Cbre Group Inc · NYSE:CBRE
Cbre — Wolfe Commercial Real Estate Services Conference 2022
43 slides from Cbre's conference presentation, May 10, 2022
Slide 1: U.S. Economy and Property Market Outlook
U.S. Economy and Property Market Outlook Wolfe Commercial Real Estate Services Conference May 10, 2022 Richard Barkham, Ph.D. Global Chief Economist & Global Head of Research
Slide 2: Forward Looking Statements
US ECONOMY AND PROPERTY MARKET OUTLOOK Forward Looking This presentation contains statements that are forward looking within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding the business environment, economic trends, interest rates, the effects
Slide 3: Headwinds
Headwinds
Slide 4: Ukraine
Ukraine
Slide 5: Geopolitics Does Not Typically Derail The U.S. Economy
Geopolitics Does Not Typically Derail The U.S. Economy U.S. Economic Cycle as Indicated by Unemployment % 16 14 George Floyd Killed Capitol Riot 12 US Embassy Bombed in Beirut Fall of the Soviet Union Syria War Falklands War Gaza War 10 Coup in Egypt Bosnian War Starts Taliban Retake Power % Unemplo
Slide 6: But We Do Have A Problem With Inflation
But We Do Have A Problem With Inflation Consumer Price Index (% Year Over Year) 9 8 Inflation is at 7 a 40-year high 6 5 4 3 Goodbye to the 2 old “new normal” 1 0 -1 2014 2015 2016 2017 2018 2019 2020 2021 2022 Source: BLS, CBRE EA, CBRE Research, April 2022.
Slide 7: Inflation Started in the Goods Sector
Inflation Started in the Goods Sector Personal Consumption Expenditures – Durable Goods 2,500 2,000 Billions of Dollars 1,500 1,000 How many stationary bikes do we need? 500 0 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/202
Slide 8: But Has Moved to the Labor Market
But Has Moved to the Labor Market Millions 180 Labor Demand (Employment+Job Vacancy) We are 4 million Labor Supply (Employment+Unemployment+Marginally Attached) workers short 170 160 150 140 130 120 Source: BLS, CBRE Research
Slide 9: Expectations for Higher Interest Rates Have Risen
Expectations for Higher Interest Rates Have Risen 3.5 Zone of 3 JP Morgan Impact Goldman Sachs CBRE 2.5 FED's Median Projection Oxford Economics 2 1.5 1 0.5 0 Q1 2022 Projected Q2 2022 Projected Q4 2022 Projected Q3 2023 Projected Q4 2023 Source: Federal Reserve, WSJ Survey, CBRE Research, Q1 2022.
Slide 10: What is happening in the economy right now?
What is happening in the economy right now?
Slide 11: Business Services Confidence Remains High
Business Services Confidence Remains High PMI Services Index 80 70 60 Current Level 50 PMI Baseline 40 30 20 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 Source: Markit Business Survey, NBER, CBRE Research Q1 2022
Slide 12: Consumer Confidence is Fragile on the Future
Consumer Confidence is Fragile on the Future US Consumer Confidence 180 120 160 110 140 100 120 90 100 80 80 Expectations 70 beginning to dip 60 60 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-2
Slide 13: Travel Has Almost Fully Recovered
Travel Has Almost Fully Recovered Passengers at airport security % change from 2019 levels 0% -10% -20% -30% -40% Prices up 40% in 2022 -50% -60% -70% Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Source: TSA, CBRE Research, 9
Slide 14: Eating Out Is Recovered
Eating Out Is Recovered U.S. OpenTable restaurant booking 7-day moving average, Y-o-Y % 20% 0% -20% -40% -60% OpenTable bookings down slightly from 2019 levels -80% -100% Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Source: OpenTable, CBRE Researc
Slide 15: Mortgage Rates Have Surged
Mortgage Rates Have Surged U.S. 30-Year Mortgage Rates 8 7 6 5 4 3 2 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 30-Year Fixed Rate Mortgage 3 Year Moving Average Source: Freddie Mac, CBRE Research, Q1 2022.
