, the Emerging Trends “Markets to Watch” chapter or exceed prerecession levels in the ”big six”—San Francisco,
opened with the following interviewee quote: “Capital will New York City, Boston, Washington, D.C., Los Angeles, and
search for yields beyond the overbought gateways and the Chicago—the focus of markets and property investors has
few jobs-growth markets, taking on considerably more risk.” shifted more to the lessee’s value, various market demograph-
Investment strategies conformed with Emerging Trends fore- ics, a city’s economic production, diversification, job growth,
casts through the first half of 2012, but investment slowed at the and basically on where people want to be. As one investor
start of the second half. This slowdown was just a sign of appre- states, “Corporate occupiers may do better by following their
hension over stepping outside the prime market/prime property employees.” Real estate investors might want to reflect on that
investment strategy. The acceptance of additional real estate strategy.
risk did not seem feasible to many in view of other concerns
on the horizon. This “wait and see” approach is understand-
able because investors must reevaluate the global economic
uncertainty, a limited increase in U.S. employment, continuing
Market Trends
problems with housing, and a presidential election.
Even though these troubles linger, the 2013 Emerging
Survey Says . . .
Trends forecasts display strong signals that investors will return Because other asset classes continue to offer minimal returns
to accepting more risk in their portfolios in an attempt to “chase or too much volatility, investment capital’s interest in com-
more yield.” Overall, interviewees have a positive tone, stat- mercial real estate continues to increase. The 2013 Emerging
ing, “Yield is in the secondary markets,” “We like safe bets; but Trends survey results confirm this trend: only six of the 51 markets
secondary markets are the focus now,” and “The idea is to start covered exhibited a decline in investment prospects. This year,
moving into second-tier markets where there’s better pricing 57 percent, or 29 cities, received a rating of “modestly good” or
relative to the top-tier markets.” Secondary real estate markets better, followed by 27 percent with a rating of “fair,” and only 16
were mentioned repeatedly, comments focusing mostly on their percent were rated “modestly poor” or lower. Compared with
price and yield advantages. “The chasing of yield started in the last year, investment prospect values for the big six rose by an
gateway cities [and] is now spreading to the other markets. . . . average of only 0.48 points, but the rest of the field improved
There is quite a lot of activity in the secondary city markets.” its values by an average of 0.62 points. Those cities making the
Even as riskier secondary markets show up on investors’ biggest moves in the values, and rated “generally good” or bet-
radar, many believe the move cannot be made without concen- ter, were generally secondary markets and included Salt Lake
tration on leasing to high-quality tenants within growth industries City, Charlotte, and Miami. On the other end of the spectrum,
that are sustainable. “Location, location, location” will always be Washington, D.C., and Austin, two of the top-rated markets in last
the key driver in real estate. However, as property prices meet year’s report, saw their rating values decline, as did New Orleans.
Exhibit 3-2
Employment Change (2007–2013)
-200,000 -150,000 -100,000 -50,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000
Houston, TX (5)
Dallas/Fort Worth, TX (9)
Washington, DC (8)
Austin, TX (4)
San Antonio, TX (19)
Raleigh/Durham, NC (11)
Minneapolis, MN (23)
San Francisco, CA (1)
San Jose, CA (3)
San Diego, CA (15)
Phoenix, AZ (33)
Pittsburgh, PA (30)
Tampa, FL (29)
Providence, RI (46)
Philadelphia, PA (27)
Miami, FL (12)
Atlanta, GA (35)
Los Angeles, CA (16)
Detroit, MI (51)
Chicago, IL (24)
Source: Moody’s.
Note: Employment for 2013 is a forecast as of September 2012. Numbers in parentheses are overall rank.
from the 2009 peak, mostly driven by state, regional, and local
reductions. Federal positions remain a concern because budget
Diversity, Production, and Rank
issues may lead to major cutbacks. “Government employment As expected, the majority of markets with higher overall eco-
and even subcontractors should be concerned,” says one par- nomic production scored better in this year’s survey. Measuring
ticipant. Even though overall job growth is questionable, some gross metro product (GMP) per capita—the size and production
industries—including technology, energy, health care, and of a metropolitan area by population—the projected average
education—show strong signs of growth. “Energy, tech, and growth is 1.4 percent for all of the markets covered in the report.
health are going to do much better than people think.” Survey results show that 24 cities will exceed that average, and
Emerging Trends survey results show a strong correlation 27 will fall below it next year. Comparing that to survey market
between jobs and survey rankings. Some markets with strong ranks, seven of the top ten ET markets are considered above
2013 employment growth projections fared well, including any average producing cities, while three fall below average expec-
city in Texas, New York City, Raleigh, and San Jose, to name a tations. Austin (4), San Jose (1), and Dallas (9) top the GMP per
few. Not surprisingly, several of these markets also have a large capita list at 5.3 percent, 3.1 percent, and 3.0 percent growth,
concentration of work in those few industries showing growth. respectively. Economic production is a driver of real estate—
For example, Houston has energy, which represents 3.6 percent and obviously of interest to interviewees and survey participants.
of the city’s employment; 16 percent of Raleigh’s jobs are in As one states, “Economic production and revenue are influential
education; and the technology sector constitutes 25 percent of in our investment decisions.”
San Jose’s employment. These numbers show some positives, A little more unexpected is the comparison of survey rank to
but real estate’s future is still uncertain. As an interviewee states, Moody’s industrial diversity scale. Industrial diversity is a 0-to-1
“It’s a horse race between NOI increases, job growth, and inter- scale that measures a market’s business diversity compared
est rate hikes.” with that of the United States as a whole, which is assigned a
Best Worst 70
1. Austin (4) 1. Detroit (51) 69
2. Salt Lake City (21) 2. New Orleans (47) 68
3. Houston (5) 3. Cleveland (48)
67
4. San Jose (3) 4. Providence, RI (46)
66
Percentage
5. Raleigh/Durham (11) 5. Northern New Jersey (13)
65
Sources: Moody’s forecast for 2013; Emerging Trends in Real Estate 2013 survey.
64
Note: List based on Emerging Trends markets only. Number in parentheses represents Emerging 63
Trends 2013 total market rank.
62
61
value of 1. Employment diversity should be a benefit to market 60
risk and output. However, when compared with survey ranks, 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
the answers are slightly unexpected. Out of 51 Emerging Trends
Sources: U.S. Census Bureau; Moody’s Analytics (forecasts).
markets, 23 received a 0.75 industrial diversity rating or better,
signifying that those metropolitan areas possess a rather diverse
base. Of those 23 diverse markets, however, only one, Dallas,
Even if home prices have “bottomed” in places or are
scored a top-ten ranking in the 2013 Emerging Trends report.
“starting to see a little bit of life in terms of pricing,” the road
Of the remaining nine, six received a mark of 0.5 or higher, and
to recovery will be slow and difficult. According to Moody’s
three were below 0.5. Asks one interviewee, “Diversity is a sign
Analytics forecasts, in 2013 only six housing markets will be
of stability, but will stable be enough in a slow-growing econ-
in the black compared to their peak prices. Trends data show
omy?” Recessionary times might spark investors to look to more
that these markets either did not experience such steep price
diverse markets to weather job losses and declines. However,
declines during the recession or are in areas that have big
now, in a time of slight economic uptick, results indicate that
expectations for job growth next year. A few markets with mini-
investor sentiment is focused on job-producing industries and
mal price movements include Pittsburgh (30) and Oklahoma
those markets that contain them, such as San Jose and Seattle,
City (32). But even more interesting is the boost given home
regardless of how diverse the businesses are that are producing
prices by increased hiring in areas such as Houston (5), Raleigh
those jobs.
(11), and San Antonio (19).
“You’re going to see the best housing markets provide
The Housing Impact better commercial real estate options.” This statement stands
true when looking at the survey’s list of the top-ten investment
Even as many professionals feel more comfortable saying
prospects and various housing statistics. For the survey’s top-
the housing market has bottomed out, statistics might lead to
ten markets, delinquency rates of 90-plus days are 30 basis
doubts about that conclusion. At the end of August, the U.S.
points lower than the average for those in the other 41 cities in
Census Bureau reported that the homeownership rate was 65.5
the survey, and delinquent loans are processed 27 days quicker
percent, the lowest rate in the past 50 years (exhibit 3-4). This
in those same markets. In 2013, home completions will be 3.9
value does not even include the 3.9 million borrowers who are
percent higher in the top-ten markets than in the other markets
90 days or more delinquent on house payments and at risk of
covered, and home sales will be 1.7 percent higher. “You’re
default. Analysts often state that true homeownership is closer
going to see the best markets get new housing,” says an inter-
to 62 percent. Either way, the lending and homeownership crisis
viewee. Finally, comparisons of house price declines from peak
continues to put a big strain on commercial real estate and
levels are not even close: prices in the top-ten markets are down
many commercial real estate markets. Many interviewees agree;
17.3 percent, compared with 23.7 percent for the rest of the field.
one says, “If the housing sector recovers, more jobs, banks
The housing market might see another uptick in the near
freed up, and a multiplier effect ensues.”
future because many large investment groups have started to
enter the housing hunt. Investors have put up large amounts of
San Jose (3) 40 Sources: Walk Score®, www.walkscore.com; Emerging Trends in Real Estate 2013 survey.
Dallas/Fort Worth (9) 39 Note: On a scale of 0 to 100, with 100 representing a walker’s paradise. List based on Emerging
Trends markets only. Number in parentheses represents Emerging Trends 2013 total market rank.
Houston (5) 36
Austin (4) 33
Leading this cyclical move is the echo boom generation,
Orange County, CA (10) N/A
which has pushed the American dream of homeownership to
0 20 40 60 80 100 the rear. As one interviewee states, “The echo boomer genera-
Source: Walk Score®, www.walkscore.com. tion is a key demographic we are focused on.” This trend is
Note: Number in parentheses represents Emerging Trends 2013 total market rank. strongly exhibited in a comparison of various markets’ demo-
graphic makeup with survey results: echo boomers as a percent
of the population in the top ten ranked markets totaled 15.3
capital to take advantage of low-priced and foreclosed homes percent, but only 13.6 percent in the bottom ten markets (exhibit
available in markets such as Florida, California, Nevada, and 3-8). This difference is evident in both primary and secondary
Arizona. The investment strategy is to purchase these types markets: New York City (2), Austin (4), Seattle (7), and Salt Lake
of homes and then rent them to new residents. Though this City (21), all have an echo boomer population that constitutes
approach is still fairly new and on a small scale, a private over 15 percent of the total for the metropolitan statistical area.
REIT has been created to follow this home purchase and rent Another key trend involving commercial real estate and echo
strategy. Apartment rentals have risen, followed by increased boomers is education (exhibit 3-7). In the top five markets in
development, but if an abundance of rental homes is entered terms of educational achievement, echo boomers make up 15.4
into the game, overbuilding could become a concern for the percent of the population, compared with only 13.8 percent in
apartment sector. markets with less educational achievement.
14%
12%
10%
8%
6%
4%
2%
0%
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Migration: Will Real Estate Follow? size using different standards; however, in the end the split
comes down to the “big six” versus “the field.” Even with pricing
A look at net migration as a percentage of total population pro- concerns, the big six—San Francisco (1), New York City (2),
duces some unexpected results and possibly a vision of what Boston (6), Washington, D.C. (8), Los Angeles (16), and Chicago
is to come. Raleigh (11), Phoenix (29), Tucson (44), Las Vegas (24)—continued to score well in the 2013 survey. “Regardless
(50), and Austin (4), in that order, make up the top five destina- of prices, institutions seem to be staying in major markets,” an
tion markets for in-migration, whereas negative net migration investor says. This ongoing trend has affected prices substan-
can be found in Cleveland (48), Detroit (51), and Chicago (24) tially. Since the 2007 peak, commercial real estate prices in
(exhibit 3-9). A few interviewees expressed the importance of major metropolitan areas are down only 11.4 percent on aver-
migration: “[We are] starting to focus on second-tier markets age, compared with 29.4 percent in other metropolitan areas
that have good in-migration,” and “We like cities that have (exhibit 2-1). This major market price movement and cap rate
good education centers and are magnets for migration.” Even compression has elicited mixed reviews from interviewees.
so, higher-migration areas did not excel in survey rankings. Some express concern, saying: “Gateway cities are fully priced
Therefore, even if individuals move to certain markets for a with too much capital chasing too few properties,” and “Prices
job, a lower cost of living, or lower home prices, to name a few and fundamentals don’t add up in the major markets.” Others,
draws, institutional capital might not be ready to risk investing though, still believe “good prime properties will always be good
in those markets because of the current economic uncertainty. prime properties, and capital will flow.”
However, with an improving housing market possibly on the While major markets remain the dominant force in commer-
horizon, household mobility might return. cial real estate and the main attraction of capital, participants
and data show that non-major markets—the field—might not
be a “bad play” moving forward. A comparison between the big
Big Six versus the Field six and the field in terms of certain macroeconomic elements
Over the last few years, the commercial real estate market has reveals some strong areas for these markets. For example,
continued to see a division of market interest between major and averages of GMP, industrial diversity, and ten-year echo boomer
non-major cities for investment. Many investors classify market growth all point to strength for secondary metropolitan areas.
