GLOBAL ECONOMY, REAL ESTATE MARKETS & THE CYCLE

Transcription

1 GLOBAL ECONOMY, REAL ESTATE MARKETS & THE CYCLE Professor Richard Barkham, PhD MRICS CRE, Global Chief Economist April 2016

2 HOW CLOSE ARE WE TO THE END OF THIS CYCLE?

3 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 U.S. UNEMPLOYMENT: A GOOD, CLEAR CYCLICAL INDICATOR U3 Unemployment (%) Full term? Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 3 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

4 Jan-70 Jan-71 Jan-72 Jan-73 Jan-74 Jan-75 Jan-76 Jan-77 Jan-78 Jan-79 Jan-80 Jan-81 Jan-82 Jan-83 Jan-84 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 U.S. UNEMPLOYMENT: A GOOD, CLEAR CYCLICAL INDICATOR U3 Unemployment (%) y8m 7y7m 9y6m 11y 6y4m 6y6m 0 Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 4 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

5 Mar-88 Jul-89 Nov-90 Mar-92 Jul-93 Nov-94 Mar-96 Jul-97 Nov-98 Mar-00 Jul-01 Nov-02 Mar-04 Jul-05 Nov-06 Mar-08 Jul-09 Nov-10 Mar-12 Jul-13 Nov-14 VERY CORRELATED WITH WORLD EQUITY PRICES Unemployment inverted (%) Two-year price return (%) % 2.0 US Unemployment FTSE World Equity Index Signal? 60% % 20% 6.0 0% % % % Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 5 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

6 GLOBAL COMPOSITE OFFICE YIELD Unemployment (%) Yield (%) U.S. Unemployment Global office yield Source: CBRE Econometric Advisors, ERIX and Macrobond, CBRE Research. 6 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

7 VERY CORRELATED WITH U.S. REAL ESTATE Vacancy and unemployment (%) Office Vacancy Industrial Vacancy Apartment Vacancy Unemployment Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 7 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

8 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 U.S. OFFICE CYCLE Unemployment (%) Y-o-Y rent growth (%) % U.S. Unemployment TW Rent Index % 8.0 5% 6.0 0% 4.0-5% % % Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 8 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

9 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 U.S. RETAIL CYCLE Unemployment (%) Y-o-Y rent growth (%) U.S. Unemployment TW Rent Index 8.0% 6.0% % % 0.0% % % % Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 9 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

10 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 U.S. INDUSTRIAL CYCLE Unemployment (%) Y-o-Y rent growth (%) 12.0 U.S. Unemployment TW Rent Index 15.0% % % % % % % Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 10 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

11 U.S. MULTIFAMILY CYCLE Unemployment (%) Y-o-Y rent growth (%) 12 U.S. Unemployment TW Rent Index 10.0% 8.0% % 8 4.0% 2.0% 6 0.0% -2.0% 4-4.0% 2-6.0% -8.0% % Source: CBRE Econometric Advisors and Macrobond, CBRE Research. 11 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

12 WHAT COULD BRING IT TO AN END?

13 NORMALLY IT IS WAGE PRESSURES Unemployment (%) Y-o-Y Earnings (%) US Unemployment Private sector earnings growth No Source: Macrobond, CBRE Research. 13 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

14 PUSHING UP INFLATION Inflation (%) 3.5% Core CPI Core PCE 3.0% 2.5% Nope 2.0% 1.5% 1.0% 0.5% 0.0% Source: Macrobond, CBRE Research. 14 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

15 AND INTEREST RATES Unemployment (%) Interest Rate (%) Federal Funds Rate Unemployment % 6.5% 5.25% Not happening Source: Macrobond, CBRE Research. 15 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

16 SO WHAT COULD IT BE?

17 Jan-80 Nov-80 Sep-81 Jul-82 May-83 Mar-84 Jan-85 Nov-85 Sep-86 Jul-87 May-88 Mar-89 Jan-90 Nov-90 Sep-91 Jul-92 May-93 Mar-94 Jan-95 Nov-95 Sep-96 Jul-97 May-98 Mar-99 Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 GEOPOLITICAL EVENTS HAVE NO IMPACT Unemployment (%) 10.5 US Embassy in Beirut bombed Iran-Iraq war starts Reagan shot Falklands war Indira Gandhi killed Iran-Iraq war ends Glasnost in USSR Bosnian war starts 1st Gulf war Iraq invades Kuwait Berlin Wall falls Pan Am 103 downed over Lockerbie Fall of the Soviet Union Bosnian war ends British rule in Hong Kong 9 / 11 Eurozone created Gaza war Russo-Georgian war US Invasion of Iraq Madrid train bombing London 7 / 7 bombing Syria war Japan Tsunami - Fukushima Isis Crimea Annexed Paris bombing Source: Macrobond, CBRE Research. 17 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

