Outlook 2020 A World of Opportunity

Transcription

1 The State of Real Estate Outlook 2020 A World of Opportunity Northern California Ι

2 DTZ by the numbers 265 Offices 50 Countries 194 Cities 28,000 Employees 56,000 People, including contractors 2,320 Brokers/agents 3.3B sq ft Management portfolio US$63B Transaction volume US$2.9B Revenue

3 Program Overview Mike Kamm Welcome & Program Overview Tod Lickerman DTZ & Opportunities Ahead Kevin Thorpe Todd Beatty Antonia Cardone Garrick Brown Outlook 2020 A World of Opportunity Top 10 Market Trends & Happenings Outlook 2020 Top Bay Area CRE Trends 5:00pm-8:00pm DTZ Brand Launch Party

4 The State of Real Estate Outlook 2020 A World of Opportunity Northern California Ι

5 London 1784 China Australia

6 1B SF Under Management 50% Market Share 19 Offices China

7 London Top 3 CRE & Capital Markets

8 Australia Top Occupier Services

9 Americas 1,500 Professionals 400M SF Property Management 600M SF Facilities Management

10 Capital

11 Corporates

12 Global Leadership Tod Lickerman Global Chief Executive Officer Chicago, IL Chris Cooper Chief Executive, Investment and Asset Management London, UK John Forrester Chief Executive, EMEA London, UK Joseph Stettinius, Jr. Chief Executive, Americas Washington, DC Edward Cheung Chief Executive, North Asia Shanghai, China Steve Quick Chief Executive, Global Occupier Services (GOS) Chicago, IL Henry Arundel Chief Executive, Asia Pacific Sydney, Australia Paul Bedborough President, Facilities Management, Americas Auburndale, MA

13 Americas Leadership By Region By Service Line Joseph Stettinius, Jr. Chief Executive, Americas Washington, DC Shelley Radomski Chief Administrative Officer Washington, DC Mike Kamm President, Western U.S. Region San Francisco, CA Dean Mueller President, Central U.S. Region St. Louis, MO Noble Carpenter President, Capital Markets, Americas New York, NY Gary Helminski Executive Managing Director, Project and Development Services, Americas Washington, DC Colin Ross Region Leader, Canada Toronto, Canada Kevin Hughes President, Occupier Services, Americas Cincinnati, OH Guillermo Sepulveda Region Leader, Mexico/Latin America Mexico City, Mexico Marla Maloney President, Asset Services, Americas St. Louis, MO

14 Consortium Investors $66B of assets under management Over $10B in capital under management Canada's largest single profession pension plan with $130B in net assets

15 DTZ and The Opportunities Ahead Global Reach Enhanced Capabilities Great Fit

16 The State of Real Estate Outlook 2020 A World of Opportunity Northern California Ι

17 Question 1: Where are we in the economic cycle?

18 Fundamentals Still Look Good U.S. Real GDP, Annualized Key Trends: 6% Private-sector economy growing by 4% 4% 2% 0% -2% -4% Q2 12 Historical Average = 2.5% Q3 12 Q4 12 Q1 13 Q2 13 Underlying Growth Rate = 4% Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Current job creation strongest in 15 years Tech sector actually accelerating into 2015 Household/Corporate balance sheets look fantastic Unemployment & U-6 falling rapidly Quit rate is climbing Business/Consumer confidence at 11 year highs, airport passenger traffic surging.on and on Source: BEA

19 Oil Prices Boost U.S. GDP Oil Prices Plunge Will add bps to GDP msf of new CRE demand Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15 WTI, Crude Oil, $ per barrel Source: U.S. Energy Information Administration, DTZ Research Impact Analysis

20 What Could Go Wrong? U.S. Equity Markets Shaky PE Ratios Not Alarming S&P 500 PE Ratio Tech bubble burst: 44 Today: DJIA CBOE VIX Average = Dec Jan Jan Jan Source: SIX Financial Information, Shiller PE 10 Ratio

