2012 Houston Presentation available to download: - - PowerPoint PPT Presentation

2012

Houston

Presentation available to download:

www.transwestern.net www.DeltaAssociates.com

AGENDA

1. MegaTrends 2. National Economy 3. Regional Economy 4. Houston’s Commercial Real Estate Markets

• Office
• Industrial
• Apartment
• Retail

5. Capital Markets 6. Finding Opportunities

Source: Delta Associates, November 2012.

2012

MEGATRENDS

Houston

MEGATRENDS AFFECTING HOUSTON’S COMMERCIAL REAL ESTATE MARKETS

• Uncertainty
• Drive to Efficiency
• Flight to Quality
• Houston’s Strong Economy

Source: Delta Associates, November 2012.

MEGATREND: UNCERTAINTY

The Fiscal Cliff and Projected U.S. Economic Growth

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

GDP Change in 2013 Unemployment Rate at Year-End 2013 Assuming No Fiscal Cliff

Source: Congressional Budget Office, Delta Associates; November 2012.

Percentage

1.7% 8.0%

MEGATREND: UNCERTAINTY

The Fiscal Cliff and Projected U.S. Economic Growth

• 2%
• 1%

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

GDP Change in 2013 Unemployment Rate at Year-End 2013 Assuming No Fiscal Cliff Assuming Fiscal Cliff

Source: Congressional Budget Office, Delta Associates; November 2012.

• 0.5%

9.0%

Percentage

1.7% 8.0%

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Corporate Profits in Trillions

*12 months ending June 2012.

MEGATREND: DRIVE TO EFFICIENCY

Doing More With Less | U.S. Corporate Profits | 2000 - 2012

Source: Bureau of Economic Analysis, Delta Associates; November 2012.

MEGATREND: FLIGHT TO QUALITY

Metro Houston Office Absorption: YTD 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

1 2 3

Class A Class B

Millions of SF Absorbed

MEGATREND: HOUSTON’S STRONG ECONOMY

Payroll Job Growth: Houston #1 Since 2000

• 200
• 100

100 200 300 400 500 600 Hou Was NY Phx DFW Den Atl

• S. Fla

Bos LA Basin SF Bay Chi

Payroll Jobs in Thousands

Source: Bureau of Labor Statistics, Delta Associates; November 2012.

505

2012

NATIONAL ECONOMY

Houston

• 10%
• 5%

0% 5% 10% 15%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Percent Change in GDP Unemployment Rate Recession

Unemployment Rate and Annualized GDP Change

Recovery

32 months: Recession + Recovery 32 months: Recession + Recovery 51 months: Recession + Recovery 72 months: Recession + Recovery

U.S. ECONOMIC TRENDS AND FORECAST

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

NATIONAL ECONOMY

Recovery Patterns of GDP | Past Four Recessions

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1 2 3 4 5 6 7 8 9 10 11 12 1982 1991 2001

Quarters After Trough / Year Recovery Started

Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

Cumulative % Change in GDP

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1 2 3 4 5 6 7 8 9 10 11 12 1982 1991 2001

Quarters After Trough / Year Recovery Started

Source: BEA, GMU Center for Regional Analysis, Delta Associates; November 2012.

Cumulative % Change in GDP

2009

NATIONAL ECONOMY

Recovery Patterns of GDP | Past Four Recessions

CONTRIBUTORS TO THE NATIONAL ECONOMY

Consumers 70% Business/ Government 30%

Source: Bureau of Economic Analysis, Delta Associates; November 2012.

U.S. MEDIAN HOUSEHOLD INCOME

Dropped $777 in 2011

Source: Census Bureau, Delta Associates; November 2012.

$50,054 $50,831

CHANGE IN U.S. HOUSEHOLD NET WORTH

Source: Federal Reserve, Delta Associates; November 2012.

• $6
• $5
• $4
• $3
• $2
• $1

$0 $1 $2 $3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Change in Net Worth (in trillions) 2007 2008 2009 2010 2011 2012 Total Lost = $17.4 trillion Total Gained = $11.9 trillion

U.S. CONSUMER SENTIMENT

50 60 70 80 90 100 110 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012*

Index

Source: University of Michigan, Delta Associates; November 2012. *Preliminary data for September 2012.

20-Year Average = 88.2

0% 0% 1% 1% 2% 2% 3% 3% 4% 4% 5% 5% 6% 6% 0% 1% 2% 3% 4% 5% 6% 7% 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

Personal Savings Rate 2006 2007 2008 2009 2010

U.S. PERSONAL SAVINGS RATE

Source: Bureau of Economic Analysis, Delta Associates; November 2012.