Exhibit 3-9
Net Migration as a Percentage of 2013 Population
2.0%
1.5%
1.0%
Virginia Beach
Milwaukee
Cleveland
Honolulu
Chicago
Newark
Detroit
0.0%
Raleigh
Las Vegas
Phoenix
Tucson
Orlando
San Antonio
Portland
Tampa
Austin
Charlotte
-0.5%
Survey results regarding investment prospects agree: some overvalued, replacement costs are often below bidding prices.
of the largest gainers in rating values compared with 2012 are Therefore, selective building can be expected within the big six,
Salt Lake City, with a 0.89 increase; Tampa/St. Petersburg, whereas controlled-cost acquisitions will be the trend in second-
0.87; and Nashville, 0.71. Even more surprising is the limited ary markets. Survey results indicate that not much of either will
growth or actual decline in rating values in big-six markets take place next year in tertiary locations.
such as Washington, D.C., down 0.50, and Los Angeles, up Although development will be somewhat limited, trends
only 0.05. “Everything we’re looking at is incrementally better, point to more environmentally friendly, sustainable buildings and
meaning incrementally more capital for secondary markets as a more efficient use of space. Green developers continue to
it spills out of the larger markets,” says one interviewee; says embrace this pursuit and to adapt and conform to new demands
another, “Secondary market fundamentals haven’t been lagging from consumers. Owners believe “green building is often a
substantially.” Secondary markets are in the crosshairs of many good investment from a ROI [return on investment] perspective
investors looking for return and ready to take on more risk, but and adds to the bottom line.” In addition to sustainability, the
the economic future as well as the availability of capital to those amount of space provided continues to be adjusted, specifically
markets will determine the final outcome. in the office and apartment arenas. Say interviewees: “Office
buildings are exhibiting anemic real growth and are getting
serious about downsizing space per employee”; “Tenants are
Develop or Buy accepting smaller space [smaller units] to keep amenities, qual-
There has not been a positive outlook for development in an ity, and location”; and “People will be looking for smaller spaces
Emerging Trends publication in five years. Nonetheless, one key generally, both commercial and residential. There will be an
trend for 2013 is that some construction will return. As a whole, emphasis on reducing real estate operating costs.”
12 more markets, for a total of 20, received a rating of “modestly
good” or better as compared with 2012. Even though secondary
or tertiary markets were the largest rating value gainers, inter- A Few Other Trends
viewees were much more focused on developing in the big-six Two additional market trends worth noting are organic versus inor-
markets. Say interviewees: “Besides apartments, only select ganic growth, and the future for small deals. From a commercial
larger markets show signs of development”; “limited develop- real estate perspective, organic growth, except in apartments, is
ment outside of core markets”; and “build-to-suit and prelease limited as corporations continue to sit on profits without add-
is the way to go.” Because, apartments aside, market develop- ing employees. However, more inorganic growth in commercial
ment has remained stable and prices in core locations are often real estate is being seen. Owners continue to look for tenants to
44.0
13.6
13.3
San Francisco (1). In 2013, San
Miami 40.9 50.7 8.5
Francisco steals the triple crown from
Washington, D.C., receiving top bill- Denver 39.8 37.4 22.9
ing in the Emerging Trends investment, Washington, DC 37.0 45.7 17.3
development, and housing categories.
“San Francisco is driven by growth and Chicago 28.3 43.5 28.3
capital of the world look secure because Miami 43.9 43.9 12.3
employment is expected to be back in
San Diego 40.0 48.3 11.7
the black next year, topping prerecession
peak job numbers in the latter 2000s by Washington, DC 38.2 48.5 13.2
almost 14,000. Demographics for the city Seattle 37.7 44.9 17.4
prevail, with 20 percent of jobs being in
Denver 33.3 51.5 15.2
the growing education and health care
sectors and an important echo boomer Houston 29.6 51.9 18.5
population that represents 16.5 percent
Chicago 27.0 46.0 27.0
of the population. Service-type jobs
continue to develop, but a lag in goods- Dallas 23.6 60.0 16.4
producing jobs is a concern. Atlanta 19.7 62.3 18.0
Though one interviewee calls New
Philadelphia 18.5 51.9 29.6
York City an overpriced market, survey
participants disagree in regard to buy, Phoenix 16.9 63.1 20.0
hold, and sell suggestions for next year. 0% 20% 40% 60% 80% 100%
Over 53 percent of interviewees give
the city a top buy rating for office space. Source: Emerging Trends in Real Estate 2013 survey.
Winnipeg
8
Seattle
7
Portland
20
Minneapolis/
St. Paul
23
Honolulu/Hawaii
22 Austin
4
Houston
5
San Antonio
19
Halifax
Montreal 9
7
Ottawa
5
Boston
Toronto 6
3 Providence
46
Milwaukee
41 Detroit Northern Westchester, NY/Fairfield, CT
51 New Jersey 25
13 New York City
Cleveland 2
Chicago Pittsburgh
48 30 Philadelphia
24
Indianapolis 27
37 Columbus Baltimore
40 31
St. Louis Washington, D.C.
Cincinnati 8
43 38
Virginia Beach/Norfolk
26
Nashville Raleigh/Durham
18 Charlotte
17 11
Memphis
45
ExHIBIT 3-12
Atlanta Leading U.S./Canadian Cities
35
Generally good
Jacksonville Fair
39
Generally poor
New Orleans
47 Orlando Note: Numbers represent metro area overall country rank.
28
Tampa/
St. Petersburg
29 Miami
12
Exhibit 3-13
2013 Supply Constraints: Most and Least Constrained Metro Areas
3.0
2.5
2.0
1.5
1.0
0.5
0.0
San Francisco
New York
San Jose
Los Angeles
Boston
Seattle
Orange County
Miami
Baltimore
Jacksonville
Orlando
Las Vegas
Westchester County, NY
Phoenix
Nashville
Detroit
Raleigh-Durham
Indianapolis
Sacramento
San Diego 39.2 49.5 11.3 dropped one place to eighth. Even with
Phoenix 38.8 42.9 18.4 some ranking declines, rating values for
each of the categories improved. “Seattle
Miami 37.9 52.9 9.2
is experiencing terrific momentum in job
Chicago 36.2 39.7 24.1 growth, with tech companies taking up
Dallas 34.5 50.6 14.9 most of the well-located vacant space.”
For 2013, job growth is projected at
Washington, DC 31.0 38.1 31.0 1.2 percent, 50 basis points above its
Atlanta 24.7 47.4 27.8 ten-year average. The echo boomer pop-
ulation has expanded 20 percent over the
Philadelphia 11.3 53.5 35.2
past ten years, making Seattle one of the
0% 20% 40% 60% 80% 100% best markets for younger adults. “Strong
companies such as Amazon, Starbucks,
Source: Emerging Trends in Real Estate 2013 survey.
Boeing, Microsoft, Nordstrom, Gates
Foundation, and Costco have all been
metro area. Investment prospects posted respondents thinking 2013 is the time to
hiring and absorbing space of late.”
a 6.85 value, the highest since 2001, and buy. “Boston for office,” states one inves-
With this employment and office
the city’s rank jumped one position. Its tor, and 52 percent of participants agree,
absorption, 47 percent of survey respon-
rankings in development and homebuild- making office space a buy. Like last year,
dents recommend the purchase of office
ing each advanced two spots, to sixth industrial is considered a hold.
space in 2013, while those recommending
and eighth, respectively. “We consider Seattle (7). “Seattle for the risk/reward sales fall below 38 percent. Interest is also
the major cities, and Boston is one of the ratio; it has diverse economies and good very strong in industrial space, with over 51
best we’re looking at.” quality of living.” As the global center for percent indicating now is the time to buy.
According to Emerging Trends inter- the software industry, Seattle continues Investors favor Seattle industrial space for
views and survey results, extreme interest to be the focus of many domestic and a few reasons, including the “industrial-to-
exists for a variety of buying opportunities global investors. “Seattle belongs in the mixed use transition taking place for many
in Boston. The majority of participants primary market category,” one inves- suburban industrial and business park
now believe the time has come to buy tor states. Rankings for investment and sites,” as well as the city’s position “serving
in the apartment, hotel, office, and retail homebuilding remain at the sixth and as the main corridor to Asia.”
sectors. Comparing these results with seventh spot, respectively. Homebuilding
those from 2012, sell recommendations Washington, D.C. (8). “I think that, long
might struggle as apartment interest
are slightly up, but nonetheless investors term, D.C. is going to continue to be a
increases, with “a definite suburban-to-
want Boston apartments. Apartments super-strong market,” one interviewee
urban movement taking place.” However,
in Boston scored the highest of all 15 says—though survey participants did not
the city’s ranking for development
markets covered, with 59.7 percent of seem to agree. For 2013, declines were
transit service, are a draw for many; say shows that its job base is one of the most
8 Investment Prospects interviewees: “We will stay active in D.C.,” diversified of the 51 markets covered.
and “Prices won’t turn us away from With employment leading the way, survey
7
Washington, D.C.” participants believe in Dallas, ranking its
6 6.43 Buy rating values in all five property investment prospects tenth with a value
sectors were down this year when com- of 6.47. Its development ranking jumped
5
pared to last year’s survey. In addition, as well, by two spots, but its value for
4 the majority of survey respondents gave homebuilding did not gain as quickly as
Washington, D.C. hold recommendations for the office, other indicators and the city’s ranking
3
industrial, retail, and industrial sectors. dropped two positions. A relatively low
2 An interesting trend was that the major- 3.2 percent delinquency rate on home
ity of participants recommended selling mortgages and a quick judicial process
1
in the hot, pricey apartment sector even on foreclosures make distressed homes
though D.C. home prices are still down more accessible for purchase if financ-
’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13
24 percent from their peak and apartment ing is available. Combine this source of
rents have continued to rise. Still, some housing supply with estimated apartment
found in the investment, development, and owners believe the time is right to move vacancy rates of 5.2 percent next year,
homebuilding rankings. The nation’s capi- on from the city’s multifamily sector and and a decline in the homebuilding outlook
tal has a lot on its plate in the last quarter take advantage of current gains. Based is easier to understand despite the strong
of 2012 with the presidential election, and on results, it is safe to say that D.C. “has market.
the outcome will be a key determinant of cooled a little.” Even with projections of continued
what follows. Practically since the reces- Dallas/Fort Worth (9). “What our growth, “hold” seems to be the word
sion, commercial real estate prices have economy needs is employment, and regarding hotel, retail, and office space.
risen, with investors regarding D.C. invest- Dallas has been a great market in One investor states, “Rents in Dallas have
ments as “recession-proof.” However, providing it.” Through the end of 2013, not moved in 25 years, and efficiency in
concerns about overbuilding and costs Dallas is expected to have added over office space doesn’t increase develop-
continue to lead discussions about inter- 230,000 jobs since 2007. Of the markets ment.” Similar to other markets, over 51
est in D.C. Investors believe “institutional included in the survey, it ranks behind percent of survey participants would still
demand has fallen in the D.C. metro due to only its Texas neighbor, Houston, as a suggest buying apartments in the coming
a politically ambiguous environment,” and job provider. Next year unemployment year: “Dallas multifamily looks good to
“Washington, D.C., has lost demand for rates are forecast to fall to 7.2 percent, us,” and “would consider acquiring land
high-end space.” 1.2 percentage points lower than the to flip to developers.”
Only a 50-basis-point increase in the U.S. rate of 8.4 percent. The Dallas/Fort Orange County, California (10). With
number of jobs is expected next year, fall- Worth industrial diversity index of 0.81 total population of more than 3 mil-
ing below D.C.’s ten-year average of 1.1 lion, Orange County comprises 34
percent growth. Washington’s unemploy- cities. Some of the largest are Santa
ment rates are far lower than the national Investment Prospects Ana, Anaheim, Irvine, and Huntington
8
average, but the outlook after the election Beach. California’s economy continues
for direct government employment and 7 to struggle, and home prices will still be
subcontracting jobs remains in question. 6.47
6
down more than 27 percent in 2013 from
Washington, D.C., combined with the their prerecession peak. Even with that
Maryland and northern Virginia suburbs, 5 decline, median home prices throughout
has seen technology and energy-related the county are about $513,000. At this
4
employment increase; however, that Dallas/Fort Worth level, the rental/homeownership ratio is
growth may not be enough to offset 3 0.78, suggesting that people prefer to
what might occur in the near future. rent and causing a projected decline in
2
Nevertheless, the market continues to apartment vacancy rates to 5.8 percent
be a hub for well-educated echo boom- 1 next year—2.6 percentage points below
ers. Its infill-focused neighborhoods, the ten-year average. Employment
combined with walkability and extensive ’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 throughout Orange County continues to
7 7 7
6.48 6.47
6.27
6 6 6
5 5 5
4 4 4
Raleigh/Durham
3 3 3
2 2 2
Orange County
1 1 1 Miami
’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’95 ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13
put a strain on markets, with employment for highest ratio of net migration to total ment and condominium rentals seem like
remaining below the prerecession level. population (exhibit 3-9) and is one of the a wise move. “We like the pace and direc-
The unemployment rate is 2 percentage top five in GMP per capita, indicating to tion of rentals here,” claims an investor.
