Commercial Real Estate Insights2018 Economic ForecastCrowne Plaza Sacramento | February 8, 2018
Joshua PalmerAssociateOffice Specialist
Greg ThomasSenior Vice PresidentRetail Specialist
Tommy Ponder, SIORVice PresidentIndustrial Specialist
Brian NelsonSenior Vice PresidentMultifamily Specialist
Colliers Experts
Randy DixonManaging Director
Agenda
• Overall Economic Outlook
• Market Overview• Tenant Demand• Rental Rates• Sales Activity
• Forecast and Commentary
• Q&A
Key Themes
Economic Outlook
An overall look at 2017What were major influences
Major Influences
• Employment• Vacancy• New Supply
85.0%
90.0%
95.0%
100.0%
105.0%
110.0%
115.0%
Jan2008
Jan2009
Jan2010
Jan2011
Jan2012
Jan2013
Jan2014
Jan2015
Jan2016
Jan2017
PERC
ENT
BASE
D ON
JAN
200
8 LE
VEL
Sacramento MSA California Statewide US National
1. Tempe, AZ2. Boise, ID3. Miami, FL4. Atlanta, GA5. Tacoma, WA
6. Sacramento, CA7. Pittsburgh, PA8. McKinney, TX9. Richmond, VA10. Jersey City, NJ11. Olympia, WA12. Durham, NC13. Redding, CA
14. Surprise, AZ15. Kissimmee, FL16. Yonkers, NY17. San Francisco, CA18. Brooklyn, NY19. Brandon, FL20. Edmond, OK21. Manhattan, NY22. Saint Cloud, FL23. Murrieta, CA24. Prosper, TX25. Myrtle Beach, SC
1. Texas2. Florida3. Arkansas4. South Carolina5. Tennessee…50. California
Regional Migration – U-Haul Study
Top Growth Cities Growth State Rankings
Major Influences
• Employment• Vacancy• New Supply
DemandAbsorptionVacancyNew Supply
Absorption, Vacancy and New SupplyOffice
14.8%
16.9%
19.1%20.1% 20.5%
19.1%17.8%
16.5%14.9%
14.2%13.4%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
(750,000)
(250,000)
250,000
750,000
1,250,000
1,750,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
% V
ACA
NCY
TOTA
L SF
Source: Colliers International Research
• Product quality and location
• Urban revival
• Build to suit development
Office Supply & DemandTalent War:
77% of CEOs see availability of key
skills as the #1 threat to their
business PwC, 2017
14.6%
18.3%
20.7%22.1%
21.3%20.3%
18.8%17.9%
16.2%
13.6%
11.2%9.6% 10.3%
11.9%13.0% 12.6% 12.4%
11.6%9.9% 9.1%
7.2%
5.2%
-14.0%-12.0%-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%20.0%22.0%24.0%
(3,000,000)
(2,000,000)
(1,000,000)
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
VACANCY RATE
TOTA
L NE
T AB
SORP
TION
Source: Colliers International, CoStar
Total Net Absorption New Supply Flex Vacancy % Warehouse Vacancy %
Absorption, Vacancy and New SupplyIndustrial
NEWRECORD
Largest annual net absorption
on record
• Extremely low vacancy
• E-commerce, cannabis
• Build-to-suit vs spec development
Industrial Supply & DemandKey Fact:
Vacancy rate fell 250 basis points to 5.9% overall,
the lowest onrecord.
Absorption, Vacancy and New SupplyRetail
10.6%
13.4% 13.6% 13.2% 13.0%
11.9%
10.7%10.1% 10.3%
8.9%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
(1,000,000)
(800,000)
(600,000)
(400,000)
(200,000)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD
% VA
CANCYTO
TAL
SF
Total Net Absorption New Supply
Source: Colliers International, CoStar
Retail ConceptsWhich quadrant does tenant belong to?
Established Brands
Expa
ndin
gD
owns
izin
g
Trending
92.7% 92.7%
94.3% 94.1% 94.2%
95.2%
97.0% 96.1% 95.9%96.4%
90%
92%
94%
96%
98%
100%
$600
$700
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Mar
ket O
ccup
ancy
Aver
age
Mar
ket R
ent
Average Rent Average Occupancy
OccupancyMultifamily
Historical apartment supply
0
1000
2000
3000
4000
5000
6000
# U
nits
und
er c
onst
ruct
ion
Unit Count Average
Average: 2,409 Units
Source: CoStar, MPF
Q4 2017 total: 3,808 units
Note: Totals above based on multifamily construction in four-county Sacramento region.
Rental Rates Rates by Class/Type
Rental Rates and Cost of OccupancyOffice
$201 $182 $116 $117 $79 $115 $141 $143 $163 $157
$1.99
$1.87$1.80
$1.72 $1.69 $1.68 $1.70$1.76
$1.80$1.84
$2.34$2.26
$2.16$2.09 $2.10 $2.08 $2.06
$2.16 $2.19$2.27
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
$50
$70
$90
$110
$130
$150
$170
$190
$210
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
ASK
ING
RENT
AL
RATE
Avg
. $ P
aid/
Bldg
. SF
Source: Colliers International Research Avg. $ Paid/Bldg. SF Class B Class A
• High demand areas
• Trades, new owners push
• Rehabs, injecting capital
Office rates
Rental Rates and Cost of OccupancyIndustrial
$70.71 $84.65 $61.61 $47.94 $47.61 $45.60 $54.31 $48.59 $67.22 $73.87 $69.45
$0.51$0.47
$0.43$0.38 $0.36 $0.37 $0.38 $0.37 $0.39 $0.40
$0.43
$1.01 $1.01
$0.88
$0.80 $0.79 $0.78 $0.78 $0.76 $0.77$0.81 $0.83
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
RENT $/SF/MONTH
AVG.