2011 2012

0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% 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

Personal Savings Rate 2006 2007 2008 2009 2010

U.S. PERSONAL SAVINGS RATE

Source: Bureau of Economic Analysis, Delta Associates; November 2012.

2011 2012 CD Interest Rates

Compared to CD Interest Rates

• 10%
• 5%

0% 5% 10% 15%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Percent Change in GDP Unemployment Rate Recession

Unemployment Rate and Annualized GDP Change

Recovery

32 months: Recession + Recovery 32 months: Recession + Recovery 51 months: Recession + Recovery 72 months: Recession + Recovery

U.S. ECONOMIC TRENDS AND FORECAST

Source: Bureau of Labor Statistics, Bureau of Economic Analysis, FOMC, CBO, Wells Fargo, Delta Associates; November 2012.

2012

HOUSTON ECONOMY

Houston

96.6 20 40 60 80 100 120 140 NY LA Basin Hou SF Bay DFW Bos Phx Was Chi Denver Atl

• S. Fla

Payroll Jobs in 000’s

PAYROLL JOB GROWTH: HOUSTON A LEADER

Large Metro Areas | 12 Months Ending September 2012

Source: Bureau of Labor Statistics, Delta Associates; November 2012.

INCREASING PRESENCE IN HOUSTON

CORE INDUSTRIES

Houston Metro Area | 2011

Source: BEA, BLS, GMU Center for Regional Analysis, Delta Associates; November 2012.

Total GRP: $399

100%

Energy $108 27% Financial, Professional, Tech $52 13% Construction $36 9% Federal & State Government $32 8% Manufacturing $24 6% Medical/Educational $16 4% Trade/Transportation $16 4%

Core Industries $ (Bil) % GRP

Total Core Industries: $283 71% Other $116 29%

GRP = Gross Regional Product.

CORE INDUSTRY: ENERGY

U.S. Rotary Rig Count | 1990 – 2012

Source: Baker Hughes, Delta Associates; November 2012. *Count as of 10/26/12.

200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

Annual Average Working Rigs

CORE INDUSTRY: ENERGY

Top Wind Energy Producing States | September 2012

Source: American Wind Energy Association, Delta Associates; November 2012.

10,929 4,570 4,536 3,153 3,055 2,717 2,699 2,000 4,000 6,000 8,000 10,000 12,000

Texas California Iowa Oregon Illinois Minnesota Washington

Wind Capacity (Megawatts)

CORE INDUSTRY: MEDICAL/EDUCATIONAL

Houston Health And Medical Sector Employment | 2005-2012

Source: BLS, Delta Associates; November 2012.

350 370 390 410 430 450 470 490 510 530

2005 2006 2007 2008 2009 2010 2011 2012*

Metro Area Employment (Thousands)

*Through September

Up 5.9% in 2012

CORE INDUSTRY: TRADE/TRANSPORTATION

Top Planned Port Infrastructure Investments to Prepare for Canal Expansion

Source: National Real Estate Investor, Delta Associates; November 2012. *Includes ports of Portsmouth and Newport News.

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0

Houston Tampa Charleston Norfolk* Savannah Everglades Gulfport Mobile Miami Jacksonville

Billions

• 80
• 60
• 40
• 20

20 40 60 80 100 120

Annual Job Growth (in 000’s)

PAYROLL JOB GROWTH

Houston Metro Area | 1991 –2012

Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.

22-Year Average Job Growth = 39,600/Year

• 80
• 60
• 40
• 20

20 40 60 80 100 120

Annual Job Growth (in 000’s)

PAYROLL JOB GROWTH

Houston Metro Area | 1991 –2012

Source: Bureau of Labor Statistics, Delta Associates; November 2012. *12-month job growth through September 2012.

22-Year Average Job Growth = 39,600/Year

• 80,000
• 60,000
• 40,000
• 20,000

20,000 40,000 60,000 80,000 100,000 120,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Annual Job Growth

JOB FORECAST

Houston Metro Area | 2012 – 2014

Source: Bureau of Labor Statistics, Delta Associates; November 2012.