points above the ten-year average. investors that this market is “one to watch.” This improvement in the housing
Investors still believe in investments in The importance of the housing market as a outlook, combined with an interest in
Orange County, however: survey results backbone for commercial real estate is vis- industrial space, has sparked a new
show increases in the county’s rating ible here, as home prices are expected to enthusiasm for Miami commercial real
value and ranking as an investment pros- increase another 1 percent next year, and estate. Survey results display significant
pect. It ranks ninth in the investment and Raleigh/Durham is one of the few metro increases in investor prospects for 2013,
homebuilding categories, both improve- areas out of the red since the recession. with the city’s ranking jumping from 17th
ments from last year. However, its ranking This situation, combined with a foreclo- to 11th, but even greater improvement in
for development prospects dropped two sure rate just shy of 4 percent, puts the development prospects, with the city’s
spots to 19th overall. area in a good position for future growth. ranking moving from 26th and “modestly
Raleigh/Durham (11). “All things are Miami (12). Cranes are back in south poor” to 11th and “modestly good” this
looking good for the Raleigh area,” says Florida, and the condominium market has year. The city still ranks 16th for home-
one investor. Survey participants could moved from bust to boom. After suffering building, but the industry’s rating has
not agree more: the cities’ development from overdevelopment and cheap credit gained some ground from last year.
prospect ranking moved up five spots in 2007, the popular Miami condominium Half those surveyed recommend buy-
to tenth, and homebuilding jumped four market collapsed. Five years have ing apartment properties as this sector
spots to 11th overall. Supply constraints passed and the demand is back again, tries to compete with condominiums for
for commercial real estate play a factor in not only from domestic capital, but also tenants. Of even more interest is industrial
the development bump (exhibit 3-13). The from foreign investors who are swoop- space, with 52 percent of participants
metro area’s investment prospect value ing in to take advantage of the demand. believing now is the time to make a move
rose, but its ranking stayed at 15th. Financing does not seem to be an issue in this sector. “Facilities around Miami
This eastern-seaboard, centrally this time around because many investors airport will serve well for the large volume
located area continues to be a hub of are offering all cash. Investment plans of perishable goods that are traded
education: the city ranks fifth overall include leasing to tenants who may have between the U.S. and Latin America.”
in that field. “[Raleigh/Durham is] one lost homes in a city where foreclosure Office and retail remain a hold because
of our top markets to watch next year,” forecasts exceed 18 percent. Since the high unemployment and lack of job
states an investor. A very affordable cost start of the recession, median home growth remain a concern.
of living, substantial job growth, and a prices are down more than 50 percent, Northern New Jersey (13). The northern
diverse employment base have contin- and apartment vacancies should slip New Jersey market consists of a handful
ued to stimulate the economy here. For below 3.5 percent soon. With continued of counties, with Newark being the largest
2013, Raleigh tops the survey’s forecast housing troubles, investments in apart- city in the market. A huge asset for the
Next are two Florida cities: Orlando (28) and Tampa/St. haven’t gotten near that level.” Kansas City (34) shows slight
Petersburg (29). Survey results have both cities’ investment movement, up in investment and development as a result of a
prospect improving in 2013, but Tampa gained slightly more number of industrial opportunities. Indianapolis (36) shows
ground, edging out Orlando for the 25th spot. The opposite is signs of attracting interest with low business costs and solid
true for development: participants believe Orlando has more demographics. However, the city’s dependence on a limited
opportunities. To settle the tie, homebuilding goes to Orlando. number of employers might be a concern. Cincinnati (38)
Both markets continue to deal with the many economic issues makes a considerable jump, rebounding with a multitude of
Florida has faced. Housing continues to be in the hole, but industries involved in manufacturing, and wholesale and retail
Tampa’s recovery in median prices is a bit better. However, job businesses. St. Louis (43) shows strong industry diversifica-
losses have not been as harsh in the entertainment capital of the tion but still struggles with job growth. The declining population
world for tourists. Because Orlando wins the battle, it gets the in Cleveland (48) is causing all sectors to struggle, with only
quote: “We see it in Orlando . . . those markets are back.” education and health services seeing any improvement. The
Pittsburgh (30) and Baltimore (31) are two originally blue economic woes for Detroit (51) persist, with no youth contin-
collar–oriented towns that have been transformed in many ways gency, little diversity in employment, high unemployment, low
over numerous decades. The Emerging Trends total ranking job growth, and migration from the city. “The auto industry has
shows Pittsburgh edging out Baltimore by one spot this year. come back somewhat, but you can only be interested in the top
Baltimore has had an influx of echo boomers over a ten-year buildings in Detroit.”
period and has an industrial setting that has been great for
job growth. Pittsburgh’s appeal is not as strong to a younger
generation, but housing stability has helped the city’s economy.
Investment prospects for both cities are lower than last year’s,
with Baltimore taking a bigger plunge. Development prospects
have also fallen, with Baltimore having a slightly higher rank at
30th. Finally, homebuilding is all Pittsburgh, which moved for-
ward two spots compared with an 11-spot loss for Baltimore.
“We will see a push in one tertiary market—Oklahoma City,”
and “we are seeing many companies moving from the West
Coast to Oklahoma.” As an energy industry location, Oklahoma
City (32) moved up four spots in the investment prospect ranks.
Not much change was seen in Jacksonville (39), but
resurgence may be on the horizon because the city’s young
people are moving into a diverse set of industries. The lack-
luster housing market in Albuquerque (41) weighs heavily on
this recession-ridden market; survey results show concern,
as investment and development decline. Memphis (45) takes
steps backward in all three categories, with limited industrial
diversity and questionable future growth. New Orleans (47)
may have seen some slight movement; nonetheless, govern-
ment and service job numbers are in decline, and the city
remains stagnant in investment and development. Economic
dependence on the state government and homes at half their
precrash value continue to hurt the Sacramento (49) market.
Las Vegas (50) is still mired in the quicksand of foreclosures
and home prices declines. Problems in key Vegas industries are
also taking their toll, with education, health care, and service-
related employment levels below average.
Chicago and Minneapolis are top performers for the
Midwest in 2013, but many cities in this region will continue
to face economic and real estate challenges. “We’d be way
out in front, maybe even Middle America investing, but we
Property Types
in Perspective
“Demand for space slowly but steadily comes back.”
I
n 2013, commercial and multifamily property sectors
Exhibit 4-1
regain generally solid Emerging Trends investment rat-
Prospects for Major Commercial Property Types
ings. Categories hold their relative rankings from 2012 in
in 2013
the survey, with perennial leader apartments in the catbird seat
again, though noticeably leveling off, and retail continuing to lag, Investment Prospects
but recovering. Interviewees predict “Demand for space slowly
but steadily comes back,” exhibiting “decent growth.” Industrial/ Apartment 6.58
warehouse and hotels show the biggest survey improvements,
Industrial/distribution 6.17
trailed closely by downtown office. Power centers and suburban
offices remain investors’ least-favored subcategories. Except Hotels 6.02
for apartments and industrial space, development prospects
remain challenging. Interviewees note that “Despite one of the Office 5.72
1 5 9 1 5 9
abysmal fair excellent abysmal fair excellent
Exhibit 4-3
Core properties reach or approach pricing zeniths—apart-
Prospects for Capitalization Rates
ments look “past peak,” central business district office space
Expected Expected appears “at peak, and prime industrial may be within 10–20
Cap. rate cap. rate cap. rate percent of peak.” Respondents predict cap rates will remain in a
August 2012 December 2013 shift
Property type (percent) (percent) (basis points) narrow range between now and year-end 2013, with most sec-
Apartment: high income 5.67 5.85 18
tors experiencing slight increases and only industrial/warehouse
Central city office 6.15 6.17 2 showing further tightening (exhibit 4-3). High vacancies and
Apartment: moderate income 6.11 6.27 16 limited expansion interest by tenants will likely result in leases
Regional malls 6.37 6.51 14 still rolling off to lower market rents in offices, retail space, and
Warehouse industrial 6.92 6.87 -5 some warehouses. Demand pickup should improve, but stay in
Neighborhood/community 6.97 7.05 8 second gear. “Commodity properties, except apartments, will
shopping centers
continue to struggle to establish pricing power with tenants.”
Full-service hotels 7.27 7.38 11
Power centers 7.42 7.63 21 Investors like “bite-sized specialty types.” Medical office,
R&D industrial 7.62 7.64 2 student housing, and self-storage benefit from above-average
Suburban office 7.90 7.94 4 tenant demand drivers. The aging population requires more
Limited-service hotels 8.16 8.24 8 health care services—doctor visits, lab tests, and rehab facili-
ties. The very large generation-Y demographic cohort should
Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on U.S. respondents only. continue to support student housing in the near term. And
Exhibit 4-4
Prospects for Niche and Multiuse Property Types in 2013
1 5 9 1 5 9
abysmal fair excellent abysmal fair excellent
Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on U.S. respondents only.
Avoid
ers, “developers can meet price points providing less space” Back off the sub-6 cap rate deals on existing properties,
as long as the surrounding area offers “a quality experience” “where you have much less room for error” should interest
defined by shops, restaurants, parks, and, most important, rates increase, and steer clear of garden apartments in subur-
access to workplaces or mass transit to get to work. As light rail ban areas where new development can spring up easily and
and bus rapid transit service is expanded in many markets, con- soften returns on older product. Some of these low-barrier-to-
struction opportunities will likely present themselves around new entry places could suffer from oversupply by 2014 or 2015:
“Multifamily is almost guaranteed to overdevelop,” according to
one interviewee. Particularly watch out in high-foreclosure mar-
Exhibit 4-7 kets where speculators will turn single-family homes into rentals
U.S. Apartment Property Total Returns and compete directly against apartment owners for tenants.
50% Outlook
The “rah-rah” multifamily story seems “a little long in the tooth”
NAREIT
40% and will eventually “lose some steam” as housing rebounds, but
expect the run of increasing rents and values to continue in most
30%
markets at least through 2013 and probably well into 2014. Cap
rates—although not out of range compared with other sectors
20% NCREIF
with higher capital costs and risks—probably have nowhere
10%
to go but up, and rent growth should moderate after a boom in
infill locations. Car-access suburban markets “will do okay, but
0% underperform.”
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
-10%
-20%
-30%
Sources: NCREIF, NAREIT.
*Data as of June 29, 2012.
ExHIBIT 4-8
Weaknesses
Industrial/Distribution Investment Prospect Trends
Worldwide economic malaise stunts the rebound at key ports
and international airports; some investors “underweight indus-
trial due to reduced exports.” Although “fundamentally not
changing the business,” e-commerce slows growth in overall
good demand for logistics facilities: retailers tend to store less at inter-
mediate points between manufacturers and customers, hurting
secondary and tertiary locations. Demand for specialized space
modestly good Warehouse industrial tailored to distributor needs forces more old product into obso-
lescence in key midcountry gateways like Dallas, Chicago, and
Atlanta.
fair R&D industrial
Development
Developers latch on to significant demand for build-to-suits from
modestly poor e-commerce companies willing to pay for customized space
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 with elaborate stacking systems to accommodate pick-and-
Source: Emerging Trends in Real Estate surveys.
Source: Emerging Trends in Real Estate 2013 survey. Source: CBRE Econometric Advisors.
Note: Based on U.S. respondents only. *Forecasts.
buildings may require upgraded HVAC and power systems, U.S. Industrial Property Total Returns
as well as parking for large numbers of workers. REITs are well
positioned to grab this business because they often have better NAREIT
40%
access to capital than the average developer. Otherwise, most
U.S. markets cannot sustain much speculative construction— 30%
NCREIF
although the pace picks up during 2013. 20%
10%
Best Bets
Owners should hold on to their hub gateway portfolios; these 0%
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
markets will continue to tighten, slowly pushing up rents and -10%
returns to healthy levels. Look for opportunities to upgrade and
-20%
redevelop older product into big-box space in these same
“usual suspect” markets. These projects could come on line in -30%
time to meet the steadily improving demand, and institutions -40%
inevitably will line up to buy them.
-50%
Avoid -60%
Some smaller markets may retain demand for old-style storage -70%
space, serving local trades and merchants, but properties in Sources: NCREIF, NAREIT.
many secondary and tertiary locations lose out as distributors *Data as of June 29, 2012.
sidestep them for more direct channels; “Demand won’t come
back.” It’s the industrial “equivalent of suburban office parks.”
35 15% 50%
Completions
30 40%
20%
Vacancy rate
20 NCREIF
10%
15
0%
9% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
10
-10%
5 -20%
0 6% -30%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013* 2015*
Source: REIS. -40%
*Forecast.
-50%
Sources: NCREIF, NAREIT.
tenants will lease display space for promotions in higher-traffic *Data as of June 29, 2012.
locations and orient shoppers to make purchases or contacts
directly off their mobile devices as they pass by. Restaurants, alternative uses, including parks and light-rail stations or pos-
movie theaters, and entertainment features will become more sibly warehouse space to support e-commerce. Power centers
important enticements to the mall mix as landlords “figure out look more like “a crapshoot,” considering how much big-box
how best to compete against online selling.” Big-box formats commodity merchandize ultimately could be bought online.
continue to wrestle with how to shrink into urban streetscapes Watch out for neighborhood centers exposed to Whole Foods/
to capture business from move-back-in trends, and multifamily Trader Joe’s or Walmart/SuperTarget forays. According to an
developers similarly accommodate necessity retail compo- interviewee, “Between high-end specialty food stores and
nents—supermarkets, drugstores, and cleaners—into their infill discount superchains, the typical grocery anchored strip is at
projects. “Urban retail development has major potential.” significant risk. If you lose the grocery anchor, you’re sunk.”
Development
poor
Contraction in space use and chronically high vacancies will con-
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
tinue to mothball most projects in many markets. In tighter 24-hour
Source: Emerging Trends in Real Estate surveys.
cities, new green developments, featuring layout efficiencies
U.S. Central City Office and “healthy” interiors, can charge premiums in siphoning big
2013 Prospects Rating Ranking space users away from existing buildings. “At a macro level, office
vacancies won’t get much better, but this new product will sell.”
