trendlines® houston 2014 slideshow

1. MEGATRENDS

2. HOUSTON’S METRO ECONOMY: THRIVING

3. HOUSTON’S COMMERCIAL REAL ESTATE MARKETS • Office • Industrial • Apartment • Retail

4. FINDING OPPORTUNITIES

Source: Delta Associates; November 2014.

A G E N D A : R E D E F I N I N G E X P E C T A T I O N S I N A G A T E W A Y M A R K E T

MEGATRENDS

1. National Economy Gaining Traction

2. Houston is the Newest Gateway Market

3. Houston’s Affordability Driving Growth


M E G AT R E N D S A F F E C T I N G H O U S T O N ’ S C O M M E R C I A L R E A L E S TAT E M A R K E T S

-100,000 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000

Federal Government

Information

Other Services

Financial Activities

State and Local Government

Wholesale Trade

Transportation/Utilities

Manufacturing

Retail Trade

Construction/Mining

Leisure/Hospitality

Education/Health

Professional/Business Services

J O B C H A N G E

Source: U.S. Bureau of Labor Statistics, Delta Associates; November 2014. Note: Data not seasonally adjusted.

M E G AT R E N D 1 : N AT I O N A L E C O N O M Y G A I N I N G T R A C T I O NU.S. Payroll Job Growth | 12 Months Ending October 2014

250,000

300,000

350,000

400,000

450,000

500,000

550,000

600,000

650,000

700,000

Peak in Initial Unemployment Claims (Week of 3/28/09) = 659,250

15-Year Average = 379,800

INIT

IAL

UN

EM

PL

OY

ME

NT

CL

AIM

S

Source: U.S. Department of Labor, Delta Associates; November 2014. Note: Data are seasonally adjusted.

(Week of 11/1/14) = 279,000

M E G AT R E N D 1 : N AT I O N A L E C O N O M Y G A I N I N G T R A C T I O NU.S. Initial Unemployment Claims | Four-Week Moving Average

Source: Bureau of Economic Analysis, Delta Associates; November 2014. Note: Annualized.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

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 Q3 Q4 Q1 Q2 Q3

AN

NU

AL

GD

P C

HA

NG

E I

N 2

00

9

CO

NS

TA

NT

DO

LL

AR

S

20-Year Average = 2.5%

M E G AT R E N D 1 : N AT I O N A L E C O N O M Y G A I N I N G T R A C T I O NU.S. GDP Percent Change| 2007 – 3rd Quarter 2014

2007 2008 2009 2010 2011 2012 2013 2014

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2008 2009 2010 2011 2012 2013 2014PE

RC

EN

T C

HA

NG

E F

OR

ME

DIA

N P

RIC

E O

F

SIN

GL

E-F

AM

ILY

HO

ME

S

Source: S&P/Case-Shiller, Delta Associates; November 2014. Note: Data reflect 20-city composite index through August 2014.

M E G AT R E N D 1 : N AT I O N A L E C O N O M Y G A I N I N G T R A C T I O NU.S. Annual Change in Existing Home Sale Prices

Source: AFIRE, Delta Associates; November 2014.

Global City Rankings Among Foreign Investors in Real Estate

M E G AT R E N D 2 : H O U S T O N I S T H E N E W E S T G AT E WAY M A R K E T

2013 AFIRE Rankings for Top Global Investment Markets

1. London

2. New York

3. San Francisco

4. Houston

5. Los Angeles

2009 AFIRE Rankings for Top Global Investment Markets

1. London

2. Washington, DC

3. New York

4. Paris

5. Tokyo

Houston received no points in 2009 survey

Source: AFIRE, Delta Associates; November 2014.

U.S. City Rankings Among Foreign Investors in Real Estate


2013 AFIRE Rankings for Top U.S. Investment Markets

1. New York

2. San Francisco

3. Houston

4. Washington, DC

5. Los Angeles

2009 AFIRE Rankings for Top U.S. Investment Markets

1. Washington, DC

2. New York

3. San Francisco

4. Boston

5. Los Angeles

Houston ranked sixth in 2009 survey

3%

4%

5%

6%

7%

8%

9%

Source: Transwestern, Delta Associates; November 2014.

