Market Outlook
Look for some blog reports today from the Marcus & Millichap and Institutional Property Advisors seminar at FIU’s North Campus.
First speaker was Al Pontius, Senior Vice President, Marcus & Millichap. He is based in San Francisco and overseas commercial sales and director of national office and industrial property group, net lease and healthcare group, overseas special situations group
U.S. Economic outlook
“We see really great lift in every aspect of our business right now and that lift doesn’t occur without a strong U.S. economy.”
Positives
Oil prices: “The bottom line for the U.S. economy is we are all getting a pay raise.” Consumer is 70 percent of economy.
Treasuries: range bound near 1.8 percent
Econ growth: 5% in third quarter
Hiring: Reaches 3 million, the most since 1999. Oil should help
Home construction: well below household formation.
Small business optimism: reaches 8-year peak. “One of the big changes this time around is small business was having difficulty forming. Debt wasn’t obtainable.” Now, the debt vehicles are opening up.
Negatives
European recession poses new risks. Will have a negative impact on trade.
Greek elections a wild card. “What does that mean in Europe and the European Union. – Will this create a slowdown.” Can impact confidence.
Strengthening dollar could slow exports.
Falling oil prices may create geopolitical instability. “Which countries are going to freak out.” Creates concern even though we like filling our tanks at $2 instead of $4.
Labor force participation has yet to recover. 62.7 percent – was 67 percent in 2000. One of the biggest factors are Baby Boomers. We have a lot of retiring workers, which skews the number. People coming out of the workforce and a slower backfill coming into the workforce. Contributor to slow wage gains
Interest rates
Interest rates from last Friday
Japan 0.2%
Germany 0.3%
UK 1.5%
U.S. 1.8%
China 3.5%
Brazil 11.7%
Russia 13.8%
Some very well known people in bond market who have been very wrong on big bets on interest rates. “The chances of the 10-year Treasury going to 1.5%, even potentially less, are probably just as good as going to 2, 2�%.” We can’t just look at the prospect of rates going up – they could go the other way.
Rate of employment growth in Florida is outpacing the U.S. average. Orlando growing at 4.3 percent. The laggard is Tampa at 1.2 percent.
There’s a rebound in population growth rate in South Florida, but not quite so much outside of South Florida.
Single-family home prices: The trajectory is very good. The only market that has surpassed the decline level is Jacksonville. Rebound gives people more confident financially.
Apartment trends: Modest rise in vacancy rate in 2015. That’s a response to elevated level of construction, which is producing a higher average rental rate. Rental rates still expected to go up in 2015. There’s an attitude shift regarding mobility that affects the sector: I don’t want to buy and get stuck. That translates well for investors in multi-family. Miami and Palm Beach were the only two major markets statewide that have exceeded pre-recession peak.
Retail: 63% of growth last year was in online sales. “Strangely enough, it’s not translating to the end of bricks and mortar retail.” Consumer spending is on the rise. Home equity gains. A lot of support for retail. Amazon taking on a physical presence to get more promotion. Vacancy rate for retail is trending down – under 10 percent in all the cities, Fort Lauderdale, Miami, Palm Beach, Jacksonville, Orlando and Tampa. Retail transaction trends and price trends are both up. Pricing is ahead of the prior peak.
Office vacancy: Rates are down, but not below 10 percent. Office has been the laggard sector. There is hardly any construction – statistically just about zero. The improvement in job market driving vacancies down. Office transaction activity is on the upswing. Because it’s been a laggard, some investors see an opportunity for an upswing.
Industrial: Vacancy rates are under 8% in South Florida. “Industrial has become the darling of the industry. Think ecommerce and industrial is in some ways the new retail.” Continue to have strong demand. A real estate darling.
Cap rates in Florida will tend to drop in 2015 as investors reach out into secondary market. In Houston there is already resistance to trading as if it was New York. Doesn’t mean every individual asset will be down 0.25 percent – it will be judged by each individual asset.