Investment prospects 6.16 Modestly good 4th
Development prospects 4.53 Fair 6th
In fact, any new office building will be “some version of green,”
and these projects will render “hard-to-retrofit” brown buildings,
Buy Hold Sell
47.4% 35.1% 17.5% including some ten- and 20-year-old vintage towers, “increasingly
obsolete.” Prospective tenants now “check the boxes” for lower
Expected capitalization rate, December 2013 6.2%
energy bills, better windows for more natural light, cleaner/fresher
U.S. Suburban Office air, raised floors for under-floor wiring and HVAC systems, as
2013 Prospects Rating Ranking well as high-tech conference centers. “It’s like a fancy, new car:
Investment prospects 4.77 Fair 10th
everybody wants to be in a LEED building.”
Development prospects 2.82 Poor 10th Where possible, re-adapting space “will become a common
undertaking” as owners try to install new energy-efficient systems
Buy Hold Sell
25.1% 45.5% 29.4% and create more open spaces. They need to appeal to tenant
mind-sets, which “rationalize” the notion of “increasing worker
Expected capitalization rate, December 2013 7.9%
productivity and wellness while reducing square footage per
Source: Emerging Trends in Real Estate 2013 survey.
employee.” Some big corporations—typically e-commerce firms
Note: Based on U.S. respondents only.
and manufacturers—“sit on lots of money” and may be willing to
entertain build-to-suits.
56 Emerging Trends in Real Estate® 2013
Chapter 4: Property Types in Perspective
Exhibit 4-17
U.S. Office Property Total Returns
60%
Exhibit 4-15
50% NAREIT
U.S. Office New Supply and Net Absorption NCREIF
40%
120 120 30%
Net absorption
100 20%
100 Completions 80 10%
0%
80
40 -10% 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
20 -20%
60
0 -30%
-20 -40%
40
-40 -50%
Sources: NCREIF, NAREIT.
20 -60
*Data as of June 29, 2012.
-80
0 -100
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011* 2013* 2015* care industry balloons to take care of graying baby boomers.
Source: CBRE Econometric Advisors. Undersized properties may “make it hard to put money out,” but
*Forecast. the demand from doctors, clinics, labs, and rehab providers is
“crazy to ignore.” Landlords should not have problems leasing
space anywhere near hospital centers and medical complexes.
Exhibit 4-16
U.S. Office Vacancy Rates
Avoid
“Severely handicapped” suburban office space remains “a
20% Suburban trap.” Generation Y resists working in isolated office-park
campuses, which require a car for the commute. Models for
repurposing outmoded suburban retail space may offer ideas
15%
on “what to do about some of this old crappy [office] space.”
Resist buying cheap Class C or off-location buildings with
10% the idea of riding back an eventual market rebound. Investors
Downtown
underestimate the capital expenditure requirements for main-
taining these buildings, and long-term leasing and value trends
5%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011* 2013* 2015* point to subpar results. Rents have flat-lined or worse in many
Sources: CBRE Econometric Advisors. suburban districts for decades.
*Forecast.
Outlook
Best Bets Aside from modestly bullish forecasts for gateway trophies and
Focus on well-leased buildings in top markets and protect the few new green projects in these same markets, the office
against functional obsolescence. Favor LEED buildings or sector promises a tough road for investors, given decreased
buildings that can be economically adapted to meet LEED demand, dictated and enabled by morphing work styles and
standards. Tune in to work attributes favored by younger hires, technology. The office as work center has become less essen-
who place emphasis on connectivity and social interaction over tial as more bosses choose to let more of their workers spend
privacy and their own space. Also, pay more attention to the more of their time operating from elsewhere. These approaches
neighborhoods where the gen-Y crowd wants to live and work; not only register bottom-line savings, but also can encourage
“Their influence cannot be underestimated.” A minority view greater productivity. Multinational companies can be expected to
suggests that once unemployment drops, “all the old-style, continue shifting work to lower-cost overseas markets, moderat-
high-finish amenities will make a comeback. “It’s an employer’s ing expansion appetites in the United States. And most obvious,
market right now, so workers will put up with less space as long today’s office users require less space than in the past to get the
as they get a paycheck.” But don’t bet on it. same amount of work done: businesses now operate with fewer
Although a niche sector, medical office space presents administrative personnel and need less storage. It’s a new age.
compelling investment opportunities as the nation’s health
Emerging Trends in Real Estate® 2013 57
Hotels
Strengths operators hope guests do not notice reduced manpower levels
The hospitality sector—especially in major markets (“New York and the absence of certain “runaway-cost” service ameni-
pulls up everything”)—performs “quite well.” Helped by “little new ties. Bulk-buying corporate customers accept year-over-year
development,” investors and operators realize “solid growth” in increases in negotiated rates, and “modestly” loosen purse
occupancies, with rates tracking right behind, and remain “cau- strings on food and beverage–related events. Full-service hotels
tiously optimistic” as long as the economy holds together. “More have pared expenses by eliminating multiple restaurants, and
people stay in hotels than ever before” and “the frenzy of cutting “menu engineering” brings back more profitable margins.
[staffing] and lopping off expenses has ended.” The upscale and
luxury categories revive in style: wealthy travelers and business Weaknesses
elites book cushy resorts and prime business center suites as Operators put a brave face on “revolutionary changes” wrought
by web-based pricing transparency and internet reservation
sites. Value-conscious customers can surf the web for the best
ExHIBIT 4-18
prices and secure favorable deals, hamstringing the ability to
Hotel Investment Prospect Trends
advance rates. In a battle fought on websites and through social
media, the big chains try to gain an edge through rewards
programs and have an advantage over weaker flags or indepen-
dents using less-sophisticated systems and technologies. Price
good
shopping “forces hourly revenue management like the airlines”
Limited-service hotels with “inventories controlled like bond traders.” Hotel chains have
modestly good all migrated to off-property, centralized sales and marketing
Full-service hotels functions. “It’s now a science, not an art.” While the meeting
fair business has recovered “after taking the pipe [during the reces-
sion], it’s not where it was.” The total size of group catering per
head stays down and events remain “less elaborate.”
modestly poor
Development
poor Given plenty of troubled legacy loans in portfolios and multiple
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 cycles of burned development transactions, lenders show no
Source: Emerging Trends in Real Estate surveys. inclination to bankroll hotel projects, except extremely select
deals in prime global gateways. “The universe of locations
U.S. Hotels: Limited Service strong enough for new development will remain extremely
limited”—“New York, Miami, D.C., Boston, L.A., San Francisco,
2013 Prospects Rating Ranking
and maybe energy markets.” After five years of bankruptcies,
Investment prospects 5.93 Modestly good 6th cost cutting, and holding on, many properties require overhauls.
Development prospects 5.10 Fair 4th The industry will need to concentrate on upgrades and renova-
Buy Hold Sell tions rather than ground-up construction.
45.9% 31.2% 23.0%
Expected capitalization rate, December 2013 8.2% Best Bets
Investors need to “change their metrics” and realize that
U.S. Hotels: Full Service few bargains exist; yields and margins will no longer satisfy
2013 Prospects Rating Ranking “opportunistic” expectations. Opportunity players try to fer-
ret out “really attractively priced,” “broken deals” that need a
Investment prospects 6.02 Modestly good 5th
“white knight” and “a new flag”—“maybe a resort in Florida or
Development prospects 4.64 Fair 5th
Arizona.” Special servicers hold “lots of product” in need of
Buy Hold Sell renovation from deferred maintenance; at some point they will
30.7% 45.2% 24.2%
try to clear these properties from their books. Buyers will need
Expected capitalization rate, December 2013 7.4% to be selective, especially in secondary and tertiary markets
where revenue per available room (RevPAR) growth lags. Clean
Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on U.S. respondents only.
and comfortable, low-frills suites with oatmeal and scrambled
eggs or muffins included in a complimentary breakfast draw
Exhibit 4-19
U.S. Hotel Occupancy Rates and RevPar
50% $80
Real RevPAR
Occupancy
40%
30% $60
20%
$40
10%
0% $20
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013*
budget-conscious business travelers in droves to limited-service reversals would strike operating margins quickly. The major
hotel formats like Hilton Garden Inn, Courtyard by Marriott, and hotel companies view the United States as a mature market with
Residence Inns. Less dependent on group and catering/restau- relatively few expansion opportunities outside the familiar global
rant business, these hotels avoid costly overheads, including gateways. Their attention has shifted to overseas markets—
large food and beverage staffs. For “uncertain times, it’s the sur- especially Asia, India, and Latin America—where more attractive
est bet,” and despite decent cash flows, “a lot of [local] owners development prospects beckon.
won’t be able to refinance maturing loans,” paving the way for
attractive recapitalization plays at lower cost bases.
Exhibit 4-20
Avoid U.S. Hotel/Lodging Property Total Returns
Travel increasingly concentrates in the top 25 or so population
and business centers. Hotels a step or two removed from pri- 70%
mary transportation hubs register weaker outlooks and will have 60% NAREIT
trouble sustaining strong revenue gains. Although investors may 50%
find some reasonable deals, they should be extremely selective.
40%
30% NCREIF
Outlook
20%
Quietly hotels edge back into favor “and can’t be ignored. They’ve
been in rocket mode.” Expect profit growth to flatten in the 10%
healthy mid- to high single digits as long as development remains 0%
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*
sedated. Winners will find ways to burnish their brands and fend -10%
off online travel agencies, which effectively commoditize pricing -20%
among the leading flags. So far the typical hotel boom-after-bust -30%
cycle in transaction pricing has been short-circuited by slow-to-
-40%
foreclose lenders, tepid debt availability, and a wide gap in bid/
-50%
ask spreads. Transaction volume should gain momentum finally
as buyers capitulate in the face of strong revenue growth and -60%
lenders dispose of more foreclosed assets. The industry keeps its Sources: NCREIF, NAREIT.
fingers crossed that momentum can be sustained: any economic *Data as of June 29, 2012.
Thousands of units
depressed prices, rent it for income, and eventually sell in any
full-bore recovery. Smaller players have already put together
1,000
localized ventures, and prices should firm up further in mar-
kets that are drawing attention. Some prime neighborhoods in
affluent enclaves escaped much damage and register modest
500
gains, while “accelerating prices” for condominiums in “bet-
ter” markets like south Florida could be “a leading indicator for
recovery.” Skyrocketing apartment rents in certain infill and gate-
0
way markets also provide incentives to buy. Banks finally allow 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011* 2013* 2015*
more short sales and convert delinquent owners into renters, Source: Moody’s Economy.com.
helping dent the inventory of problem loans, which weighs down *Forecasts as of August 2012.
many commodity markets.
amply documented in reams of housing-bust publicity. Rational
Weaknesses credit standards, which require reasonable downpayments and
Even with relatively low mortgage rates, home sales have lan- good borrowing histories, shut out some potential buyers who
guished and the homeownership rate has dropped to 50-year would have had no trouble scoring a mortgage in the precrash
lows, revealing lack of pent-up demand and the depths of many lending environment. More than 10 million homeowners, mean-
Americans’ shaky personal finances in a problematic jobs mar- while, remain underwater on mortgages worth more than actual
ket; they simply cannot afford to own homes. Others just do not house values. Any distressed selling will continue to dampen
want to venture the risk or deal with homeownership headaches, prices—and what happens if interest rates increase?
Development
Exhibit 4-21
New construction levels have never been lower in 50 years,
The S&P/Case-Shiller Home Price
and if the market has any chance to recover more quickly,
20-City Composite Index
homebuilders and lenders would be wise to show continued
discipline. Expected population gains will eventually lift demand
250
and push housing starts, and builders should find some oppor-
tunities in markets with better employment growth. They retreat
from traditional greenfield subdivisions at the suburban fringe
and seek more infill opportunities. Instead of building cavernous
200
McMansions, they downsize models, consider more energy-
efficient designs, and look to accommodate extended families
Index
Best Bets
For anyone who wants to own and has the means, now is
100 a good time to buy and lock in low long-term financing.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* Prices should continue to edge up, and mortgage rates are
Source: Standard & Poor’s. not expected to get better absent an economic reversal.
*As of June 29, 2012. Speculators, including the new housing fund ventures, should
housing markets won’t work. Rents do not support the purchase Prospects for Residential Property Types in 2013
prices,” and anyone expecting to score rapid value gains likely
will be disappointed. Fund investors need assurance that their
advisers/general partners have the organizational infrastructure Investment Prospects
to manage and lease scores of disparate houses in different
places and deal with the inevitable myriad renter-related issues, Infill and intown housing 6.54
from leaks and broken appliances to household damage and
Seniors’/elderly housing 6.01
security deposits. “There’s no playbook”; scaling up these funds
may be “a challenge” and “could be a crapshoot.” Local inves-
Student housing 5.88
tors, focused on a manageable number of properties in familiar
districts and neighborhoods, may be better positioned to deliver Affordable housing 5.53
on performance objectives. Buying land cheap, getting entitle-
ments to add value, and holding until markets strengthen still Single-family: 5.43
moderate income
makes sense, too.