21 Global Conflicts Rarely Rock U.S. Boat U.S. Real GDP, Annualized Growth 8% 6% Iran-Iraq War Soviet War in Afghanistan Asian Financial Crisis Mexican Peso Crisis Israeli Palestinian Conflicts Greece/Portugal Iraq bailout War Arab Spring S&P Downgrades France & 8 other countries 4% 2% Cyprus Crisis 0% -2% Arab oil Embargo Source: BEA, DTZ Research -4%

22 Question #2: Are interest rates actually going to rise this time?

23 Why Do Economists Keep Predicting Rates Will Rise? The 10-Year Treasury Yield s 55 Year Average is 6% (the average since 1980 is 5%) - expect some reversion to the mean Wages pressures: Unemployment is tightening and this will eventually place upward pressure on wages and therefore on inflation Rapid increase of the money supply typically generates demand inflation, so that has to happen, right?

24 People Who Predict Rising Rates Have Been Pretty Wrong for 30+ Years Aug 1981 Dec 1984 Apr 1988 Aug 1991 Dec 1994 Apr 1998 Aug 2001 Dec 2004 Apr 2008 Aug 2011 Dec 2014 Source: Federal Reserve, DTZ Research 10 Yr. Treasury Yield

25 What Inflation? Yr/Yr % Chg Fed s 2% Target Sep 2006 Nov 2007 Jan 2009 Mar 2010 May 2011 Jul 2012 Sep 2013 Nov 2014 Source: U.S. Bureau of Labor Statistics, DTZ Research Core CPI Core PCE

26 Wage Inflation Is It Coming? 4.0% 3.5% Yr/Yr % Change in ECI 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Today Source: U.S. Bureau of Labor Statistics, DTZ Research Number of Unemployed Person Per Job Opening

27 What Inflation? 10 Year Gov t Bond Yields 2/3/ % 2.5% 2.22% 2.63% 2.0% 1.5% 1.44% 1.45% 1.59% 1.75% 1.0% 0.5% 0.31% 0.36% 0.54% 0.0% Source: Bloomberg

28 Global QE Effect Central banks inject trillions Only 2.5% of M2 to CRE 11 $10.4 T $3.6 T Q2 03 Q3 04 Q4 05 Q1 07 Q2 08 Q3 09 Q4 10 Q1 12 Q2 13 Q3 14 7% 6% 5% 4% 3% 2% 2.5% 1% 0% Central Banks - total Assets, $tril. U.S. Sales as % of U.S. M2 Source: RCA, Federal Reserve Bank, Bank of Japan, Bank of Canada, European Central Bank, Bank of Mexico, Bank of Brazil, Bank of England, DTZ Research

29 U.S. Macro Forecast Table Annual Q2 Q3 Q4 Q1 Q2 Q3 Q US Economy Real GDP, % Nonfarm Employment, ths ,264 2,527 3,005 Office-using Employment, ths Unemployment Rate Retail Sales & Food Services, % CPI Inflation, % CCI Fed Funds Rate year Gov't Bond ISM Manufacturing Index West Texas Intermediate Office Sector Net Absorption, msf Vacancy 15.1% 14.8% 14.5% 14.4% 14.3% 14.1% 14.0% 15.3% 14.9% 14.2% Asking Rents $22.36 $22.52 $22.63 $22.71 $22.91 $23.09 $23.29 $21.96 $22.44 $23.00 Industrial Sector Net Absorption, msf Vacancy 8.1% 8.0% 7.8% 7.7% 7.5% 7.3% 7.2% 8.5% 8.0% 7.4% Asking Rents $5.17 $5.23 $5.28 $5.34 $5.39 $5.46 $5.51 $5.07 $5.21 $5.43 Retail Sector** Net Absorption, msf Vacancy 6.5% 6.3% 6.2% 6.1% 6.0% 5.8% 5.8% 6.9% 6.4% 5.8% Asking Rents $15.44 $15.47 $15.51 $15.59 $15.64 $15.70 $15.77 $15.15 $15.42 $15.68 Apartment Sector** Net Absorption, msf Vacancy 4.1% 4.2% 4.2% 4.3% 4.4% 4.5% 4.5% 4.3% 4.2% 4.4% Asking Rents $1,152 $1,164 $1,173 $1,182 $1,196 $1,204 $1,211 $1,117 $1,157 $1,198