Slide 16: Home Prices Likely Heading Down
Home Prices Likely Heading Down United States: mortgage rates vs. house price growth Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 2.5 25 3.0 20 3.5 15 4.0 10 4.5 5 5.0 0 5.5 -5 6.0 6.5 -10 7.0 -15 30-Year Fixed Rate Mortgage - pushed 1Y fwd
Slide 17: The mood has changed
The mood has changed
Slide 18: Here's where GDP Forecasts were in January
Here’s where GDP Forecasts were in January 2023 GDP Growth 2022 GDP Growth 3.1 Morgan Stanley 4.6 2.6 Scotiabank 3.9 2.5 MetLife Investment Management 3.8 2.3 Deutsche Bank Securities, Inc. 3.6 2.1 CBRE 3.5 2.9 The Conference Board 3.5 PNC 1.1 Financial Services Group 3.5 2.6 TS Lombard 3.5 2.7 Nati
Slide 19: And Here's Where They Are at Now
And Here’s Where They Are at Now 2023 GDP Growth 2022 GDP Growth 3.0 Morgan Stanley 4.2 2.5 MetLife Investment Management 3.8 2.1 CBRE 3.5 2.8 National Association of Manufacturers 3.5 2.7 Scotiabank 3.4 2.8 CoreLogic 3.3 2.2 The Conference Board 3.0 PNC 1.1 Financial Services Group 2.9 2.2 Average
Slide 20: Real Estate Conditions
Real Estate Conditions
Slide 21: Q4 2021 Saw Real Estate in Full Recovery
Q4 2021 Saw Real Estate in Full Recovery U.S. Net Absorption by Sector Thousands of Sq Ft Positive Units Multifamily Net Absorption Positive Industrial Net Absorption 140 240 120 190 100 80 140 60 90 40 40 20 -10 0 -20 -60 2010 2010 2011 2012 2013 2013 2014 2015 2016 2016 2017 2018 2019 2019 2020 20
Slide 22: Office Themes
Office Themes
Slide 23: Return to Office is Gently Taking Place
Return to Office is Gently Taking Place When do you expect to encourage a more Which of the following best describes current regular return to the office? guidance for most employees regarding return to office? 10% 16% 13% 31% 36% 15% 53% 26% Already Underway Q2 2022 H2 2022 Employee Discretion Unce
Slide 24: Flight to quality is happening in office and Better Buildings
Flight to quality is happening in office and Better Buildings Commanding a Premium Manhattan Better Buildings $105 $100.93 Better Buildings Commodity 100.0% $95 90.0% 30% $85 80.0% $78.26 70.0% $75 60.0% $64.08 $65 40% 50.0% % of RSF $55 40.0% 60% 70% $45 30.0% 20.0% $35 10.0% $25 0.0% 50k+ Leasing
Slide 25: Suburban Markets Have Rebounded More Strongly Than CBD
Suburban Markets Have Rebounded More Strongly Than CBD Net Absorption CBD vs Suburban (SF x 1000) 20,000 Net Absorption CBD Net Absorption Suburban 15,000 10,000 5,000 0 -5,000 -10,000 -15,000 -20,000 2019.3 2019.4 2020.1 2020.2 2020.3 2020.4 2021.1 2021.2 2021.3 2021.4 2022.1 Source: CBRE Research,
Slide 26: Corporates Are Seeking to Use More Flexible Office Space
Corporates Are Seeking to Use More Flexible Office Space What percent of your portfolio is made up of flexible office space today? Over next two years? 90% 80% 70% 60% 51% 50% 41% 40% +34% 30% 20% 8% 10% 0% Minimal (<10%) Significant (10-50%) Very Significant (>50%) Today 2 Years Source: CBRE Office
Slide 27: Industrial
Industrial
Slide 28: Industrial Net Absorption to Fall Back to More Normal Levels
Industrial Net Absorption to Fall Back to More Normal Levels Overall Net Absorption Outlook (MSF) Top Markets for 5-Year Rent Growth Outlook msf 5-Year Rent Growth Forecast 160 Ranking Market % Growth Forecast 140 1 Inland Empire 42.3% 120 2 Northern New Jersey 39.7% 3 Phoenix 39.3% 100 4 Las Vegas
Slide 29: E-commerce Remains a Key Tailwind
E-commerce Remains a Key Tailwind E-commerce Share of Total Retail Sales ex Motor Vehicles and Gas Inflation Adjusted (%) 35.0 Forecast 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Source: CBRE Econometric Advisors 2022 CBRE, Inc. 29