Single-family: 4.95
high income
Avoid Manufactured home 4.39
Watch out for older commodity suburbs in decline. For any loca- communities
tion, a substandard school district and a falling tax base could Multifamily condominiums 4.31
signal an unfortunate downward home price spiral. Weekend,
summer, and resort homes still can compute for folks with Second and leisure homes 3.65
significant disposable incomes, but “do they make economic
sense” for most potential buyers? “You’re so much better off Golf course communities 3.01
renting for three weeks” or vacationing at places where you have
never been before and escaping the ownership hassles. Development Prospects
Seniors’ housing. The sheer number of Americans aging into Golf course communities 2.36
retirement promises steady demand for seniors’ housing over
the next decade. At the same time, smart players realize the 1 5 9
market dynamics may be changing because fewer seniors will abysmal fair excellent
have the savings or pensions they might have expected only a
few years ago. Stock market reversals, companies abrogating Source: Emerging Trends in Real Estate 2013 survey.
retirement plans, and losses in home values all conspire to put Note: Based on U.S. respondents only.
Emerging Trends in
Canada
“We’re not a bad place to be.”
I
n a world struggling with managing unprecedented debt and foreign investors try to gain footholds (most unsuccessfully)
levels and economic upheaval, Canada enjoys “boring” in property sectors against difficult odds: Canadians tend to buy
stability, its real estate markets following along in a seem- and hold long term.
ing state of near-perpetual equilibrium, at least compared with But “cautiously exuberant” Canadians also struggle against
other volatile regions, including most obviously the United complacency and must remain focused on the reality of how the
States. As uncertainty continues around the globe, “Canada world’s tenth-largest economy can be dragged down by everyone
sits in a sweet spot of low interest rates with [the benefit of] a else. “We cannot continue to outperform economies awash in debt.
natural resource/commodity–based economy.” “People live The huge deficit of our largest trading partner, the U.S., will restrain
under the assumption that we have a profound safety net which growth; energy markets and the resource sector [will] slow down.”
provides confidence that things won’t go upside down.” From In other words, Canada “cannot assume we’re immune” from the
Vancouver’s Pacific gateway and Alberta’s oil sands in the west “gray cloud” hovering over the world’s major markets.
to Toronto’s global financial center and Halifax’s shipbuilding For 2013, a balanced outlook is expected. “Compared to
in the east, Canada is well positioned to sustain its economic everyone else, we will do very well, but growth trends will be
consistency. The rest of the world has taken notice. U.S. retailers pretty mediocre.” In fact, “mediocre” should be viewed as “the
are expanding into the dependable Canadian market, immigra- new ‘good,’” as real estate players “need to scale back expecta-
tion waves stoke growth in housing and condominium sales, tions.” Canada has entered “a post-adrenaline phase after only
Exhibit 5-1
Firm Profitability Forecast
approaches a possible saturation point near 70 percent and a choice of where they want to live, and the shift has been
prices in some markets began declining in 2012 as federal regu- quite profound.” They increasingly choose in-town living and
lators applied the brakes and imposed stricter lender guidelines, high-rise apartments or townhouses over suburban subdivi-
such as limiting amortizations to 25 years, resulting in increased sion, house-and-yard lifestyles. The trend is “generational,”
monthly mortgage payments. Both house hunters and condo “cultural,” and “not just economical.” Cities are more convenient
speculators have backed off buying sprees, and discretionary and concentrate 24-hour amenities for business, recreation,
sellers decide to pull back. and entertainment. Aging baby boomers get tired of shoveling
Interviewees say a minor correction could be healthy for snow and navigating roads during harsh winters, gen-Yers are
markets and appear confident that anything approaching U.S. attracted to better job opportunities and a glamorous city life,
heartache will be avoided. They point to significant differences
in the two countries’ mortgage markets: Canadian banks have
Exhibit 5-4
always required downpayments; never engaged in “NINJA”
Change in Availability of Capital in 2013
(no income, no job, and no assets) lending practices, let alone
offered subprime rate financing; and hold mortgages on bal-
ance sheets. Therefore, the ingredients for a subprime-driven Equity source
mortgage-backed securities environment never developed. Institutional investors/ 6.07
Strict underwriting weeds out most compromised borrowers, pension funds
and buyers take out insurance against defaults. Although new
supply has not outstripped demand trends, thanks to immigra- Private REITs 5.79
tion flows, all signs suggest the condo market needs a further
cool-down, especially for luxury units. In the meantime, low Private local investors 5.71
interest rates should help recent borrowers make payments and
“hold on,” even though values could edge down further. Private equity/opportunity/ 5.70
hedge funds
Urbanization Continues Apace. Canadians gravitate to
the “urbanization model. It’s everywhere,” extending beyond Public equity REITs 5.69
central business districts to reach interconnecting urban
nodes in once-suburban expanses not only around Toronto, Foreign investors 5.60
Vancouver, Calgary, and Montreal, but also “reaching every
part of the country,” including the smaller cities. “People make
Lending source
Government-sponsored 5.00
entities
1 5 9
very large stay the same very large
decline increase
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
measured demand and does not race ahead of it. Few prime economic activity, such as the Maritime Provinces, will attract
development sites remain in either Toronto or Vancouver and greater immigration as a result of the coastal energy boom that
“stay in a few hands.” Calgary, with more available building will undoubtedly create new jobs.
sites, can generate a semblance of boom/bust cycles, but the
“Leveling” Cap Rates. Investors’ proclivity to secure income
market never seems to stay out of kilter very long because of
over long-term holding periods tends to sedate deal making and
growing energy markets. Potential approvals of controversial
helps insulate markets from volatility, although commercial mar-
pipeline projects from Alberta to the United States and into
kets registered record transaction volumes during 2012. Again,
British Columbia would boost real estate construction prospects
the Emerging Trends Canada barometer settles in a familiar
further. Although pension funds and other institutional investors
positive zone for 2013 with buy/hold/sell sentiment essentially
resist speculative development, they selectively seek expansion
aligning (exhibit 5-5). Survey respondents expect little further
and renovation opportunities in existing portfolio holdings in
downward movement in “low-as-you-can-go” cap rates, espe-
an effort to increase yields and maintain a competitive edge in
cially for apartments, regional malls, and downtown office space
aging buildings.
(exhibit 5-6). The exceptions will be for prime development sites
Transforming Tenant Demands. Office developers take in and around downtowns, especially for stores. “Land values in
notice of how changing tenant requirements—open layouts, core districts will keep going up.” If anything, it may be a slightly
shrinking space use per capita, hoteling and other technol- better time to sell than buy, but then given limited investment
ogy impacts, as well as operating and energy efficiency alternatives, owners probably are better off holding. And as
preferences—spread from the United States and force altered noted, that “is just what most successful Canadian investors do
approaches to projects. They realize the need to deliver green out of habit anyway.”
product to attract prime space users, while institutional owners
Plenty of Capital, Not Enough Deals. “The stars could not
continue to focus on upgrading existing stock to LEED standards
be better aligned” for attracting capital into Canada’s reliably
in order to remain competitive. “Green is huge in office. It’s
solid real estate markets: they look as good as any place to
become an intrinsic core value for tenants and fundamental for
invest in the world. Rational leverage levels, extremely low default
their business in attracting talent.” But some interviewees raise
rates, high occupancies, and low interest rates all combine to
a familiar complaint: “Tenants want it, but aren’t willing to pay
reinforce investor and lender confidence in an asset class gen-
more for it.” Retail development orients away from the suburbs to
erating attractive yields. For 2013, Emerging Trends respondents
densifying city center residential areas—particularly integrating
expect balance in debt availability—meaning debt will neither
supermarkets, other service retail space, and smaller versions of
big-box chain store space into apartment complexes or conve-
nient sites nearby. And every commercial developer wants to be
ExHIBIT 5-5
as close to transit corridors as possible; businesses place an
Emerging Trends Barometer 2013
increasing premium on proximity to rail and subway lines.
+6+22+33+35+4
for 2013
Expected Expected
Cap. Rate cap. rate cap. rate Equity capital for investing
August 2012 December 2013 shift
Property type (percent) (percent) (basis points)
Regional malls 5.22 5.15 –7
Apartment residential (rental) 5.14 5.18 4 6.12% 22.45% 32.65% 34.69% 4.08%
Substantially Moderately In balance Moderately Substantially
Apartment: moderate income 5.38 5.36 –2 undersupplied undersupplied oversupplied oversupplied
+2+35+43+18+2
Central city office 5.48 5.43 –5
Warehouse industrial 6.07 6.00 –7
Debt capital for acquisitions
Power centers 6.13 6.21 8
Full-service hotels 6.25 6.25 0
R&D industrial 6.60 6.45 –15
Neighborhood/community 6.54 6.54 0
shopping centers 2.04% 34.69% 42.86% 18.37% 2.04%
Suburban office 6.55 6.62 7 Substantially Moderately In balance Moderately Substantially
undersupplied undersupplied oversupplied oversupplied
+8+33+43+14+2
Limited-service hotels 8.00 8.00 0
+37+55+8 +49+45+6
Equity Underwriting Standards Forecast for Canada Debt Underwriting Standards Forecast for Canada
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
higher estimate, Canada’s total population is estimated to grow Urbanization and Transportation
1.4 percent next year, and the nine markets covered in Emerging With immigration and migration flows, a continuing trend is
Trends will average growth of about 1.7 percent. As the European increasing “urbanization” of metropolitan areas, as Canada’s
recession lingers and U.S. economic growth remains slow, the workers prefer to live closer to where they work. “Major urban
flow of individuals remains a concern. “More immigration is going areas will see most of the investment capital as areas encour-
to Saskatchewan and Alberta, bringing in more skilled labor from age the intensification of an urban culture.” “New generations
Ireland and Europe.” At first, increases in population are a posi- want to walk to work” in major urban centers like Vancouver,
tive sign for real estate; however, without enough job support to Toronto, and Montreal. “The choice to live in cities is no longer
handle the increases, the economy could falter. economic, but has now become cultural.” Moving forward, each
Migration (the flow of permanent residents from one Canadian city will serve as the focus, creating and preserving an “identifi-
market to another) was often discussed in interviews. Calgary able” community. Commercial real estate will follow that trend,
looks to have the biggest jump in population, 2.3 percent, as and “small-box retailers will move to where the people live.” This
many move to take advantage of Calgary’s projected 2.8 per- tendency will not stop at major markets, though, as “urbanization
cent increase in jobs next year. This trend is consistent across will continue and will spread to smaller cities.” At least one inter-
the top four markets with the largest job growth in 2013, which viewee notes, “Urbanization, for two or three successive years,
together show population increases of 1.9 percent, above the is still continuing, and it’s everywhere, including midsized cities.”
national average of 1.4 percent. “There is a mismatch in location Urban growth is not necessarily stimulated by natural population
of jobs versus where people are. This will change migration increases, but driven by larger city benefits that draw invest-
patterns.” The west versus east matchup shows similar trends. ments and an educated workforce. Corporate real estate is all
Western markets’ population looks to increase 1.8 percent, and about strategic locations for success, and these urban attributes
eastern growth is 50 basis points behind at 1.3 percent. Finally, offer everything the workforce desires.
contrary to the investor demand shift toward secondary markets Even with capital flow to urbanized locations and an increase
for investment-grade commercial real estate, lifestyle prefer- in density, without proper infrastructure and transit, these loca-
ences will continue to drive population growth in the four primary tions will suffer. There are “inevitable requirements for improved
markets, which are expected to grow by 2.0 percent, compared infrastructure in all major cities.” Ridership on conventional transit
with an average of 1.4 percent growth in the five remaining services has continued to increase year-over-year, supporting
markets. Even with a flow west, “Toronto will always retain the the additional need for “more contemporary transit corridors.”
number-one position for immigration and migration.” As urban density pushes out to additional locations, the “need
Exhibit 5-11
2013 Net Migration Forecast
Toronto
Vancouver
Montreal
Calgary
Edmonton
Winnipeg
Saskatoon
Ottawa and Gatineau
Halifax
-40,000 -20,000 0 20,000 40,000 60,000 80,000 100,000
comes development, and Edmonton had Survey results show Toronto taking
8 Investment Prospects a 0.87 increase in its rating value, moving steps back in all three categories this
7 to second from fourth. Nonresidential year. Investment prospect values fell
6.52 construction dominated, as projects like 0.52 points to 6.18, and the city’s rank
6 expansion of the Edmonton International went from first to third among the nine
Airport and Commonwealth Stadium’s markets. Interestingly, the investment
5
recreation center were completed. prospect value for 2013 is exactly equal
4 Housing starts statistics and survey to the Emerging Trends historical aver-
results send mixed messages, as only a age for Toronto. Even though Emerging
3 Edmonton
1.1 percent increase in the number of new Trends values are survey driven, this
2 homes is forecast, but participants rank may be a sign that the Toronto market
Edmonton as the number-one homebuild- as a whole is in a state of equilibrium.