30 Northern California Outlook 2020

31 Northern California Today Competitive Advantage 1 st (San Jose) in job openings per unemployed 2 nd (SF) & 3 rd (San Jose) in office using job growth in st in global technology companies 2 nd in education (SF) 1 st in income growth (San Jose) 1 st in venture capital funding 2 nd lowest office vacancy (SF) 1 st in office rent growth since 2010 (SF) 3 rd in net absorption of office space since 2013 (San Jose) 3 rd lowest unemployment (SF metro division)

32 Outlook 2020 What Could Go Wrong?

33 What Could Go Wrong? #1 Will the office sector overheat, push business out? #2 Housing will people get priced out? #3 Will the tech sector lose steam?

34 What Could Go Wrong? Will office sector overheat, push business out? Office Rents, SF vs. U.S. Office Rent Growth Since 2011 Will office sector overheat, +82% push business out? Housing will people get priced out? +4% Will tech sector lose steam? Rank Market 1 San Francisco 82% 2 New York 44% 3 San Mateo 31% 4 San Jose 30% 5 Houston 17% Rent Growth% San Francisco U.S. Source: DTZ Research

35 Then Again... Long-term Rent Growth Pretty Average SF Businesses Can Afford It % % % % % SF Office Rents SF Office Costs as % of Corp Profits Source: DTZ Research

36 What Could Go Wrong? Housing will people get priced out? NorCal: Jobs vs. Housing Will office sector overheat, 100 push 95,000 business out? 382,500 Housing will people get priced out? Will tech sector lose steam? Job Created 2012 to ,400 Home built (sf + multi) Jobs Created 2015 Forecast 2015 Forecast 25,700 Homes built Source: DTZ Research, BLS, Moody s Economy.com

37 What Could Go Wrong? Housing will people get priced out? NorCal: Median Home Prices, 2014 Market Home Price Greater than U.S. San Francisco $1,006,600 $799,800 San Jose $864,800 $658,000 Oakland $708,500 $501,700 Apartments: Highest Rent Markets New York City - $3,280 San Francisco - $2,291 Westchester - $1,989 Boston - $1,957 Fairfield - $1,942 San Jose - $1,910 Long Island - $1,680 Orange County - $1,667 Northern NJ - $1,659 Suburban VA - $1,647 Oakland-East Bay - $1,603 Washington, DC - $1,569 Los Angeles - $1,521 Ventura County - $1,511 San Diego - $1,474 Source: U.S. Census Bureau, National Association of Realtors, Reis

38 What Could Go Wrong? Housing will people get priced out? Housing affordability issues could lead to this Ratio of Median House Price to Median Income Net Migration, 000 s SF: 9.5 SJ: 8.0 CA: 6.1 US: Q2 2001Q2 2002Q2 2003Q2 2004Q2 2005Q2 2006Q2 2007Q2 2008Q2 2009Q2 2010Q2 2011Q2 2012Q2 2013Q2 2014Q2 San Francisco San Jose CA US Source: DTZ Research, U.S. Census Bureau, National Association of Realtors, Moody s San Francisco San Jose Oakland

39 What Could Go Wrong? Will tech sector lose steam? Nasdaq average growth cycle = 7 years Q4 Will office sector overheat, 4750 push business out? Housing will people get priced out? Will tech sector lose steam? 1985Q1 1989Q2 10 years 7 years 5 years 1993Q3 1997Q4 Nasdaq 2002Q1 2006Q2 2010Q3 2014Q4 02 Jan Jan 2015 Latest Trends 16 Jan Jan 2015 Nasdaq, 3-week MA 30 Jan 2015 Source: Nasdaq

