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Sam Chandan gives a presentation of the State of the Office Market at GreenPearl Events Office Summit - June 10, 2010
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© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.
The State of the Office MarketGreenPearl Office Summit | New York | June 2010
Sam Chandan PhD FRICS
Global Chief Economist and Executive Vice PresidentReal Capital Analytics
Adjunct Professor of Real EstateThe Wharton School of the University of Pennsylvania
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 2
The State of the Office Market
• The Economy and the Office Sector
• Office Sector Fundamentals
• Construction Activity
• Office Investment and Credit Trends
• Policy, Regulation, and Real Estate
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 3
200020002000200020002000200020002000200020002000200120012001200120012001200120012001200120012001200220022002200220022002200220022002200220022002200320032003200320032003200320032003200320032003200420042004200420042004200420042004200420042004200520052005200520052005200520052005200520052005200620062006200620062006200620062006200620062006200720072007200720072007200720072007200720072007200820082008200820082008200820082008200820082008200920092009200920092009200920092009200920092009201020102010-6%
-4%
-2%
0%
2%
4%
6%
8%
National
District of Columbia
Boston
Baltimore
New York
Philadelphia
Employment Losses Moderate
Year-to-Year Percent Change in Nonfarm EmploymentSource: Bureau of Labor Statistics
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 4
Office Fundamentals TrendsSources: Mortgage Bankers Association Quarterly Data Book
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-3%
-2%
-1%
0%
1%
2%
3%
5%
7%
9%
11%
13%
15%
17%
19%
21%
Vaca
ncy
Rate
Ask
ing R
ent
Change
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 5
Office Construction and New InventoryYear-to-Year Change in Private Office Construction SpendingSource: Census Bureau
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.
Economic Headwinds and Tailwinds
Source: Bureau of Economic Analysis
Contributions to Percent Change in Real GDPFirst Quarter 2010 (Advance Estimate)
6
Fe
de
ra
l
Sta
te a
nd
Lo
ca
l
Re
sid
en
tia
l
No
n-R
esid
en
tia
l S
tru
ctu
re
s
Se
rv
ice
s
No
n-D
ura
ble
Go
od
s
Du
ra
ble
Go
od
s
Government Expenditures Net Exports Gross Private Domestic In-vestment
Personal Consumption Expenditures
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
0.11%
-0.48%
-0.61%
-0.29%
-0.44%
1.15%
0.61%
0.79%
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 7
Office Sector Investment Trends
Office Transaction Volume and Average Office Cap RateSource: Real Capital Analytics
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12001 2002 2003 2004 2005 2006 2007 2008 2009 10
$0
$10,000,000,000
$20,000,000,000
$30,000,000,000
$40,000,000,000
$50,000,000,000
$60,000,000,000
$70,000,000,000
$80,000,000,000
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
Avera
ge C
ap R
ate
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 8
Office Sector Investment Trends
Office Transaction Volume, Prices, and Cap Rates Through April 2010Source: Real Capital Analytics
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 9
Where the Stress Falls
Percentage of Transaction Volume Related to DistressSource: Real Capital Analytics
Apartment Development Hotel Industrial Office Retail0%
5%
10%
15%
20%
25%
11.4%
16.3%
13.6%
4.3%
7.7%
22.3%
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 10
Asset Prices, Credit, and Policy Guidance
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 12001 2002 2003 2004 2005 2006 2007 2008 2009 10
$0
$20,000,000,000
$40,000,000,000
$60,000,000,000
$80,000,000,000
$100,000,000,000
$120,000,000,000
$140,000,000,000
$160,000,000,000
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2.2
Transaction Volume
Moody's / REAL CPPI for All Property Types
Apartment
Industrial
Office
Retail
Final ConcentrationGuidance Released
Loan WorkoutGuidance Released
For Comment ConcentrationGuidance Released
CMBS TALF
Moody's / REAL Commercial Property Price Index by Sector Source: Real Capital Analytics, REAL2000 Q4 = 1
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater. 11
Emerging Sources of Credit
© 2010 Real Capital Analytics, Inc. All rights reserved. Data believed to be accurate but not guaranteed; subject to future revision; analyses based on properties & portfolios $5 million and greater.
The State of the Office MarketGreenPearl Office Summit | New York | June 2010
Sam Chandan PhD FRICS
Global Chief Economist and Executive Vice PresidentReal Capital Analytics
Adjunct Professor of Real EstateThe Wharton School of the University of Pennsylvania
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