1 ing area. Homebuilding prospects in Development is the only category where
0 Edmonton jumped three positions, and Toronto improved its prospects, but not
2008 2009 2010 2011 2012 2013 the city had the highest change in rating enough to keep the second spot, and
value of all nine markets. Regardless of the city dropped to third. Still, many
Strong consumer spending pushes the homebuilding outcome, Edmonton is large projects are set for completion in
the city’s expected increase in 2012 a market on investors’ radar. “Edmonton 2012 and in the years to come. Building
gross domestic product slightly over will outperform the others.” makes sense because “it’s the Toronto
3.0 percent, increasing in 2013 to 4.0 international market; everything can be
Toronto (3). The number-one market
percent. Employment growth has been sold quickly.” Homebuilding continues to
to watch in the 2012 Emerging Trends
continuous, as around 100,000 jobs be a hot topic, but survey results forecast
report, Toronto delivered mixed results
have been created or filled since 2007. a slowing in 2013, landing the market
and responses for 2013. Overall, this
Unemployment forecasts predict a in fourth. Toronto’s rising home prices
international market is still a top-three
respectable 4.7 percent next year, but continue to be a concern, as expressed
city, and capital will continue to flow to
still 30 basis points below the ten-year by many interviewees. “The Toronto and
the area. “Toronto was my choice. People
average. With over 1.2 million residents, Vancouver housing markets, especially
are renting by choice, occupancy rate
Edmonton continues to see population condos, have come off a bit, but interest
is always good, employment is stable.”
growth as many see the city as “the place rates are low, and the Bank of Canada
Forecasts support this statement, as
to be.” As Edmonton’s energy-rich sector and the Canadian government have
job growth is expected to increase 3.0
thrives, manufacturing follows with future introduced some fear, but not panic.”
percent, gross domestic product should
expansion. Confidence in current and “Multifamily starts will slow, but vacancy
gain 3.5 percent, and the city’s educated
future oil prices provides a nice outlook rates will continue to decline, reaching 1.3
workforce is expected to see its personal
for this oil-rich area. Say investors, “the percent in 2013. Mixed use–style proper-
income grow another 3.6 percent. Lower
world believes that oil is up for good,” ties, combining residential, commercial,
interest rates and continued interest in
and “Edmonton is so small, and the oil and especially retail space, are a trend
high-quality assets drove residential and
industry finds it attractive.” to watch for as additional properties are
nonresidential construction higher over
Emerging Trends survey results and added to Toronto’s inventory.
the past two to three years. Construction
real estate investors predict a good 2013 The decline in apartment vacancy
output in those sectors looks to be slightly
for Edmonton investment prospects: its rates and need for additional units is seen
lower this year, but government infrastruc-
rating value added 0.28 points, mov- in the buy, hold, sell results. The only buy
ture support should continue to add value
ing this market up two spots to second. recommendation is found in the apart-
to the Toronto market. As is the case
Edmonton is an example that supports ment sector, where the largest share of
in other primary markets, high-quality
the trend to secondary markets in search interviewees—48 percent—will con-
assets are difficult to obtain, and prices
of high-quality real estate investments in tinue to look at multifamily investments.
still look likely to escalate. Foreign capital
strong economic locations. “As a result “Toronto equals ‘oversupplied’ in high-
will continue to focus on Toronto’s assets,
of hard-to-purchase, quality ‘A’ proper- rise development, but ‘undersupplied’ in
but, an interviewee predicts, “Sovereign
ties, we have more willingness to go low rise.” Hold suggestions dominate in
funds will come to Canada when Europe
to another market such as Edmonton, the remaining four property types. Even
gets worse. And when they do, they will
Saskatoon, and Regina.” With this growth though the largest share of participants
focus on Toronto.”
Ottawa (5). In 2013, the economic Saskatoon (6). A large amount of inter-
outlook for Ottawa looks weak. Population 8 Investment Prospects est is heard from interviewees and survey
will increase only 0.8 percent, 90 basis 7 participants regarding the smallest mar-
points less than the average of the mar- ket of the nine covered. With an estimated
kets included in this report. Employment 6 5.88 population possibly reaching 285,000,
change does not look strong either, as based on a 2.0 percent growth rate,
5
projections show only a 1.0 percent Saskatoon is continuing to attract interest
increase, 35 basis points below the city’s 4 from commercial real estate investors
ten-year average. One buyer recom- Ottawa and developers. Investment prospects
3
mends, “stay out of Ottawa.” The future for the city increased to “modestly good,”
of Ottawa’s large number of government 2 from “fair,” but its rank dropped one spot
employees is questionable as federal to seventh. Employment statistics show
1
cuts to balance the budget are underway. continued growth driven by strong mining
Employment in the public administration 0 and housing construction sectors, as well
sector will decline 2.4 percent this year 2008 2009 2010 2011 2012 2013 as an improving manufacturing sector.
and an additional 1.5 percent next year. This expansion is attracting capital, as
Economic slowdowns will affect residen- ing starts expected to last until 2015, “many are starting to participate in invest-
tial and nonresidential construction, as homebuilding remained stable in fifth ments in the Saskatoon area.”
declines in both areas are expected. With position, with a slight increase in rating Still, as the market strengthens, the
this decline in development, an investor value. Investment prospects for Ottawa future of further development remains
says the “Ottawa market is very tight and declined, dropping one position to sixth. questionable. Development prospects
will be difficult to enter.” Responses covering various sectors declined, but remain “fair.” The city
Yet despite the challenging economic seemed uninviting: “vacancies have been dropped from fifth to seventh rank on this
times, survey participants still believe high due to impact of technology sector’s measure, according to 2013 results. One
in some opportunities in this market. poor performance,” “Ottawa: seeing interviewee disagrees, though, and plans
Development prospects were rated some consolidation of office space,” and on “land banking throughout Saskatoon
“modestly good,” up from “fair” last year, “the industrial market is expected to be for future development.” Housing starts
and moved from sixth to fourth overall. fair at best.” are forecast to slow in 2013 and beyond.
Even with a continuing slide in hous- However, homebuilding survey results
differ, as Saskatoon jumps from sixth to
third, receiving a “modestly good” rat-
ing. “Small growth in these areas is big
Exhibit 5-14 growth.”
Office Buy/Hold/Sell Recommendations
Montreal (7). “Montreal’s outlook
is good, but maybe not very good.”
Office Buy Hold Sell Emerging Trends survey results recom-
mend a hold strategy in all five property
Vancouver 48.57% 40.00% 11.43%
sectors. Apartment and hotel were the
only two sectors where some participants
Calgary 40.00% 45.71% 14.29% are looking to buy, as both cracked 30
percent, but the majority of respondents
still suggest investors sit on what they
Toronto 35.00% 55.00% 10.00% have. Sell signals are fairly strong in the
industrial sector, as one-third say it might
Montreal 22.58% 61.29% 16.13%
be time to exit this area.
In 2013, economic development is
0% 20% 40% 60% 80% 100% moderate as gross domestic product
forecasts display only 2.2 percent growth.
Source: Emerging Trends in Real Estate 2013 survey. Employment gains this year were zero,
Note: Based on Canadian respondents only.
but some expansion—around 2.0 per-
6
Montreal 30.27% 48.90% 20.83%
5 5.16
3
Vancouver 14.82% 59.67% 25.52%
Halifax
2
0% 20% 40% 60% 80% 100% 1
Source: Emerging Trends in Real Estate 2013 survey. 0
Note: Based on Canadian respondents only. 2008 2009 2010 2011 2012 2013
Emerging Trends surveys highlight “modestly good” investment Prospects for Commercial Subsectors in 2013
and development prospects across most property sectors for
2013 (exhibit 5-17), reflective of expected solid supply demand
Investment Prospects
fundamentals in commercial categories. Housing sectors also
score favorable marks, except for second and leisure homes. Central city office 6.34
Apartments. The recent condo buildup has not softened Warehouse industrial 6.13
multiresidential markets; “they’re stronger than ever.” Like “bond
Apartment: 6.10
investments,” landlords reliably can increase rents, supported moderate income
by high occupancies and steady appreciation. Confident lend- Neighborhood/community 6.00
ers extend financing “for next to nothing,” and cap rates reach shopping centers
“shockingly low levels” in some markets. With development con- Apartment: high income 5.90
centrated on units in higher-end-market condo towers (which
Regional malls 5.85
many buyers rent out), existing apartment stock in middle-
market urban neighborhoods meets ample leasing demand for Full-service hotels 5.67
Apartment 6.18
Development Prospects
Retail 6.11
Central city office 6.22
Apartment: 5.00
Industrial/Distribution 5.82 moderate income
Neighborhood/community 5.95
Hotels 5.50 shopping centers
Apartment: high income 5.00
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
shopping at familiar brand-name stores, and developers look to ceilinged distribution space—where tenants tend to concentrate
accommodate: they pay up for land, but can charge premium leasing activity—and increasingly obsolete older warehouses,
rents. Older suburban centers make prime candidates for rede- which suffer noticeably higher vacancies.
velopment into new shopping formats. Unlike the United States,
Hotels. Prospects for hotels should continue to improve.
Canada is not oversupplied with retail space. Interviewees reg-
Occupancies and room rates crawl back to 2007 peaks in the
ister only minor concern about whether more subdued housing
big cities, and RevPAR is not far behind. Outside of Calgary,
markets and high household debt could affect store sales.
interviewees see little room for much new development, with the
Industrial. Warehouse vacancies have declined and investors exception of adding popular all-suite limited-service brands,
like the steady cash flows, but the sector seems mired in com- catering to business travelers, in certain downtown markets.
paratively “slow growth,” hampered by the strong currency and
Housing. Housing markets appear primed to hold relative val-
related exchange-rate issues, especially around Toronto and
ues, and population inflows from overseas almost guarantee
Montreal. Import/export flows remain somewhat compromised
steady future demand for new homes. Respondents appear
by south-of-the-border turbulence. “It’s difficult to find pockets
modestly bullish about prospects for condo (high rise and mid
of real growth with auto and aerospace industries still off.” At
rise) and home construction, especially in urban and infill
least supply is not an issue because developers have backed
areas, as well as town centers. Increasingly steep prices for
away in the face of generally “weak leasing markets,” with rents
housing closer to urban cores should create greater demand
below replacement cost, but “creeping up.” Not surprisingly,
for more affordable single-family homes in outer suburbs.
smaller western distribution markets perform considerably bet-
Expensive high-end condo units lose some luster as demand
ter, boosted by commodities activity; owners can register rent
tails off; affluent offshore buyers become less active.
“leaps” on new leases. Generally, a widening gap in the level of
investor demand develops between more favored new, high-
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
Source: Emerging Trends in Real Estate 2013 survey. Source: Emerging Trends in Real Estate 2013 survey.
Note: Based on Canadian respondents only. Note: Based on Canadian respondents only.
Seniors’/elderly housing 6.00 Develop Green Office in Downtowns. Major tenants want
this more efficient space and will move from older buildings into
Single-family: 5.79
moderate income layouts with operating-system advantages.
Multifamily condominiums 5.65 Land Bank in Western Markets. In Canada, the beckoning
of “go west, young man” (and women, too) still applies, and
Affordable housing 5.58 opportunities for real estate investors and developers to take
advantage of escalating inflows of workers for available jobs
Single-family: 5.33
high income will continue, with an obvious caveat to unexpected reversals
in energy and commodity markets. Buy and hold sites in and
Student housing 5.17
around the larger cities should see values escalate nicely, and
Manufactured 4.82 infill sites will score development projects more quickly.
home communities
Secure Infill Sites. Any low-rise inner-city real estate “has
Second and leisure homes 3.53
got intensification written all over it,” especially if located any-
Golf course communities 3.17 where near mass transit. “Go for the sure-shot redevelopment
capital play.”
Single-family: 5.10
high income
Student housing 4.83
Manufactured 4.59
home communities
Second and leisure homes 3.60
1 5 9
abysmal fair excellent
Emerging Trends in
Latin America
These countries “cannot decouple”
from the rest of the world.
L
atin American countries—led by Brazil, as well as investors. Builders have no trouble finding buyers for apartments
Mexico, Colombia, Peru, and Chile—provide continuing as an “exploding middle class” absorbs units. In turn, residents
opportunities for real estate developers and investors if hunger to furnish homes and head to stores. The international
they can manage to master local markets and find suitable local shopping center industry “wakes up to the potential” and
partners. Three key trends drive growth: launches major retail development projects. Leading U.S. mall
■■ Favorable demographics. Young populations should propel companies shut out of activity back home compete against
markets for the foreseeable future. “All these 20- to 30-year-olds or join forces with Brazilian and Chilean companies, who also
entering the workforce are reminiscent of the leading edge of export their project skills into neighboring nations. “Regional
baby boomers in the U.S. after World War II,” and fuel a prodi- malls attract a lot of capital,” including from U.S. and Canadian
gious housing boom. pension funds that see they can capture “a low-volatility pre-
■■ Diversifying economics. Expanding middle-class populations mium and outsized returns” on long-term holds, especially for
also help broaden business activity beyond exports into service- well-located centers in Brazil and Mexico.
based industries, which focus on domestic consumption. Lack of transparency, frustrating government “idiosyncra-
■■ Increasing access to capital. Strengthened economic foot- sies,” and a dose of underlying corruption can pose ongoing
ings, firmer government credit ratings, and augmented foreign
investments lead to development of more sophisticated financial
Exhibit 6-1
systems and greater availability of mortgage capital, which 2013 Latin America General Indicators
foster increasing real estate investment.
But in 2013, enduring global recessionary impacts will con-
tinue to dampen previously outsized growth, lowering regional Unemployment (%) Inflation (%)
economic expansion from the mid- to high single digits to the Argentina 10.3 6.3
mid- to low-single-digit range. These countries “cannot decou- Brazil 5.0 6.5
ple” from the rest of the world “and they will not do as well.” Chile 3.0 6.9
Lagging transportation infrastructure also hampers develop- Colombia 3.1 10.5
ment activity outside of major cities. “Roads are bad,” intercity Ecuador 4.5 6.2
rail is limited, and secondary airports are sketchy. “It’s hard to Mexico 3.1 4.6
get from point A to point B, and that gums up the works.” As a Peru 2.3 7.5
result, capital tends to steer clear of “underserved” smaller mar- Uruguay 6.0 6.0
kets, where pent-up demand and “micro-opportunities” exist. Venezuela 28.7 8.1
In the near term, unmet housing demand and retail expan-
Sources: International Monetary Fund, World Economic Outlook database, April 2012;
sion will dominate the attention of real estate developers and Moody’s Economy.com.
