3. Featured Speaker
If you would like a copy of tonight’s presentation,
please visit www.colliers.com/Houston/TRENDS
4. TRENDS 2014
K.C. Conway, MAI, CRE
Chief Economist | USA
Colliers International
KC.Conway@Colliers.com
www.colliers.com/kc.conway
“Over the River and through the Woods …”
What’s 2014 Outlook at Grandma’s House in
Houston? Texas? U.S.?
February 4, 2014
5. The Entrepreneurs Vs. KRONIES Action Figures!
Parts & Labor, The Bancor & “G-Force” on “K” Street
http://www.youtube.com/watch?feature=player_embedded&v=ZDXuPQ9ML9E
5
6. The A, B, C, D Questions KC won’t answer:
“ A man has got to know his limits” - Clint Eastwood
“A” – Value of Argentine Peso – or Turkish
Lira at end of 2014 … but monitor currency!
“C” – Why a major American city with the
world’s busiest airport can’t handle 2” of snow
“B” – What is real value of a Bitcoin?
($10 to $1,200 trade range in 2013)
“D” – Why Houston wasn’t ranked #1
among Top Markets in
2014 Emerging Trends?
7
7. The A, B, C, D Definitive KC Forecasts for 2014:
“If you don’t know somethin’, what good are ya?”
“A” – Port of Houston will remain most
Irreplaceable - and America’s GDP port!
“C” – Colliers will be an MVP relationship &
advisor to you again in 2014!
“B” – The BLS will incorrectly estimate
job growth 12 times again in 2014!
“D” – Debt Capital will never be this good.
Don’t delay or “sit on the fence” in 2014!
8
8. What did KC forecast for 2013? A 100% score after 80% in 2012
Jan ‘13 KC said: “Beware of Q1, but be prepared for a robust 2H2013.”
Industrial:
Ports will remain an imPORTant story!
Port Labor Strife not done – Feb 6, 2013.
Leasing activity remains robust
Dearth of new constr & assets for sale.
Office:
ICEE office MSAs still hot.
Recovery in housing will add to
suburban absorption.
½ the 71.5msf of new office
construction is Med Office
MF:
Overbuilding Risk is exaggerated
Too much in just a few MSAs (DC)
TX is OK: 1 unit : 9.2 jobs in 2012
Housing:
The recovery is real!
NAHB IMI > 200 markets.
US Census Housing Occupancy
(50 MSAs 90% to 96%)
GDP:
Pulls back to 1% or less in 1H2013,
but Rebounds >2% in 2H2013
(No “Cash for Clunkers” or housing tax
credit artificial stimulants).
Employment:
Focus on Labor Participation rate
(63.6%), U-6 (14.4%), & expect
another year of <200k/mo. job
growth
U-3 could drop below 7% just on
workers losing Unempl. benefits.
Interest Rates:
Get ‘eer done in 2013!
2nd U.S. Debt downgrade >50%
FED balance sheet @ 20% US GDP
Monitor commodity prices.
9
9. So let’s look at 2014 & start with GDP:
GDP 2013 Trend: Q1: 1.1% / Q2: 2.5% / Q3: 4.1% / Q4 3.2% = 2.7% for 2013
GDP 2014 Forecast: Slows back <2% in 1H due to inventory build in 2H 2013
GDP EKG 1950-2013
1950 peak; 1958 low; 3.25% L-Term Trend
What drove GDP in 2H2013? Build in Inventories in Q3; Consumer Spending in
Q4 (Advance view) 2013 GDP: Q1: 1.1%; Q2: 2.5%; Q3: 4.1%; Q4: 3.2% (Adv Est)
10
11. BANKS & The FED …
Are we done with Bank Failures? What will be different?
BANK FAILURES – Will 2014 be different than 2013?
What is different in 2014?
FDIC gets a premium for deposits & failures not tied to housing. 12
12. BANKS & The FED …
Banks back to lending? Beware the Bank Stress Tests
35% vs. 21%
decline in CRE
value in Yr-End
2013 CCAR/Bank
Stress tests.
“March Madness”
ahead for banks
TX Banks
Comerica & BBVA
appear to be
slowing
CRE loan growth.
Watch Citi.
