2018 Market Forecast

Transcription

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2 2018 Market Forecast 2017 In Bridge, you have wild cards (Trump cards). The trump cards are really wild, because they change from hand to hand depending on the bidding. Source: Bridge for Dummies, Definition of a Trump It ain t what you don t know that gets you into trouble. Its what you know for sure that just ain t so. Mark Twain. Is Reverting to the Mean too mean? Source: Reis

3 Tailwinds Handoff from Monetary to Fiscal Policy Reduced/Softer Regulatory Environment Tax Overhaul First In Over 30 Years (see slide ) Infrastructure Investment? Business/Consumer Sentiment Very High. Positive Employment - Average 2.5 Million Per Year For The Last Few Years, 180,000 per month last six months. GDP 2.75 to 3.00% YE Source: Reis

4 Headwinds Tapering Sales Pricing Discovery Increase Deficits - $ 1 Trillion A Year Event Risk Interest Rate Rising 10 Year T Bill Up Changing Environment For Our Customers (the Uberification of everything) Fed Unwinding Balance Sheet Source: Reis

5 Tax Bill And CRE

6 Tax Bill And CRE Pass-through Income One of the biggest wins : Changes to the way pass-through income is taxed Mainly apply to Individuals and family trusts investing in real estate Individuals who receive income from REIT dividends

7 1031 Exchanges Tax Bill And CRE Preserves the 1031 tax-deferred exchange rules Allow investors to defer capital gains on the sale of a property by reinvesting proceeds into another qualifying like-kind property. Key change: Can only be used to defer capital gains on the value of real estate property Excludes any value on personal property Negative tax impact on real estate assets that contain a high amount of personal property Ex. Restaurants that have significant value tied up in the furniture, fixtures and equipment.

8 Tax Bill And CRE Change in Depreciation Schedules The time owners can depreciate a property reduced Residential Rental: 27.5 years to 25 years Commercial: 39 to 25 years Asset Depreciation Businesses can immediately expense the purchase of an asset Positive: Investor is deducting an expense rather than recognizing taxable income Carried-Interest A moderate provision that changes the hold period to qualify for the capital gains rate from one year to at least three years Could also affect real estate investors on a fix-and-flip strategy

9 U.S. Real Estate Returns and Economic Growth

10 Ten Year T Bill Chart

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12 Major Demographic Shifts Source: Reis

13 Major Demographic Shifts Source: Reis

14 Major Demographic Shifts Source: Reis

15 Top Destination Markets for Migration from Primary Markets

16 Trends Office: Vacancy 16.10% / 20 Rent - 0.5% Retail: Vacancy 10.10% / 20 Rent- 0.4% Q4 Effective Rent Growth.4% 2017 Trends Q4 Asking Rent Growth.3 % Industrial: Vacancy 7.60% / 50 Rent - 0.4% Multi-Family: Vacancy 4.80% / 60 Rent - 0.1%

17 Systemic Shifts-Manifesting Decreasing Office Space Omni Channel Approach Influence of Distribution Hubs Surge in Multi-Family

18 Shared Economy Live - Work - Play

19 Apartments Vacancy & Rent Trends Metro 2017 Vacancy (YE) 2018 Projected Vacancy 2017 Asking Rent (YE) 2018 Projected Asking Rent United States $1,368 $1,419 West Region $1,642 $1,704 Los Angeles $1,883 $1,964 Oakland-East Bay $2,158 $2,215 Orange County $1,871 $1,926 Sacramento $1,210 $1,243 San Bernardino/Riverside $1,299 $1,338 San Diego $1,722 $1,771 San Francisco $3,027 $3,119 San Jose $2,556 $2,652 Ventura County $1,708 $1,776

20 Apartments National vacancies increased to 4.4% Supply increasing to meet demand (Class A) Asking rents grew by 3.7% and effective rents grew by 3.6% YOY Rate of rent increase tapering slightly 2015 cyclical highs asking and effective rents rose by 5.8% Demographics driving demand Millennials and Boomers

21 Office Vacancy & Rent Trends Metro 2017 Vacancy (YE) 2018 Projected Vacancy 2017 Asking Rent (YE) 2018 Projected Asking Rent United States $32.58 $33.22 West Region $33.82 $34.74 Los Angeles $37.71 $38.48 Oakland-East Bay $32.49 $33.29 Orange County $32.81 $33.77 Sacramento $25.43 $25.88 San Bernardino/Riverside $22.51 $22.89 San Diego $31.91 $32.53 San Francisco $59.89 $61.74 San Jose $43.23 $44.33 Ventura County $25.30 $25.73

22 Office Office demand follows employment Lower Sq. Ft over past 10 years Avg. 150 Sq. Ft vs 250 Sq. Ft 10 years ago Space utilization and productivity Technology Work from anywhere Free Lance Contract work WeWork/Regus On demand vs rent

23 Retail Vacancy & Rent Trends Metro 2017 Vacancy (YE) 2018 Projected Vacancy 2017 Asking Rent (YE) 2018 Projected Asking Rent United States $20.85 $21.14 West Region $25.60 $25.99 Los Angeles $32.56 $33.05 Oakland-East Bay $31.08 $31.82 Orange County $33.67 $34.18 Sacramento $23.75 $24.12 San Bernardino/Riverside $22.66 $23.07 San Diego $31.46 $31.84 San Francisco $36.67 $37.00 San Jose $36.08 $36.75 Ventura County $29.76 $29.95

24 Retail Debunking the Retail Apocalypse 4080 Net for Chains with More then 50 stores in 2017i Headwinds: Retail over stored in Malls retail mall growth 4X the population growth over the past 35 years Retailers chose growth vs. client experience/service Department stores and Apparel drove negative news- Sears, JC Penny, etc. Fast Fashion/Off price retailing replace Dept. Stores H&M, Zara Breakout of Cosmetics/Beauty Sephora, Ulta, Lush E- Commerce/Amazon to a point and shoppers controlling price

25 Retail Tailwinds: Retail is not dying it is changing Omni- Channel Approach to the consumer e-commerce and Bricks Retail Sales are up and growing/e-commerce is 8.3% of growth Experience and entertainment retailers will survive and thrive

26 Industrial Vacancy & Rent Trends Metro 2017 Vacancy (YE) 2018 Projected Vacancy 2017 Asking Rent (YE) 2018 Projected Asking Rent United States $5.30 $5.51 West Region $6.42 $6.75 Los Angeles $7.33 $7.74 Oakland-East Bay $6.43 $6.87 Orange County $7.33 $7.63 Sacramento $3.88 $4.04 San Bernardino/Riverside $5.60 $5.96 San Diego $7.63 $7.98 San Francisco $7.77 $8.12 San Jose $8.11 $8.53

27 Industrial Last Mile Smaller space closer to consumer Battle of the supply chains Uber type delivery systems Robitics/AI/Driverless Trucks

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29 Trends Best Bets 2018: Mid Priced Housing Multi Family Focus On Income Over Potential Appreciation Experiential Retail Food /Fun/Fitnessu Senior Housing Momentum Growing.

30 Niche Plays Medical Office Senior Living Mixed Use Lifestyle Mixed Use Urban/Exurban Data Center- Server vs Cloud Student Housing Make sure you have a Trump Card! Source: Reis

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32 Source: Reis