Slide 30: Supply is Robust But Justified By Fundamentals
Supply is Robust But Justified By Fundamentals Product Under Construction (MSF) Vacancy Rates by Market msf Inland Empire 0.3 600 Los Angeles 0.5 545.4 Reno 0.7 513.9 Charleston 0.7 500 Orange County 1.1 Las Vegas 1.2 448.6 Savannah 1.3 410.2 Boston 1.4 400 375.7 Columbus 1.4 Salt Lake City 1.5 El P
Slide 31: Multifamily
Multifamily
Slide 32: Multifamily Rent Growth
10% 30% 40% -10% 20% -20% 0% West Palm Beach Phoenix Tucson Tampa Las Vegas Fort Lauderdale Riverside Source: CBRE Research, May 2022. Jacksonville Albuquerque Greensboro Salt Lake City Atlanta Orlando Raleigh Sacramento Charlotte Memphis Miami Colorado Springs Ventura Tulsa San Diego Norfolk Multif
Slide 33: Life Sciences
Life Sciences
Slide 34: Life Sciences Markets – Clusters with Constrained Supply
Life Sciences Markets – Clusters with Constrained Supply Vacancy & Asking Lease Rates for Life Sciences New development, conversion, speculative Lab/R&D and build-to-suit (SF, Millions) New Jersey 60% $120 35 Denver/Boulder Asking Rate Vacancy Raleigh-Durham 50% $100 30 Chicago 40% $80 New York City
Slide 35: Data Centers
Data Centers
Slide 36: Data Centers – Clusters with Unconstrained Supply
Data Centers – Clusters with Unconstrained Supply Net Absorption, Preleasing & Under Construction Inventory Growth MW 900 350% 301% 727.6 800 300% 700 250% 227% 600 493.4 486.3 457.8 200% 500 376.6 149% 138% 329.6 150% 133% 321.7 400 298.0 274.8 257.3 102% 238.5 236.7 225.5 300 203.4 100% 191.2 200
Slide 37: Capital Markets
Capital Markets
Slide 38: Anecdotes Suggest Cap Rates are Ticking Up – No Data Yet!
Anecdotes Suggest Cap Rates are Ticking Up – No Data Yet! National Cap Rates by Sector, Percent Industrial Multifamily 10% 8% 8% 7% 6% 6% 4% 5% 2% 4% 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 18Q1 19Q1 20Q1 21Q1 22Q1 09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 18Q1 19Q1 20Q1 21Q1 22Q1 Retail Off
Slide 39: Spreads Have Narrowed: Cap Rates Likely to Tick Up
Spreads Have Narrowed: Cap Rates Likely to Tick Up Treasury yields, BAA Corporate bond yields, U.S. Cap Rates 10 9 8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 BAA US 10 YR Office Industrial Retail Multifamily Note: RCA cap rates encompass all pro
Slide 40: REITs Beginning to Feel the Effects
REITs Beginning to Feel the Effects U.S REIT Index by Sectors Index (Jan. 2020 = 100) 200 180 Industrial 160 Self Storage 140 Apartments Office 120 Health Care 100 Strip Centers 80 Hotels 60 Retail 40 Malls 20 Residential 0 12/31 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 3/31 Source: Wilshire Associ
Slide 41: To Conclude
To Conclude
Slide 42: Real Estate Has Had a Good Recovery So Far
Real Estate Has Had a Good Recovery So Far – Interest rates are rising, growth is slowing, but a recession is far from inevitable – Tighter financial conditions will impact real estate capital markets – Cap rates will move out a little and single-family housing looks vulnerable – Industrial demand w
Slide 43: Thank You.
Thank You. Dr. Richard Barkham Carsten Raaum Global Chief Economist & Associate Director Head of Americas Research Global Research CBRE Research CBRE Research +1 617 912 5215 +1 312 660 3475 richard.barkham@cbre.com carsten.raaum@cbre.com This presentation has been prepared in good faith based on CB
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