13
13. Banks & the FED: Volatility in 2014!
A new FOMC! QE taper; Currency Crises; GDP; Jobs???
Structure of the FOMC
The FED
meets 8
times/yr.
Yellen
is now
FED
Chair!
The Federal Open Market
Committee (FOMC) consists of
twelve members--the seven
members of the Board of
Governors of the Federal Reserve
System; the president of the
Federal Reserve Bank of New
York; and four of the remaining
eleven Reserve Bank presidents,
who serve one-year terms on a
rotating basis
NE Vs. MW
Dallas FED being a voting member of
FOMC in 2014 is a significant!
14
14. INTEREST RATES
Let’s hope this correlation holds up for 2013
Jan 1
1982
14.59%
Jan 1
2013
3.01%
Expect
Volatility & a
10-Yr range of
2%-4%
15
15. STATE TAX RATES
NE, DC region & CA worst, but TX not among 10-Best?
Why isn’t TX
among 10-Best
&
How does FL
make it among
10-Best
with such high
auto ad
valorem, hotel
occupancy, etc.
taxes?
Need to add SC
with high point
of sale on R.E.
16
16. CMBS … $340 Billion to ReFi
Metrics Improve as 2nd Wave comes ashore 2014-17
CMBS ReFi Wave 2.0
Bigger than Refi Wave 1.0 / Cap Rate & Interest Rate Compression?
#3
Watch List Loans
#1
Delinquest Loans
#2
#3
Source: TREPP
#1
#2
17
17. Housing …
Monitor ADP, Challenger, NFIB, ISM Vs. BLS &
NAHB HMI (Builder Sentiment Index
Housing – Best year since 2007, but can it continue?
(AP) — U.S. home construction ended 2013 with the best showing since the housing bubble
burst. Builders broke ground last month at a seasonally annual rate of 999,000, the fastest in
five years. For the year, builders started 923,000 homes and apartments, up 18.3 percent from
2012. It was the strongest since 2007, when 1.36 million homes were started.
The avg. rate on a 30-year mtg fell to 4.41% - down from a peak of 4.6% in August.
Each home built creates 3 jobs for a year and generates $90,000 in tax revenue, according
to data from the homebuilders association.
http://www.nahb.org/reference_list.aspx?sectionID=2223
18
20. Manufacturing …
ISM Strong (5%); Warehouse Absorption Strong… Houston?
Manufacturing / Intermodal / IANA / Warehouse Absorption
ISM Vs. GDP
Industrial Absorp. – Port, Air Cargo, Intermodal
More granular – backlog orders, etc.)
Houston has lacked new supply to rank high!
RailTime: 2013 a record for Intermodal
21
21. FTZs – Foreign Trade Zones …
Next annual report to Congress due out Aug 2014!
MEXICO
wage rate a
big story?
http://enforcement.trade.gov/ftzpage/index.html
22
22. Ports & Panama Canal…
West coast port strike threat June 2014!
www.colliers.com/us/port-2H
23
23. The 7 Class 1 Railroads…
Mexico wage rate &
KCS a big-deal to TX & mfg. story!
The 7- Class I RRs (Note CN (red) & KCS (brown)
“All that happens on the ports, doesn’t
stay on the ports” – Rail, Intermodal!
24
24. Ports & Industrial R.E …
The 2014 influences heading into 1 st Post PMX Decade.
Who will be able to
refuel Duel-Fuel?
SE (Jax) & Gulf ports
have advantage
Labor Strife: Chile
now (fresh fruit and
copper); Westcoast June 2014
P-Canal 50%
cost overrun
dispute
And one other …
NY faces new competition
from Mid-Atl & Great Lakes
ports, like Cleveland 25
26. AFIRE – Close on a hot note!
What’s Hot – Assoc. of Foreign Investors in R.E.
AFIRE – U.S. tops globally & Ind’l R.E. tops (first time in a decade)
Port cities
move up in
rankings!