AV

ER

AG

E C

AP

RA

TE

Office Industrial Garden/Mid-Rise

Apartments Shopping Centers

Core Cap Rates | Houston Metro Area | 2007 – 2014


34.5%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Phx Riv Hou Dal Atl Was Sea Mia SF Bos LA Phi NY Chi Det

Source: U.S. Census Bureau, Delta Associates; November 2014.

Population Growth | Largest Metro Areas | 2000 - 2013 P

ER

CE

NT

AG

E G

RO

WT

H

M E G AT R E N D 3 : H O U S T O N ’ S A F F O R D A B I L I T Y D R I V I N G G R O W T H

13.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Phx DC Atl Dal Den Hou Mia Sea SF Bos LA Chi Man Phi Pit

Source: PwC, ULI, Delta Associates; November 2014.

Growth of Millennial Cohort | 2008-2013 | Select Metro Areas P

ER

CE

NT

AG

E C

HA

NG

E

U.S. Average = 10.6%


73,418

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Hou Dal Det Atl Sea Chi Was Phi SF Bos Phx Mia LA NY Riv

Source: Praxis Strategy Group, Delta Associates; November 2014.

Cost of Living-Adjusted Earnings | Select Metro Areas | 2014

Note: Adjusted for local cost of living.

AV

ER

AG

E A

NN

UA

L E

AR

NIN

GS

P

ER

JO

B


3.3

0

1

2

3

4

5

6

7

8

9

10

Det Atl Dal Hou Chi Phx Phi Was Riv Mia Sea Bos NY LA SF

Source: Demographia Housing Affordability Survey, Delta Associates; November 2014.

Housing Affordability in Major U.S. Metro Areas M

ED

IAN

HO

ME

PR

ICE

TO

M

ED

IAN

IN

CO

ME

RA

TIO


HOUSTON’S

METRO ECONOMY:

THRIVING

119.4

0

20

40

60

80

100

120

140

LA Basin NY Hou DFW SF Bay S Fl Atl Bos Chi Den Phx Was

PA

YR

OL

L J

OB

S (

IN T

HO

US

AN

DS

)

Source: U.S. Bureau of Labor Statistics, Delta Associates; November 2014.

H O U S T O N ' S M E T R O E C O N O M Y: T H R I V I N G Payroll Job Growth in Large Metro Areas 12 Months Ending September 2014

0 5,000 10,000 15,000 20,000 25,000

Information

Financial Activities

Wholesale Trade

Other Services

Retail Trade

Transportation/Utilities

Manufacturing

Leisure/Hospitality

Energy

Construction

Government

Professional/Business

Education/Health

J O B C H A N G E

Source: U.S. Bureau of Labor Statistics, Delta Associates; November 2014. Note: Data not seasonally adjusted.

Payroll Job Growth | Houston Metro Area | 12 Months Ending Sept. 2014

H O U S T O N ' S M E T R O E C O N O M Y: T H R I V I N G

0

20

40

60

80

100

120

140

$0

$20

$40

$60

$80

$100

$120

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

Oil Price

Houston Metro Employment Change

Source: Quandl.com, Bureau of Labor Statistics, Delta Associates; November 2014.

WT

I C

RU

DE

OIL

FU

TU

RE

S

12

-MO

NT

H P

AY

RO

LL

EM

PL

OY

ME

NT

C

HA

NG

E (

TH

OU

SA

ND

S)

WTI Crude Oil Futures vs. Houston Employment Change

2012 2013 2014


Note: Oil prices as of last day of each month, through October 2014. Employment change through September 2014.

$70

$80

$90

$100

$110

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: Quandl.com, Barchart.com, Delta Associates; November 2014.

WT

I C

RU

DE

OIL

FU

TU

RE

S

WTI Crude Oil Futures


Note: Oil contract prices as of last day of each year.

Source: Houston Port Authority, Delta Associates; November 2014. *Through September 2014, annualized.

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

TO

TA

L T

EU

s

2003-2013 Average = 1.7 million TEU/annum

Note: TEUs = 20-foot-equivalent container units.

Houston Port Authority | Container Traffic


Source: Houston Airport System, Delta Associates ; November 2014. *Through September 2014, annualized.