40 Then Again... Venture Capital Investment Surging Tech Still Has Upside Q Q Q Q Q VC, $bil. 3qtr MA Q Q Q VC investment is soaring in software, biotech, media, electronics, etc Only one-third of world can connect to the internet Creating real products that satisfy real world demand Nasdaq just 23x earnings, not 100 like the late 1990s Still huge growth potential in China & other emerging economies Source: PricewaterhouseCoopers

41 Waves of Innovation Innovation 1 st Wave Iron Water power Mechanization Textiles Commerce The Kondratiev Cycles 5 Long-term Technology & Growth Cycles 2 nd Steam power Railroad Steel Cotton rd Electricity Chemicals Combustion engine 4 th Petrochemicals Electronics Aviation Space 5 th Digital networks Biotechnology Software IT 6 th Hydraulic Fracking 3D printing Mobile tech Social media Data mining Cloud computing Bioscience Green chemistry

42 Takeaway Points Expansion will continue in all probability, stay aggressive; interest will stay low Strong tech sector will continue to drive robust expansion, expect greater spillover growth in Oakland & Sacramento Office rents are still normalizing from dotcom boom, no evidence yet of overheating Supply is ramping up, but office is still underbuilding, expect rent growth of double-digits again in SF; measured gains elsewhere Housing affordability is the biggest concern build more! No immediate signs of overbuilding in any product type

43 What to Watch: Tech Pulse Index Led by 3 months Led by 5 months Led by 2 years Led by 15 months Led by 12 months Dec 1990 Jun 1992 Dec 1993 Jun 1995 Dec 1996 Jun 1998 Dec 1999 Jun 2001 Dec 2002 Jun 2004 Dec 2005 Jun 2007 Dec 2008 Jun 2010 Dec 2011 Jun 2013 Dec 2014 Source: FRBSF, U.S. Bureau of Labor Statistics Tech Pulse Index San Francisco Employment (000's)

44 The State of Real Estate Outlook 2020 A World of Opportunity Northern California Ι

45

46 Tech Expansion went into Overdrive

47 Industrial Market got that BOOM, BOOM, BOOM

48 Caltrain was the New Black!

49 Santa Clara Stepped into the Spotlight with help from The Irvine Company

50 Investors Continued to Sell, Sell, Sell

51 Developers Continued to Build, Build, Build

52 Amenities are all about The Great Outdoors

53 The Bay Area Continues to be on the Bleeding Edge of Technology

54 Google World Domination

55 The New DTZ

56 The State of Real Estate Outlook 2020 A World of Opportunity Northern California Ι

57 Five for The Brooklynification of Oakland 2 E-Commerce 3 Tech Product Pipeline 4 Driverless Cars 5 The Aging of Millennials

58 1 The Brooklynification of Oakland Does it Finally Happen This Time?

59 Bay Area Apartment So Hot it Burns 7% 6% 5% 4% 3% 53.6% Rental Rate Growth Since 2010 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 2% $1,200 Source: RealFacts, DTZ Research Vacancy Avg. Asking Rent

60 San Francisco Apartment $3,400/Month Rivals Manhattan 10% 9% 8% 7% 6% 5% 4% 3% 2% 55.2% Rental Rate Growth Since $3,600 $3,200 $2,800 $2,400 $2,000 $1,600 $1,200 Source: RealFacts, DTZ Research Vacancy Avg. Asking Rent

61 Manhattan Apartment Trend Look Familiar? 5% 4% Double Digit Rental Rate Increase $2,500 $2,000 3% $1,500 2% $1,000 1% $500 0% $0 Source: RealFacts, DTZ Research Vacancy Avg. Asking Rent