Exhibit 6-2
Latin America Economic Growth
Sources: International Monetary Fund, World Economic Outlook database, April 2011.
* Projections.
2013 Echo Boomers 2013 GMP per Job Types Changes Peak
2013 MSA Population (25-34) Capita 2013 Jobs Unemployment % Employment – Key Industries to 2013
10-year Bus.
Total % of Total 10-yr 2013 GMP Avg Industrial 2013 10-year Chg Since 10-Year & Pro. Educ. & Goods Service
Rank (Million) Change Population Growth per Capita Change Diversity Change Avg Chg 2007 2013 Avg Srvcs. Health Energy Const. Prod. Jobs Gov't
U.S. 314.2 1.0% 13.6% 9.7% 1.00 1.1% 0.2% (2,998,495) 8.4% 6.5% 13.6% 15.5% 0.6% 4.1% -18.7% 1.7% -2.6%
16 Los Angeles, CA* 13.2 1.0% 15.2% 1.5% 1.2% 1.6% 0.55 0.3% -0.4% (141,144) 9.7% 7.2% 15.4% 13.6% 0.1% 3.1% -31.0% -2.0% -9.2%
2 New York, NY 11.8 0.6% 16.5% 8.1% 1.1% 1.9% 0.62 1.2% 0.5% 13,432 8.5% 6.7% 16.0% 19.8% 0.0% 3.0% -32.1% 2.0% -5.8%
24 Chicago, IL 9.6 0.6% 14.5% 2.9% -0.3% 0.9% 0.81 -0.4% -0.3% (195,405) 9.7% 7.0% 16.8% 15.6% 0.0% 2.7% -31.8% -1.1% -3.7%
9 Dallas/Fort Worth, TX 6.8 2.1% 14.9% 13.6% 3.0% 3.1% 0.81 2.3% 1.0% 235,934 7.2% 6.1% 15.4% 12.6% 0.4% 4.9% -15.1% 2.3% 2.1%
5 Houston, TX 6.3 2.0% 15.2% 21.3% 2.2% 3.1% 0.61 2.3% 1.6% 309,508 7.5% 6.1% 14.3% 12.8% 3.6% 6.4% -1.7% 2.3% 0.6%
27 Philadelphia, PA 6.0 0.4% 13.4% 8.0% 0.2% 1.2% 0.75 0.6% -0.1% (62,195) 8.4% 5.9% 15.7% 21.5% 0.2% 3.3% -30.1% 1.3% -5.2%
8 Washington, DC 5.9 1.2% 15.9% 19.2% 1.0% 2.9% 0.45 0.5% 1.1% 190,939 5.7% 4.2% 22.8% 12.8% 0.1% 4.7% -21.8% 0.7% 0.4%
12 Miami, FL 5.8 1.3% 13.1% 9.1% 1.1% 1.3% 0.63 0.2% 0.2% (62,781) 9.3% 6.5% 15.4% 16.1% 0.0% 3.3% -42.6% -1.9% -5.7%
35 Atlanta, GA 5.5 1.4% 14.3% 5.7% 2.9% 1.6% 0.81 2.1% 0.4% (66,282) 9.2% 6.2% 18.0% 12.7% 0.1% 3.7% -26.6% 1.7% -5.4%
6 Boston, MA 4.6 0.6% 14.2% 7.2% 1.7% 2.0% 0.65 1.0% 0.1% (1,101) 7.0% 5.4% 17.6% 20.2% 0.1% 3.1% -31.1% 1.6% -2.3%
1 San Francisco, CA 4.5 0.9% 15.5% 7.6% 1.7% 1.3% 0.60 0.4% -0.5% 48,248 8.4% 6.4% 19.3% 13.4% 0.1% 4.0% -30.5% -2.4% -8.9%
33 Phoenix, AZ 4.4 2.7% 14.2% 13.7% 2.7% 2.5% 0.79 1.6% 1.0% (47,825) 8.0% 5.8% 16.4% 15.0% 0.2% 4.9% -33.8% -0.5% -8.2%
36 Inland Empire, CA 4.4 1.2% 14.2% 9.4% 1.7% 2.2% 0.80 1.0% 0.8% (41,239) 12.7% 8.1% 12.0% 12.6% 0.1% 4.7% -41.1% -2.6% -6.3%
51 Detroit, MI 4.3 0.0% 12.0% -12.6% 0.4% -1.1% 0.55 0.4% -1.4% (182,707) 11.2% 8.8% 18.7% 16.4% 0.1% 3.1% -40.7% -5.2% -21.1%
Quartile 1 & 2 Avgs 6.7 1.1% 14.5% 8.2% 1.5% 1.7% 0.67 1.0% 0.3% (187) 8.8% 6.5% 16.7% 15.4% 0.4% 3.9% -29.3% -0.3% -5.6%
7 Seattle, WA 3.6 1.2% 15.9% 20.2% 2.7% 2.6% 0.39 1.2% 0.7% 31,917 8.3% 6.4% 14.1% 13.1% 0.0% 4.7% -11.7% 1.0% -0.4%
23 Minneapolis, MN 3.4 1.1% 15.0% 13.5% 0.8% 1.4% 0.78 1.6% 0.1% 53,301 5.5% 5.1% 15.4% 16.9% 0.1% 2.8% -23.9% 2.5% -3.8%
15 San Diego, CA 3.2 1.4% 15.8% 14.1% 1.3% 2.1% 0.64 0.9% 0.1% 40,863 9.0% 6.2% 17.5% 12.6% 0.0% 4.3% -23.9% -0.1% -2.1%
10 Orange County, CA 3.1 1.1% 14.7% 20.1% 1.0% 2.1% 0.67 0.8% -0.1% (19,470) 7.6% 5.6% 18.4% 11.7% 0.0% 4.5% -23.2% -2.6% -9.7%
29 Tampa, FL 2.9 1.3% 12.5% 13.3% 1.3% 1.2% 0.86 0.4% 0.2% (52,431) 10.1% 6.5% 17.1% 16.7% 0.0% 4.0% -38.5% -2.6% 0.7%
43 St. Louis, MO 2.9 0.4% 13.4% 8.7% 0.1% 0.6% 0.86 0.0% -0.3% (29,413) 8.6% 6.6% 15.3% 18.1% 0.1% 4.2% -31.0% -0.1% -5.1%
31 Baltimore, MD 2.8 0.6% 14.3% 16.3% 0.6% 2.3% 0.84 0.1% 0.4% 11,043 7.7% 5.3% 15.3% 20.0% 0.1% 5.2% -21.8% 0.7% 0.5%
14 Denver, CO 2.7 1.2% 15.6% 14.2% 1.3% 1.7% 0.83 1.3% 0.6% 1,666 8.7% 6.0% 17.6% 12.7% 0.4% 5.6% -21.3% 1.7% -0.8%
30 Pittsburgh, PA 2.4 -0.1% 12.2% 5.8% 0.8% 1.2% 0.78 0.7% 0.1% (47,825) 8.0% 5.8% 14.6% 21.8% 0.8% 3.9% -22.8% 2.0% -5.3%
20 Portland, OR 2.3 1.8% 15.2% 14.5% 1.7% 6.5% 0.68 0.9% 0.6% 36,051 9.1% 7.4% 13.6% 14.8% 0.1% 4.7% -14.6% 0.4% -0.1%
19 San Antonio, TX 2.3 2.0% 14.1% 23.3% 2.6% 2.9% 0.82 2.5% 1.4% 92,672 7.3% 5.6% 11.6% 15.6% 0.4% 5.1% -5.4% 2.6% 1.0%
28 Orlando, FL 2.3 2.2% 14.4% 18.5% 2.3% 2.9% 0.30 1.4% 1.3% (20,893) 9.7% 6.2% 15.3% 12.3% 0.0% 4.1% -41.2% -0.4% 0.8%
Quartile 3 Avgs 2.8 1.2% 14.4% 15.2% 1.4% 2.3% 0.70 1.0% 0.4% 8,123 8.3% 6.0% 15.5% 15.5% 0.2% 4.4% -23.3% 0.4% -2.0%
49 Sacramento, CA 2.2 1.3% 13.9% 14.0% 0.7% 1.2% 0.68 0.7% -0.3% (27,553) 10.3% 7.2% 12.9% 13.5% 0.1% 4.0% -38.7% -6.2% -6.2%
13 Northern New Jersey 2.2 0.3% 12.3% -1.0% 1.5% 0.6% 0.74 0.6% -0.5% (27,493) 9.4% 6.1% 17.2% 15.4% 0.1% 3.2% -33.8% -0.9% -5.8%
38 Cincinnati, OH 2.2 0.5% 13.1% 3.3% -0.5% 0.5% 0.83 0.4% 0.0% (31,444) 8.5% 6.2% 15.7% 15.1% 0.1% 3.4% -19.9% -0.1% -6.0%
34 Kansas City, MO 2.1 1.0% 14.2% 10.9% 0.3% 1.3% 0.86 0.4% 0.3% 16,875 7.2% 6.3% 16.0% 13.8% 0.1% 3.0% -21.9% 1.2% -2.7%
50 Las Vegas, NV 2.1 2.5% 14.8% 17.1% 2.3% 3.0% 0.23 2.7% 1.2% 13,637 12.4% 7.4% 12.1% 9.0% 0.0% 4.4% -59.4% -2.4% -9.1%
48 Cleveland, OH 2.1 -0.3% 11.9% -4.2% -1.4% -0.2% 0.77 0.0% -0.8% (21,312) 8.1% 6.5% 13.4% 19.6% 0.1% 2.9% -30.1% -3.6% -12.5%
25 Westchester/Fairfield 2.0 0.4% N/A N/A 2.5% 1.5% N/A 1.2% 0.0% N/A N/A N/A 14.9% 19.2% 0.0% 3.8% N/A N/A N/A
3 San Jose, CA 1.9 0.9% 15.4% 5.0% 3.1% 4.4% 0.23 1.2% -0.1% 43,598 9.0% 7.4% 19.6% 13.7% 0.0% 3.8% -31.9% 1.6% -12.5%
40 Columbus, OH 1.9 0.8% 15.0% 6.2% 0.1% 0.6% 0.75 0.8% 0.2% 4,168 7.5% 5.8% 16.5% 15.2% 0.1% 2.6% -33.2% 1.6% -4.8%
4 Austin, TX 1.9 2.7% 17.1% 25.7% 5.3% 4.7% 0.68 3.2% 2.2% 111,734 6.5% 5.3% 15.1% 11.7% 0.2% 4.8% -19.7% 3.3% 3.2%
17 Charlotte, NC 1.9 2.3% 14.3% 15.4% 2.9% 2.2% 0.77 1.4% 0.8% 29,970 10.1% 7.1% 17.0% 10.6% 0.1% 4.4% -31.6% 1.9% -1.6%
37 Indianapolis, IN 1.8 1.4% 14.2% 9.4% 1.2% 1.8% 0.80 0.8% 0.4% (7,973) 7.4% 5.6% 15.2% 14.8% 0.1% 4.9% -18.2% 1.0% -0.6%
11 Raleigh/Durham, NC 1.8 2.8% 13.9% 20.2% 2.7% 4.3% 0.76 1.7% 1.5% 61,301 15.3% 11.1% 16.1% 16.0% 0.2% 4.2% -22.9% 2.3% -3.7%
26 Virginia Beach, VA 1.7 0.5% 14.7% 12.0% 1.1% 1.5% 0.37 0.7% 0.1% 23,512 6.6% 4.7% 13.3% 13.7% 0.1% 4.4% -22.6% -1.8% 0.1%
18 Nashville, TN 1.7 1.4% 14.8% 16.5% 1.7% 2.7% 0.80 1.3% 1.0% 40,514 7.6% 5.6% 14.9% 16.1% 0.1% 4.2% -19.6% 1.4% -1.5%
46 Providence, RI 1.6 0.3% 12.3% -3.2% 0.5% 0.8% 0.76 0.4% -0.5% (60,594) 11.8% 7.1% 11.0% 21.8% 0.1% 3.0% -37.6% -2.8% -6.5%
41 Milwaukee, WI 1.6 0.3% 13.7% 7.5% 1.5% 1.1% 0.67 0.2% -0.3% (21,730) 7.6% 6.1% 13.8% 18.6% 0.0% 3.1% -23.5% -2.6% -6.5%
39 Jacksonville, FL 1.4 1.3% 13.8% 15.0% 0.1% 1.5% 0.79 0.6% 0.6% (5,672) 9.0% 6.0% 16.0% 15.1% 0.0% 3.9% -39.9% -0.7% -2.0%
45 Memphis, TN 1.3 0.8% 13.6% 4.0% 1.2% 1.2% 0.55 0.7% -0.2% (1,957) 9.7% 6.9% 14.0% 14.5% 0.1% 3.5% -22.8% -3.9% -2.6%
32 Oklahoma City, OK 1.3 1.2% 14.7% 20.1% 1.6% 2.3% 0.73 1.3% 0.8% 18,809 5.9% 4.8% 13.6% 13.4% 3.3% 4.2% -2.6% 1.6% -1.2%
47 New Orleans, LA 1.2 0.3% 14.6% -4.5% 1.1% 0.4% 0.62 0.3% -1.2% 16,908 7.9% 5.6% 13.3% 14.9% 1.3% 5.1% -24.2% -10.0% -21.3%
21 Salt Lake City, UT 1.2 1.5% 16.1% 11.0% 2.4% 3.5% 0.73 0.9% 1.3% (5,475) 6.1% 5.1% 16.3% 10.7% 0.3% 6.4% -7.0% 1.4% -0.2%
44 Tucson, AZ 1.0 2.2% 12.9% 11.0% 1.9% 1.8% 0.63 1.7% 0.5% 842 8.4% 5.9% 13.4% 16.1% 0.5% 5.1% -19.2% -1.8% -7.2%
22 Honolulu, HI 1.0 0.7% 14.9% 14.9% 0.7% 2.1% 0.47 1.2% 0.7% 14,226 5.8% 4.0% 13.8% 13.5% 0.1% 4.6% -20.0% -0.6% 0.4%
42 Albuquerque, NM 0.9 1.1% 14.1% 20.2% 2.0% 2.5% 0.68 1.5% 0.3% (16,780) 8.4% 5.5% 15.3% 15.9% 0.1% 4.9% -31.7% -2.4% -2.4%
Quartile 4 Avgs 1.7 1.1% 14.2% 10.3% 1.5% 1.9% 0.66 1.0% 0.3% 7,005 9.1% 6.6% 14.8% 14.9% 0.3% 4.1% -26.3% -0.9% -4.7%
Sources: PwC, Moody’s Analytics, Bureau of Economic Analyis, U.S. Census Bureau.