300,000

325,000

350,000

375,000

400,000

425,000

450,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

AIR

FR

EIG

HT

(M

ET

RIC

TO

NS

)

2003-2013 average = 380,000 metric tons/annum

Houston Airport System | Air Freight


-80,000

-60,000

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

AN

NU

AL

JO

B G

RO

WT

H

Source: Bureau of Labor Statistics, Delta Associates; November 2014.

Avg. Annual Growth

2005-07 = 87,500/annum

Projected Avg. Annual

Growth 2014-16 =

92,300/annum

20-year average = 47,500

Job Forecast | Houston Metro Area


THE HOUSTON

OFFICE MARKET

5.9% 6.7%

8.5%

9.9% 10.0%

12.0% 12.5%

13.2% 13.5% 13.6% 13.8%

16.5%

0%

5%

10%

15%

20%

NY SF Bay Bos Hou Den LA Chi Atl DFW Was S Fla Phx

Source: Transwestern’s analysis of CoStar data; November 2014.

National Vacancy Rate: 11.2%

O F F I C E VA C A N C Y R AT E S Select Metro Areas | 3rd Quarter 2014

OV

ER

AL

L V

AC

AN

CY

RA

TE

17.1

0

2

4

6

8

10

12

14

16

18

Hou SF Bay NY DFW Bos Was Chi Phx Den LA Basin Atl

National Total = 100.9 million SF

O F F I C E S PA C E U N D E R C O N S T R U C T I O N Select Metro Areas | 3rd Quarter 2014

MIL

LIO

NS

OF

SF


0

2

4

6

8

10

12

14

16

18

20

22

Houston Metro

14.0 million SF

Deliveries

= Demand

Total = 19.8 million SF

= U/C 17.1 million SF

= Planned and may deliver by 9/16: 2.7 million SF

O F F I C E S PA C E D E M A N D A N D D E L I V E R I E S Houston Metro Area | Two Years Ending September 2016

SF

IN

MIL

LIO

NS


Rent Equilibrium Zone = 12% - 14%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14* 15* 16*

OV

ER

AL

L V

AC

AN

CY

RA

TE

9.9%

*As of 3rd quarter.

11.5%

O F F I C E VA C A N C Y R AT E Houston Metro Area | 2000 – 3rd Quarter 2016


-6%

-4%

-2%

0%

2%

4%

6%

8%

2010 2011 2012 2013 2014* 2015 2016

AN

NU

AL

PE

RC

EN

TA

GE

IN

CR

EA

SE


O F F I C E A S K I N G R E N T C H A N G E Houston Metro Area | 2010 – 2016

Average office rent growth of 2-4% per annum likely for 2015-2016

*Annualized.


• Energy Corridor

• Central Business District

• The Woodlands

• Galleria

S E L E C T S U B M A R K E T S L I K E LY T O B E N E F I T F R O M S T R O N G D E M A N D I N 2 0 1 5

O F F I C E S U B M A R K E T S L I K E LY T O O U T P E R F O R M Houston Metro Area

THE HOUSTON

INDUSTRIAL MARKET

4.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

LA Basin Hou DFW NY/NNJ Chi Was/Bal

I N D U S T R I A L VA C A N C Y R AT E S Select Metro Areas | 3rd Quarter 2014


0

2

4

6

8

10

12

14

16

18

DFW Chi Was/Bal Hou NY/NNJ LA Basin

National Total = 148.9 Million SF

I N D U S T R I A L S PA C E U N D E R C O N S T R U C T I O N Select Metro Areas | 3rd Quarter 2014


0

2

4

6

8

10

SF

IN

MIL

LIO

NS

Houston Metro

6.5 million SF

Deliveries

= Demand

Total = 8.6 million SF

= Planned and may deliver by 9/15: 3.6 million SF

= U/C 5.0 million SF

I N D U S T R I A L S PA C E D E M A N D A N D D E L I V E R I E S Houston Metro Area | One Year Ending September 2015


2%

4%

6%

8%

10%

12%

14%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*

OV

ER

AL

L V

AC

AN

CY

RA

TE

4.6% 5.0%

I N D U S T R I A L VA C A N C Y R AT E Houston Metro Area | 2001 – 3rd Quarter 2015

*As of 3rd quarter. Source: Transwestern’s analysis of CoStar data; November 2014.