22-Year Annual Growth = 39,600/annum Projected Avg. Annual Growth 2012-14 = 89,000/annum

2012

THE HOUSTON OFFICE MARKET

Houston

10.6% 10.9% 11.2% 11.6% 12.5% 12.9% 13.1% 13.4% 13.6% 14.7% 16.1% 16.9% 20.3%

0% 5% 10% 15% 20% 25% Bos Hou NY SF Bay Den LA Was OC Chi S Fla Atl DFW Phx

Overall Vacancy Rate

OFFICE VACANCY RATES

Select Metro Areas | 3rd Quarter 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

National Vacancy Rate: 13.7%

• 3
• 2
• 1

1 2 3 4 5 6 SF Bay Atl Hou LA/OC Bos Phx Den Chi DFW S Fla NY Was

NET ABSORPTION OF OFFICE SPACE

Select Metro Areas | January Through September 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

2.9

2 4 6 8 10 12 14 NY Was Bos Hou SF Bay LA Atl DFW Den OC Chi Phx

SF Available SF Pre-Leased 3.6 Millions of SF Nation: 64.8 million SF at 62% pre-leased

OFFICE SPACE UNDER CONSTRUCTION

Select Metro Areas | 3rd Quarter 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

2 4 6 8 10

OFFICE SPACE DEMAND AND DELIVERIES

Houston Metro Area | Two Years Ending September 2014

Source: Delta Associates’ analysis of CoStar data; November 2012.

SF in Millions

Houston Metro

8.0 million SF = Deliveries

= Demand

Total = 4.2 million SF

• U/C = 3.6 million SF
• Planned and may

deliver by 9/14: 0.6 million SF

Note: Excludes ExxonMobil‘s campus U/C in The Woodlands.

Rent Equilibrium Zone = 12% - 14%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013 2014

Overall Vacancy Rate

OFFICE VACANCY RATE

Houston Metro Area | 2000 – 3rd Quarter 2014

Source: Delta Associates’ analysis of CoStar data; November 2012. *As of 3rd quarter 2012.

10.9% 9.3%

• 5%

0% 5% 10% 15% 20% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

CHANGE IN OFFICE ASKING RENTS

Houston Metro Area | All Classes And Submarkets | 1997 – 2014

Source: Delta Associates’ analysis of CoStar data; November 2012.

15-Year Average Rent Growth = 3.9%

OFFICE SUBMARKETS LIKELY TO OUTPERFORM

Source: Delta Associates; November 2012.

• Energy Corridor
• Westchase
• West Loop/Galleria
• CBD
• Greenway Plaza
• The Woodlands

Houston Metro Area Select Submarkets with Declining Vacancy, Rising Rents During Remainder of 2012 and into 2013

2012

THE HOUSTON INDUSTRIAL MARKET

Houston

0% 2% 4% 6% 8% 10% 12% Hou LA Basin NY/NNJ Chi DFW Was/Bal

INDUSTRIAL VACANCY RATES

Select Metro Areas | 3rd Quarter 2012

Source: Delta Associates’ analysis of CoStar data; October 2012.

4.6%

• 2
• 1

1 2 3 4 5 6 7 8 9 10 11 12 13 Chi DFW Hou LA Basin NY/NNJ Was/Bal

NET ABSORPTION OF INDUSTRIAL SPACE

Select Metro Areas | January – September 2012

Source: Delta Associates’ analysis of CoStar data; November 2012.

3.3

2 4 6 8

INDUSTRIAL SPACE DEMAND AND DELIVERIES

Houston Metro Area | One Year Ending September 2013

Source: Delta Associates’ analysis of CoStar data; November 2012.

SF in Millions

6.5 million SF = Deliveries

= Demand

Total = 3.6 million SF

• U/C = 2.3 million SF
• Planned and may

deliver by 9/13: 1.3 million SF

Houston Metro

INDUSTRIAL VACANCY RATES

Houston Metro Area | 2001 – 3rd Quarter 2013

2% 4% 6% 8% 10% 12% 14% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Overall Vacancy Rate

Source: Delta Associates’ analysis of CoStar data; November 2012.

4.6% 4.1%

ANNUAL INDUSTRIAL RENT CHANGE

Houston Metro Area | 1997 – 2013

• 8%
• 6%
• 4%
• 2%

0% 2% 4% 6% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Annual Change in Asking Rent (per SF, NNN)

Source: Delta Associates’ analysis of CoStar and REIS data; November 2012.

15-Year Average Rent Growth = 1.7%

INDUSTRIAL SUBMARKETS LIKELY TO OUTPERFORM

Source: Delta Associates; November 2012.

• North
• Northwest
• West

Houston Metro Area Select Submarkets with Declining Vacancy, Rising Rents During the Remainder of 2012 and into 2013

2012

THE HOUSTON APARTMENT MARKET

Houston

Source: MPF, Delta Associates; November 2012.