27
27. Thank You
K.C. Conway, MAI, CRE
Chief Economist | USA
Colliers International
KC.Conway@Colliers.com
www.colliers.com/us/kcconway
30. HOUSTON’S BRAG BOOK
2013-2014 Headlines
• Houston, “The Best City In America”
(BUSINESS INSIDER)
• The Highest Demand for Engineering Jobs in 2013
(MONSTER.COM)
• Best Cities for your Career in 2013
(PAYSCALE.COM)
• Houston Makes Top Five Lists For U.S., Global Real Estate Investment
(AFIRE)
• Fastest Real GDP Growth Among Large MSA’S
(THE BUREAU OF ECONOMIC ANALYSIS)
• Top Cities for Global Trade
(GLOBAL TRADE)
• Largest Export Market in U.S.
(U.S. DEPARTMENT OF COMMERCE, INTERNATIONAL TRADE ADMINISTRATION)
32. Organization for Economic Co-operation &
Development
OECD – 34 Developed Countries – Blue - 1.25 Billion People (18%)
Non – OECD China
India
Africa
Latin Am
Russia
5.85 Billion People
– 1.34
– 1.24
- 1.0
– 0.6
– 0.14
33. Oil Consumption - 2010
19%
U.S
48%
14%
EU
Other Developed
19%
China, India,
Undeveloped
U.S
China
– 12 Barrels per Person per Year (300MM People)
– 2 Barrels per Person (1,344MM People)
If people in China use 3 Barrels per person we need to cut our
consumption by 4 Barrels per person to stay even on demand.
Alternative Energy and more efficient consumption required
34. Projected Demand – Going UP
Quadrillion Btu
600
Non OECD –
56% Increase
Projected
500
400
OECD
Non OECD
300
200
100
0
1990
2000
2010
2020
2030
2040
35. Energy Sector Projected Employment
•
Competition for employees
will be fierce.
•
Houston will be the largest
beneficiary of this boom.
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
2013
2025
Source: IHS
36. HOUSTON OFFICE – 179.8M SF
HOUSTON OFFICE MARKET INDICATORS
YE 2012
YE 2013
CITYWIDE NET ABSORPTION (SF)
4.2M
2.9M
CITYWIDE AVERAGE VACANCY
14.5%
14.0%
At the close of Q4,
10.7M SF of new
office development
was under
CITYWIDE AVERAGE RENTAL RATE
$24.25
$25.16
construction, more
CLASS A RENTAL RATE
CBD
$37.02
$38.16
SUBURBAN
$28.20
$30.18
CBD
9.8%
10.2%
SUBURBAN
11.4%
10.8%
CLASS A VACANCY
than any other U.S.
metro.
37.
38.
39.
40.
41. HOUSTON OFFICE – 179.8M SF
Houston Average Rent
Houston Average Vacancy
$28.00
16.0%
$26.00
15.0%
$24.00
14.0%
$22.00
13.0%
$20.00
12.0%
$18.00
11.0%
$16.00
10.0%
42. HOUSTON OFFICE – 179.8M SF
Average Price ($) Per SF
Houston
Average Cap Rate (Yield)
United States
Houston
250
200
150
100
50
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
12%
11%
10%
9%
8%
7%
6%
5%
4%
Q4 '09
Q4 '10
Sales by Total $ (mil)
Rolling 12-mo. Total
Quarterly Vol.
6,000
5,000
4,000
3,000
2,000
1,000
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
United States
Q4 '11
Q4 '12
Q4 '13
43. HOUSTON INDUSTRIAL – 483.6M SF
HOUSTON INDUSTRIAL MARKET INDICATORS
YE 2012
CITYWIDE NET ABSORPTION (SF)
YE 2013
5.0M
7.0M
8.0M SF of
new inventory
CITYWIDE AVERAGE VACANCY (%)
CITYWIDE AVERAGE RENTAL RATE ($)
5.2%
5.2%
$5.77
$5.90
delivered in
2013, 4.6M SF
was spec
NEW SUPPLY DELIVERED (SF)
4.0M
8.0M
4Q UNDER CONSTRUCTION (SF)
2.5M
4.4M
construction!
44. HOUSTON INDUSTRIAL – 483.6M SF
Houston Average Rent
Houston Average Vacancy
$6.40
8.0%
$6.20
7.0%
$6.00
$5.80
6.0%
5.0%
4.0%
$5.60
$5.40
3.0%
2.0%
$5.20
1.0%
$5.00
0.0%
45. HOUSTON INDUSTRIAL – 483.6M SF
Average Price ($) Per SF
Houston
Average Cap Rate (Yield)
Houston
United States
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
Q4 '09
$80
$70
$60
$50
$40
$30
$20
$10
$0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
Q4 '10
Sales by Total $ (mil)
Rolling 12-mo. Total
Quarterly Vol.