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19 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 SOME SIGNS OF STABILISATION IN CHINA China activity indicator Index = Source: Macrobond, CBRE Research. 19 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

20 CHINA S POLICY DIRECTION IS NOT CLEAR Currency, indexed 135 Real Effective Exchange Rate Index, CPI Based, Broad 130 Nominal Effective Exchange Rate Index, Broad RMB Overvaluation? Source: Macrobond, CBRE Research. 20 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

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22 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 A SERIOUS SLOWDOWN IN U.S. MANUFACTURING U.S. Institute of Supply Managers Indicators Manufacturing and services activity (over 50 = expansion) 65 Manufacturing Non-Manufacturing Source: Macrobond, CBRE Research. 22 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

23 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 CAUSED BY THE RISE OF THE U.S. $ U.S. $ Index US $ Real Effective FX Rate (LHS) Manufacturing ISM (RHS) Manufacturing Activity Source: Macrobond, CBRE Research. 23 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

24 CONSUMERS ARE IN ROBUST GOOD HEALTH

25 CONSUMER CONFIDENCE IS EXTREMELY HIGH Index US Consumer Confidence (Nielsen) Global Consumer Confidence (Nielsen) year high Source: Macrobond, CBRE Research. 25 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

26 RETAIL SALES VOLUMES ARE GROWING STRONGLY U.S. Retail Volumes Y-o-Y Change (%) 12% 10% 8% 6% 4% 6.8% 2% 0% Source: Macrobond, CBRE Research. 26 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

27 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 PROJECTING UNEMPLOYMENT SUGGESTS LATE 2018 FED funds rate and U3 unemployment Fed Funds Rate (%) Unemployment (%) 8 Fed funds U.S. forecast (Oxford) Fed dots Forward curve Unemployment 11 Unemployment (forecast) Cyclical low last 20 years Source: Atlanta Federal Reserve, Bureau of Labor Statistics, Macrobond, CBRE Research. 27 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

28 THE U3 U6 GAP IS DROPPING SHARPLY Unemployment rate (%) U6 Unemployment U3 Unemployment U3 Unemployment forecast U6 Unemployment forecast Source: Atlanta Federal Reserve, Bureau of Labor Statistics, CBRE Research. 28 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

29 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 Jan 2018 PROJECTING THE U3-U6 SPREAD SUGGESTS MID 2018 Fed Funds Rate (%) 8 U6 - U3 Spread U6 - U3 Spread forecast Unemployment Spread (%) 6 4 Lowest cyclical point of 1999/ Source: Atlanta Federal Reserve, Bureau of Labor Statistics, Macrobond, CBRE Research. 29 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

30 RATES WILL BITE AT A MUCH LOWER LEVEL Interest Rate (%) Peak of the last cycle Forecast U.S. UK 1 Eurozone 0 Source: Oxford Economics, Macrobond, CBRE Research. 30 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

31 U.S. OFFICE CAPITALIZATION RATES WILL SPIKE NOT DRIFT UP Cap Rate (%) 10 Office 10 yr T-Bond Econometric forecast 10 yr T-Bond forecast Trend-cycle forecast Source: NCREIF and Oxford Economics, CBRE Research. 31 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

32 THREE THINGS WE KNOW 1. There is a real estate cycle 2. It is the same as the economic cycle 3. It rarely lasts more than nine years 32 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

33 THREE THINGS WE DON T 1. Whether the Chinese leadership will hold its nerve 2. How quickly the Fed. will raise rates 3. The precise timing of the next downturn 33 CBRE GLOBAL ECONOMY & REAL ESTATE MARKETS

34 THANK YOU

35 Richard Barkham, PhD MRICS, Global Chief Economist DDI +44 (0)