2 4 6 8 10 12 14 16 18 20 Hou LA DFW Chi Atl Phx Was

Thousands of Units

NET ABSORPTION OF APARTMENTS – ALL CLASSES

Select Metro Areas | 2012*

*Washington = 12 months ending 9/12. All other markets are estimated for 12 months ending 6/12.

17.3

• 10

10 20 2006 2007 2008 2009 2010 2011 2012*

NET ABSORPTION OF APARTMENTS – ALL CLASSES

Houston Metro Area | 2006 Through 2012

Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.

Thousands of Units

7-Year Average = 8,000 units

• 10

10 20 2006 2007 2008 2009 2010 2011 2012* 2013

NET ABSORPTION OF APARTMENTS – ALL CLASSES

Houston Metro Area | 2006 Through 2013

Source: MPF, Delta Associates; November 2012. *12 months ending June 2012.

Thousands of Units

7-Year Average = 8,000 units

Source: MPF, Delta Associates; November 2012.

0% 2% 4% 6% 8% 10% 12% 14% 2005 2006 2007 2008 2009 2010 2011 2012* 2013

Vacancy Rate

APARTMENT VACANCY RATE – ALL CLASSES

Houston Metro Area | 2005 Through 2013

7.4% 6.8%

* As of 2nd quarter 2012.

Source: MPF, ADS, Delta Associates; November 2012.

$0.78 $0.83 $0.88 $0.93 $0.98 $1.03

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Average Rental Rate/SF/Month

AVERAGE APARTMENT RENTAL RATE

Houston Metro Area | 2006 Through 3rd Quarter 2012

2011 2010 2009 2008 2007 2006 2012

$0.98

5.1% increase in the last 12 months

2012

THE HOUSTON RETAIL MARKET

Houston

Overall Vacancy Rate

Source: Delta Associates’ analysis of CoStar data; November 2012.

VACANCY RATE: SHOPPING CENTERS

Select Metro Areas | 3rd Quarter 2012

5.1% 5.4% 5.4% 6.2% 7.5% 8.6% 8.9% 9.9% 11.4% 12.7% 13.8% 0% 2% 4% 6% 8% 10% 12% 14% 16% Was SF Bos NY LA/OC Den Hou Chi DFW Atl Phx National Average = 9.2%

Note: Includes shopping centers of all types.

10% 11% 12% 13% 14% 15% 16% 17% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Vacancy Rate

11.2%

VACANCY RATE: ALL RETAIL

Houston Metro Area | 2000 – 2nd Quarter 2012

Source: O’Connor & Associates, Delta Associates; November 2012.

$50 $60 $70 $80 $90 $100 $110 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Total Gross Retail Sales (in Billions of Dollars)

$109.7 $101.4 $87.9 $55.3

GROSS RETAIL SALES

Houston Metro Area | 2002 – 2012

Source: Texas Comptroller’s Office, Delta Associates; November 2012. *2012 figure is annualized.

RETAIL MARKET FORECAST

Source: Delta Associates; November 2012.

• Growing population driving market expansion
• Continued improvement in occupancy rates
• Focus on grocery-anchored and mixed-use development
• Increasing urban infill development

Houston Metro Area

2012

CAPITAL MARKETS

Houston

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 2009 2010 2011 2012*

Billions of $’s Hou Den DFW

COMPARATIVE INVESTMENT SALES VOLUME

Office Buildings | 2009 – 2012

Source: Real Capital Analytics, graphic by Delta Associates; November 2012. *YTD through September, annualized.

INDUSTRIAL INVESTMENT SALES

Houston Metro Area | 2002 Through 2012

$0 $200 $400 $600 $800 $1,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012*

Millions of $

*YTD through August, annualized.

Sources: Real Capital Analytics, graphic by Delta Associates; November 2012.

$826

3% 4% 5% 6% 7% 8% 9%

Source: Transwestern, Delta Associates; November 2012.

Average Cap Rate

CORE CAP RATES

Houston Metro Area | 2005 – 2012

Office Industrial Garden/Mid-Rise Apartments Shopping Centers

2012

FINDING OPPORTUNITIES

Houston

• 1. Lock in interest rates while they remain low
• 2. Invest in renovation to compete and reposition
• 3. Buy / prepare land for this round of development
• 4. Narrow acquisition search to product that

accommodates the modern tenant

MINING A GROWING MARKET: FINDING OPPORTUNITIES

Houston Metro Area

Source: Delta Associates; November 2012.

2012

Houston