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
United States
Q4 '11
Q4 '12
Q4 '13
46. HOUSTON RETAIL – 264.7M SF
HOUSTON RETAIL MARKET INDICATORS
YE 2012
CITYWIDE NET ABSORPTION (SF)
CITYWIDE AVERAGE VACANCY (%)
YE 2013
1.2M
3.0M
Houston’s Strong
Economy Helps
Push Retail
7.3%
6.6%
Vacancy Rate to
CITYWIDE AVERAGE RENTAL RATE ($) Statistically Irrelevant
NEW SUPPLY DELIVERED (SF)
1.1K
880K
4Q UNDER CONSTRUCTION (SF)
1.1M
947K
Historic Low
48. HOUSTON RETAIL – 264.7M SF
Average Price ($) Per SF
Houston
Average Cap Rate (Yield)
United States
Houston
200
150
100
50
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
12%
11%
10%
9%
8%
7%
6%
5%
4%
Q4 '09
Q4 '10
Q4 '11
Sales by Total $ (mil)
Rolling 12-mo. Total
1,800
Quarterly Vol.
1,600
1,400
1,200
1,000
800
600
400
200
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
United States
Q4 '13
Q4 '12
Q4 '13
49. HOUSTON MULTI-FAMILY – 574.5K Units
HOUSTON MULTI-FAMILY MARKET INDICATORS
YE 2012
UNITS ABSORBED
14,664
YE 2013
16,516
The average
monthly rent amount
increased 6.0% in
CITYWIDE AVERAGE VACANCY (%)
10.6%
9.5%
2013 and is
expected to
CITYWIDE AVERAGE RENTAL RATE ($)
$806
$857
UNITS DELIVERED
6,818
14,455
4Q UNDER CONSTRUCTION
2,831
20,479
increase 6.0% in
2014.
51. HOUSTON MULTI-FAMILY – 574.5K Units
Average Price ($) Per Unit
Houston
120,000
Average Cap Rate (Yield)
United States
12%
11%
10%
9%
8%
7%
6%
5%
4%
Q4 '09
100,000
80,000
60,000
40,000
20,000
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
Houston
Q4 '10
Sales by Total $ (mil)
Rolling 12-mo. Total
Quarterly Vol.
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Q4 '09
Q4 '10
Q4 '11
Q4 '12
Q4 '13
United States
Q4 '11
Q4 '12
Q4 '13
52. HOUSTON HOTEL – 75.8K Units
HOUSTON HOTEL MARKET INDICATORS
YE 2012
YE 2013
TOTAL UNITS
74,630
75,837
CITYWIDE AVERAGE VACANCY (%)
34.6%
30.2%
CITYWIDE AVERAGE DAILY RATE ($)
$94
$101
UNITS DELIVERED
427
553
54. HOUSTON HOTEL – 75.8K Units
Average Price ($) Per Unit
Houston
$250,000
Average Cap Rate (Yield)
United States
$200,000
$150,000
$100,000
$50,000
$0
Q4 '10
Q4 '10
Q4 '11
Q4 '12
Q4 '13
12%
11%
10%
9%
8%
7%
6%
5%
4%
Q4 '09
Houston
Q4 '10
United States
Q4 '11
Sales by Total $ (mil)
Rolling 12-mo. Total
Quarterly Vol.
1,000
900
800
700
600
500
400
300
200
100
0
Q4 '10
Q4 '10
Q4 '11
Q4 '12
Q4 '13
Q4 '12
Q4 '13
55. 2014 CONSTRUCTION COMMENTS
• Consultants continue to aggressively pursue hiring with firms
reporting “best year ever”, again.
• General Contractors are hustling to keep up with demand.
Finding experienced personnel has magnified.
• We are still seeing the subcontractor community struggling to
keep up with bidding and construction workload.
• Construction costs have shown moderate increases, in spite of
notices of material volatility.
• Manufacturers are still not keeping significant inventory on
hand. Material lead times continue to drive schedules.