$/S
F
Source: Colliers International, CoStar
Avg. $ Paid/Bldg. SF Warehouse Rents Flex Rents
Industrial Lease RatesAverage warehouse rates in key submarkets (Q4 2017 compared to Q4 2016)
Sunrise/Hwy 5014.3%
$0.56 per sf
Power Inn65.8%
$0.63 per sf
West Sacramento7.5%
$0.43 per sf
Roseville/Rocklin7.5%
$0.43 per sfNatomas/Northgate14.6%
$0.47 per sf
Rental RatesRetail
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
$2.20
$2.40
$2.60
$2.80
ASK
ING
RENT
AL
RATE
Overall Avg. Community Neighborhood Power Regional Specialty Strip
Source: Colliers International, CoStar
• Flight to quality, experiences
• Updating drives rates
• Size, location, signage
Retail lease rates
Rental RatesMultifamily
$989 $1,016 $1,042 $1,046 $1,062 $1,103 $1,133 $1,143 $1,171 $1,222 $1,273 $1,271 $1,284 $1,348 $1,377 $1,359
4.2%
5.5%
6.9% 7.1% 7.3%
8.6%
9.5% 9.5%
10.4%11.0%
11.3%
10.5%
9.2% 9.2%
7.8%
6.5%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
$900
$1,000
$1,100
$1,200
$1,300
$1,400
YOY
Sam
e-st
ore
rent
gro
wth
Aver
age
Mar
ket R
ent
Average Rent YOY Change in Avg Rent
• As predicted, rent growth decelerated
• New development will push top-of-market rents
• Value-add rehabbers still active but diminishing
Apartment rents
Sales Activity Sales VolumeNumber of Transactions
Annual Sales Volume & Number of TransactionsOffice
1714 15
44
11
18 19
27 25 27 2631
2428 30
42
25
3439
59
37 39
27
40
0
10
20
30
40
50
60
70
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
# O
F TR
ANS
ACT
IONS
SALE
S VO
LUM
E (I
N M
ILLI
ONS
)
Source: Colliers International Research
Rolling 12-Month Total Qtrly Sales Volume #of Transactions
• Class A trades
• Price per SF below replacement cost
• Limited new supply
Office sales activity
Government Properties Income Trust
Annual Sales Volume & Number of TransactionsIndustrial
305.9 197.6 100.5 129.7 195.5 166.2 339.4 224.0 503.7 304.2 856.4
130
7652
73
111
209
120137
195
159
303
3422 14 13
23
53 5029
7554 44
-30
20
70
120
170
220
270
320
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
# OF TRANSACTIONS
IN M
ILLI
ONS
Source: Colliers International, CoStar
Sacramento Sales Activity (Millions) # of Warehouse Transactions # of Flex Transactions
• Limited inventory
• More buyers than buildings
• Investment buyers, especially Bay Area
• Marijuana growers push traditional users to outlying areas
• Land
Industrial sales
Annual Sales Volume & Number of TransactionsRetail
81
118
100
220
69
94107
9381
9488
174
139
121
168
132
117 117
133
154
124
166173
214
0
50
100
150
200
250
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
# O
F TRANSA
CTIONS
SALE
S VO
LUM
E (I
N M
ILLI
ONS
)
Rolling 12 Month $ Total $ Volume # TransactionsSource: Colliers International, CoStar
1431-1441 Howe AveRenaissance PlazaSale Date: Jan 2, 2018Price: $7 millionSize: 10,600 sq ft$/SF: $660.33Buyer: GCG Properties LLCSeller: Howe Renaissance Partners LLC
2450 Watt AveMacy's @ Country ClubSale Date: Jan 3, 2018Price: $5 millionSize: 156,595 sq ft$/SF: $31.93Buyer: EDM RealtySeller: Macy's West Stores
Retail SalesDisparity
Sacramento Sales Exceeding $20MM PriceMultifamily
10
6 6
8
11 11
1312
16
2322
2625 25 25
21
1817
19
21
2
5
8
11
14
17
20
23
26
29
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
1Q2013
2Q2013
3Q2013
4Q2013
1Q2014
2Q2014
3Q2014
4Q2014
1Q2015
2Q2015
3Q2015
4Q2015
1Q2016
2Q2016
3Q2016
4Q2016
1Q2017
2Q2017
3Q2017
4Q2017
Num
ber
of P
rope
rtie
s
Sale
s Vo
lum
e ($
mill
ion)
Sales Volume # Properties
• Limited inventory, competitive bidding
• More amenities, community vibe
• Record per-unit price
Apartment sales NEWRECORD
Median price per unit in Q4 2017:
$106,571
Forecast What do we see in 2018?
2018 Forecast
• Summary from each product type• Major signals of change
• New Supply• Employment and Recruiting• Internet Disruption• Political Climate• Healthcare Spending• Housing Affordability
• Federal Tax Reform
Federal Tax Reform
“The landmark tax reform legislation enacted in December included numerous important victories for commercial real estate, but the signing of the bill by President Trump doesn’t end Congress’ work… Given the size and scope of the law, the Bill’s language will have to be clarified in several areas to function as intended.”
- National Multifamily Housing Council
Questions?
Joshua PalmerAssociateOffice Specialist
Greg ThomasSenior Vice PresidentRetail Specialist
Tommy PonderVice PresidentIndustrial Specialist
Brian NelsonSenior Vice PresidentMultifamily Specialist