Notes: Quartiles based on MSA total population. * Quartile 1 (Los Angeles) combined with quartile 2. 2013 calculations based on forecasts acquired September 2012.
Appendix B: Housing
2 New York, NY* 4,397.7 0.5% $437.3 0.6% -18.6% 17.7% 5.7% 19.2% 1.75 * 445 8.2% 3.5% 1.8% 2.7% 2.3% 1.2%
16 Los Angeles, CA 4,389.8 1.2% $349.0 -0.2% -41.1% 27.0% 13.5% 21.0% 1.04 * * 117 4.8% 3.6% 3.1% 3.9% 0.7% 0.4%
24 Chicago, IL 3,545.6 0.6% $179.1 0.7% -34.5% 39.5% 4.1% 11.2% 1.55 * 300 9.1% 3.4% 3.6% 5.4% 1.1% 0.3%
9 Dallas/Fort Worth, TX 2,474.7 2.2% $152.1 -0.8% -0.8% 39.0% 29.9% 14.0% 1.43 * * 27 3.6% 3.2% 5.2% 8.2% 1.8% 1.1%
27 Philadelphia, PA 2,290.6 0.5% $212.3 1.0% -9.0% 45.4% 15.3% 25.6% 1.27 270 6.0% 3.7% 3.5% 4.6% 1.2% 1.1%
5 Houston, TX 2,223.0 2.1% $165.5 0.1% 0.1% 18.9% 17.0% 10.3% 1.24 * * 27 3.2% 2.9% 6.8% 9.1% 1.3% 1.2%
8 Washington, DC 2,171.5 1.3% $326.5 -2.1% -24.2% 32.5% 14.3% 21.3% 1.16 * 47 3.5% 3.5% 3.9% 4.6% 3.3% 0.7%
12 Miami, FL 2,167.4 1.3% $179.5 -4.1% -52.1% 31.0% -8.7% 8.5% 1.56 * 135 18.7% 4.3% 3.4% 4.8% 0.5% 1.1%
35 Atlanta, GA 2,040.9 1.8% $92.4 -0.6% -46.0% 72.8% 56.4% 8.9% 2.33 * * 37 5.4% 4.9% 6.1% 9.1% 1.1% 0.4%
6 Boston, MA 1,807.5 0.9% $337.1 -0.3% -17.4% 42.7% 13.7% 11.7% 1.33 * 75 3.6% 3.3% 3.4% 5.1% 2.1% 0.7%
51 Detroit, MI 1,693.5 0.3% $61.0 8.9% -62.7% 34.3% 33.4% 37.6% 3.55 * 60 5.2% 4.6% 3.9% 6.6% 0.4% 0.2%
1 San Francisco, CA 1,682.5 1.1% $589.6 0.7% -30.0% 28.2% 30.3% 22.1% 0.86 * * 117 3.7% 2.6% 2.8% 4.2% 1.6% 0.4%
33 Phoenix, AZ 1,634.7 2.7% $129.5 -1.6% -51.5% 42.8% 38.9% -10.3% 1.53 * * 90 5.8% 3.7% 5.6% 8.6% 1.2% 0.5%
Quartile 1 & 2 Avgs $2,501.5 1.3% $247.0 0.2% -29.8% 36.3% 20.3% 15.5% 1.58 134 6.2% 3.6% 4.1% 5.9% 1.4% 0.7%
7 Seattle, WA 1,415.7 1.4% $291.4 2.8% -24.3% 2.1% 4.9% 13.3% 0.94 * * 135 3.5% 5.9% 4.4% 5.6% 3.3% 0.5%
36 Inland Empire, CA 1,367.2 1.6% $176.9 -1.6% -55.9% 137.3% 136.8% 20.7% 1.53 * * 117 6.5% 5.3% 4.7% 8.5% 1.7% 0.9%
23 Minneapolis, MN 1,339.6 1.5% $158.5 -1.2% -31.8% 34.4% 29.4% 33.2% 1.61 * 95 3.3% 1.8% 2.6% 4.5% 1.3% 0.7%
29 Tampa, FL 1,191.2 1.2% $139.4 0.0% -38.2% 31.7% 41.3% 4.4% 1.56 * 135 16.2% 3.8% 5.2% 7.2% 1.4% 0.7%
43 St. Louis, MO 1,158.4 0.9% $124.8 1.2% -15.2% 15.0% 0.9% 16.3% 1.51 * * 60 4.6% 3.2% 4.9% 7.5% 0.2% 0.4%
15 San Diego, CA 1,131.5 1.5% $371.4 -0.4% -38.4% 55.7% 10.4% 23.4% 0.93 * * 117 4.2% 3.2% 2.3% 3.8% 0.7% 0.6%
31 Baltimore, MD 1,062.1 0.9% $235.6 0.0% -17.2% 26.1% 1.0% 15.8% 1.11 * 46 4.8% 5.0% 3.6% 4.9% 1.7% 0.9%
14 Denver, CO 1,060.1 1.5% $228.2 -2.1% -8.6% 29.7% 18.4% 14.7% 1.05 * * 145 4.0% 2.5% 3.8% 7.5% 1.7% 0.7%
10 Orange County, CA 1,028.7 1.2% $513.8 0.3% -27.4% 48.3% 46.9% 33.1% 0.78 * * 117 4.8% 3.6% 5.8% 8.4% 0.7% 0.6%
30 Pittsburgh, PA 1,008.1 0.3% $128.9 1.7% 1.7% 28.7% -1.7% 19.2% 1.69 * 270 5.0% 2.7% 3.0% 5.6% 0.8% 0.8%
20 Portland, OR 927.1 2.0% $230.1 3.0% -21.9% 26.4% 16.8% 18.8% 0.97 * * 150 4.8% 3.0% 1.9% 5.0% 1.0% 0.8%
38 Cincinnati, OH 849.8 0.8% $125.6 0.1% -13.5% 10.2% -18.3% 16.4% 1.49 * 217 6.6% 3.3% 4.1% 7.4% 0.8% 1.0%
Quartile 3 Avgs $1,128.3 1.2% $227.1 0.3% -24.2% 37.1% 23.6% 18.8% 1.26 134 5.7% 3.6% 3.9% 6.3% 1.3% 0.7%
25 Westchester/Fairfield 873.6 1.2% $873.6 1.2% -2.3% N/A N/A N/A 0.54 * N/A N/A N/A 3.0% 4.0% 1.1% 0.7%
28 Orlando, FL 845.6 2.1% $124.0 -3.1% -53.9% 21.7% -0.2% 6.3% 1.83 * 135 15.7% 4.3% 5.2% 7.4% 1.9% 1.2%
48 Cleveland, OH 843.9 -0.3% $101.2 0.4% -27.3% -22.4% -31.2% 16.2% 1.86 * 217 8.4% 4.3% 3.1% 6.0% 0.0% 0.3%
34 Kansas City, MO 834.3 1.4% $136.1 -0.4% -12.3% 36.5% 3.8% 23.7% 1.34 * * 60 4.3% 3.1% 4.7% 7.3% 0.9% 0.7%
19 San Antonio, TX 819.1 2.1% $161.0 0.0% 0.0% 45.0% 39.2% 10.3% 1.17 * * 27 3.1% 2.8% 6.0% 7.5% 2.4% 1.4%
49 Sacramento, CA 818.2 1.2% $173.0 0.4% -53.8% 84.6% 61.0% 23.2% 1.39 * * 117 5.2% 3.9% 3.1% 5.6% 0.5% 0.7%
13 Northern New Jersey 777.7 0.1% $366.8 3.4% -17.2% 39.6% 8.5% 22.7% 1.06 * 270 8.2% 3.5% 3.1% 4.0% 0.8% 0.6%
50 Las Vegas, NV 761.3 2.5% $115.4 -6.2% -63.6% 12.3% 8.8% 15.9% 1.76 * * 116 10.7% 8.4% 5.4% 6.8% 1.1% 1.1%
40 Columbus, OH 748.1 1.0% $129.6 -0.7% -13.6% 31.9% 9.0% 18.1% 1.38 * 217 6.7% 3.6% 5.2% 7.9% 0.7% 0.7%
17 Charlotte, NC 727.1 2.5% $211.0 -0.3% -0.3% 53.0% 34.0% 10.9% 1.00 * * 110 5.1% 3.2% 3.4% 5.1% 2.1% 0.7%
4 Austin, TX 719.4 2.8% $205.7 -0.3% -0.3% 24.3% 24.6% 13.1% 1.13 * * 27 1.9% 1.9% 4.8% 7.7% 3.7% 1.5%
37 Indianapolis, IN 713.0 1.6% $124.7 -1.3% -1.3% 25.9% 0.3% 13.4% 1.44 * * 261 6.8% 3.2% 4.7% 8.5% 1.7% 0.9%
11 Raleigh/Durahm, NC 689.3 2.7% $411.0 1.0% 0.5% 46.2% 42.8% 12.2% 0.52 * * 110 3.7% 2.5% 3.2% 5.5% 1.0% 0.5%
18 Nashville, TN 653.7 1.7% $158.9 1.5% -13.0% 36.1% 25.0% 18.3% 1.23 * 45 4.5% 3.5% 4.2% 6.5% 1.8% 0.8%
26 Virginia Beach, VA 644.3 0.8% $195.2 3.2% -20.0% 44.8% 21.6% 15.8% - * * 45 3.6% 3.1% N/A N/A N/A N/A
3 San Jose, CA 643.0 1.2% $583.7 0.4% -30.2% 28.2% 40.7% 18.9% 0.72 * * 117 3.5% 2.5% 2.8% 4.3% 2.0% 0.6%
41 Milwaukee, WI 633.3 0.7% $192.6 2.7% -12.5% -0.7% -0.6% 19.8% 1.13 * * 290 5.8% 3.2% 3.0% 4.8% 1.0% 0.4%
46 Providence, RI 625.8 0.0% $226.2 2.0% -22.6% 40.7% 3.0% 3.5% 1.36 * * 62 6.2% 4.6% 3.1% 6.0% 1.1% 0.7%
39 Jacksonville, FL 546.2 1.7% $123.0 3.0% -36.1% -0.3% -21.5% 5.0% 1.66 * 135 12.5% 4.7% 7.4% 8.6% 0.9% 1.2%
32 Oklahoma City, OK 513.3 1.5% $148.2 1.8% 1.8% 6.5% 11.9% 17.6% 0.98 * * 186 4.4% 2.5% 5.8% 8.4% 0.7% 0.6%
45 Memphis, TN 509.6 1.2% $117.1 1.5% -17.6% 80.4% 85.1% 36.5% 1.51 * 40 8.6% 6.8% 7.8% 10.5% 1.0% 0.5%
47 New Orleans, LA 465.7 0.6% $158.1 0.5% -8.3% 47.9% 38.1% 13.2% 1.41 * 180 5.9% 3.9% 6.4% 6.7% 1.2% 1.1%
44 Tucson, AZ 407.1 2.3% $146.1 2.3% -40.3% 46.4% 27.4% 8.5% 1.17 * * 90 4.6% 3.0% 4.2% 7.2% 0.3% 0.3%
21 Salt Lake City, UT 393.9 1.5% $198.8 4.3% -14.2% 28.3% 28.9% 16.3% 0.98 142 4.9% 3.6% 3.8% 5.7% 2.8% 0.7%
42 Albuquerque, NM 358.4 1.1% $178.6 1.9% -10.0% -8.4% -13.1% 19.1% 1.02 * 180 5.2% 2.3% 3.7% 5.7% 1.4% 0.7%
22 Honolulu, HI 321.9 1.2% $655.5 0.8% 0.8% -6.8% -15.3% 6.5% - * * 220 5.1% 2.1% N/A N/A N/A N/A
Quartile 4 Avgs $649.5 1.4% $239.0 0.8% -18.0% 26.4% 17.8% 15.3% 1.14 136 6.2% 3.6% 4.5% 6.6% 1.3% 0.8%
Sources: PwC, Moody’s Analytics, Bureau of Economic Analyis, U.S. Census Bureau, RealtyTrac.
Notes: Quartiles based on MSA total population. * Quartile 1 (New York) combined with quartile 2. 2013 calculations based on forecasts acquired September 2012.
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