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2010 2011 2012 2013 2014* 2015

AV

ER

AG

E R

EN

T,

$/

SF

, N

NN


I N D U S T R I A L A S K I N G R E N T C H A N G E Houston Metro Area | 2010 – 2015

*Annualized.

Average industrial rent growth of 1-3% likely for 2015


• Northwest

• Southeast

• North

• West

INDUSTRIAL SUBMARKETS LIKELY TO OUTPERFORM Houston Metro Area


THE HOUSTON

APARTMENT MARKET

-10

0

10

20

30

40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Source: ADS, Transwestern, Delta Associates; November 2014.

TH

OU

SA

ND

S O

F U

NIT

S

*January through September 2014.

NET ABSORPTION OF APARTMENTS – ALL CLASSES Houston Metro Area | 2005 – September 2014

9.5%

16.1%

9.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

VA

CA

NC

Y R

AT

E

A PA R T M E N T VA C A N C Y R AT E – A L L C L A S S E S Houston Metro Area | 2005 – September 2014

Source: ADS, Transwestern, Delta Associates; November 2014. *As of September 2014.

$1.05

$0.85

$0.90

$0.95

$1.00

$1.05

$1.10

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

RE

NT

($/

SF

/M

ON

TH

)

2011

7.1% increase in past 12 months

2012 2013 2014

Source: ADS, Transwestern, Delta Associates; November 2014.

AV E R A G E A PA R T M E N T R E N TA L R AT E Houston Metro Area | 1st Quarter 2011 – 3rd Quarter 2014


• Energy Corridor

• Tomball/Far Northwest

• The Woodlands

• Baytown

APARTMENT SUBMARKETS LIKELY TO OUTPERFORM Houston Metro Area


THE HOUSTON

RETAIL MARKET

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Chi Hou Atl DFW Phx S Fla LABasin

Bos Was SF Bay Den NY


N E T A B S O R P T I O N O F R E TA I L S PA C E Select Metro Areas | January – September 2014

$124.1

$60

$70

$80

$90

$100

$110

$120

$130

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

TO

TA

L G

RO

SS

RE

TA

IL S

AL

ES

(I

N B

ILL

ION

S O

F D

OL

LA

RS

)

*First quarter 2014 annualized. Source: Texas Comptroller’s Office, Delta Associates; November 2014.

G R O S S R E TA I L S A L E S Houston Metro Area | 2005 – 2014

9.7%

9%

10%

11%

12%

13%

14%

15%

16%

17%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

VA

CA

NC

Y R

AT

E

Source: Transwestern’s analysis of O’Connor & Associates data, Delta Associates; November 2014.

R E TA I L VA C A N C Y R AT E Houston Metro Area | 2005 – 3rd Quarter 2014

*As of September 2014.

$17.26

$16.50

$16.75

$17.00

$17.25

$17.50

$17.75

$18.00

2010 2011 2012 2013 2014*

AV

ER

AG

E R

EN

TA

L R

AT

E (

$/

SF

)

Source: Transwestern’s analysis of O’Connor & Associates data, Delta Associates; November 2014.

AV E R A G E R E TA I L R E N TA L R AT E Houston Metro Area | 2010 – 3rd Quarter 2014

*As of September 2014.

Class A rent growth has been greater than 20% during the past 18 months


• Inner Loop

• The Woodlands

• Katy

• Sugar Land

RETAIL SUBMARKETS LIKELY TO OUTPERFORM Houston Metro Area


FINDING

OPPORTUNITIES

1. Office: Strong global interest in Class A assets gives high-quality Class B product a showcase

2. Industrial: Modern warehouse/distribution space is ideally suited for the new online retail model (same-day delivery) and the increase in port activity

3. Apartments: New Houstonians and growth of the local Millennial cohort will continue to yield pent-up demand for apartments

4. Retail: Strong employment growth will continue to support development, especially popular mixed-use and experiential retail concepts


F I N D I N G O P P O R T U N I T I E S I N T H E N E W E S T G A T E W A Y M A R K E T