62 Alameda Apartment Vacancy at All Time Lows 8% Pace of Rental Rate Growth Accelerating Not Slowing $2,100 7% 6% $1,800 5% 4% $1,500 3% 2% $1,200 Source: RealFacts, DTZ Research Vacancy Avg. Asking Rent

63 Mosswood Northgate Uptown Adams Point Lake Merritt Grand Lake / Lakshore Cleveland Heights Glenview Highland Hospital West Oakland City Center Chinatown Civic Center East Lake East Oakland Jack London Sq. Embarcadero

64 2 E-Commerce in 2020

65 Industrial is Booming! Will Set Records! 153M 151M 147M Top 5 Years Net Absorption (MSF) 138M 130M Source: Costar Group, DTZ Research

66 E-Commerce Mega Space Sales in Billions, % of Total Retail Sales $600 $500 $400 $300 $200 $100 $ % 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Total E-Commerce $ (millions) % of Total Retail Sales Source: US Commerce Department, DTZ Research

67 The Game Changer Same Day/Next Day What s the Difference?

68 3 Tech Product Pipeline

69 Products to Drive Tech 3.0 Most Profitable Company in the World Apple 34,000 iphones / Hour $18B - Q Profit $178B Cash Reserves It s Good to be Apple

70 Tech Product Pipeline Faster Data, Bigger Data, More Powerful Data Data Increased Processing Power / AI Increased Compression & Storage Cloud Computing Services Massive Searchable Behavioral Databases / Analytics Faster & More Secure Networks

71 Tech Product Pipeline What You See is What You Get Displays Thinner, & Energy Efficient Displays Plastic Electronics / Electronic Paper Augmented Reality / HoloLens Screenless Visual Systems 3D Holographic Imaging Visual Retinal Display

72 Tech Product Pipeline Indulge the Senses Sensors The Internet of Things Machine Vision Multi-touch and Gestural Interfaces Undetectable Cameras / Smart Dust Embedded Sensors & Computational Devices

73 Tech Product Pipeline Medical Renaissance Breakthroughs 3D Organ Printers Smart-Drugs Wearables Cognitive Computer Interfaces Magnetic Nanoparticle Disease Detection Sensors Smart Cells (Anti-Cancer, Anti-HIV)

74 Tech Product Pipeline Left to Your Own Devices Devices 3D Printers Drones Smarter Mobile Devices Consumer Robotics Advanced Battery Technologies / Wireless Power Hoverboard

75 4 What About Driverless Cars?

76 The Future of Commuting

77 Safety Will Help Drive Adoption Traffic Accident Deaths in the US 45,000 40,000 Over 500,000 traffic accidents deaths in the US since ,000 30,000 25,000 Source: US Department of Transportation, DTZ Research 20,

78 All About Convenience Longest Average Commute Times in the US Source: US Census Bureau s American Community Survey Location 1. Contra Costa, CA Staten Island, NY Palmdale, CA Brooklyn, NY Bronx, NY Tracy, CA Antioch, CA Queens, NY Antelope Valley, CA New York, NY 40.0 Location 11. Chino Hills, CA Dale City, VA Elsinore Valley, CA Hesperia, CA Pittsburg, CA Perris Valley, CA Kendale Lakes, FL Victorville, CA Vallejo, CA Graham Thrift, WA 35.3

79 5 Millennials Don t Prefer Smaller Spaces Don t Prefer Renting to Owning Won t Put Off Starting Families Forever Don t mistake current millennial preferences or patterns of necessity for being permanent

80 First Comes Love Mean age of first marriage in the US 35 Waiting Longer to Marry * Source: US Census Bureau *Estimate Women Men

81 Get Ready for a New Baby Boom US Birth Rate per 1,000 Population Fell During the Recession Have Yet to Increase Improving Economy? Source: Centers of Disease Control, DTZ Research *Preliminary *

82 Millennials Preferences Likely to Change Average Workforce Age at Top Tech Firms IBM 44 Apple Google Twitter Facebook Source: PayScale, DTZ Research Will they still prefer urban living after they marry and have kids?