Marcus & Millichap, Inc. · NYSE:MMI
Marcus & Millichap — Marcus & Millichap Philadelphia Symposium 2011
32 slides from Marcus & Millichap's conference presentation, May 4, 2011
Slide 1: U.S. and Philadelphia Economic and Real Estate Market Outlook
U.S. and Philadelphia Economic and Real Estate Market Outlook May 4, 2011
Slide 2: 2011 Economic Tug-of-War
2011 Economic Tug-of-War Positives Headwinds Retail Sales excl. auto & gas well above Unemployment Rate at 8.8% compared pre-recession levels to 5% in 2007 U.S. GDP higher than 2006 levels Underemployment Rate at 15.7% The Private Sector added 1.7 million Consumer Confidence remains 30%
Slide 3: U.S. Retail Sales Have Recovered From Dramatic Drop
U.S. Retail Sales Have Recovered From Dramatic Drop – Further Growth Hindered Long-Term Total Retail Sales Monthly Retail Sales Excl. Auto and Gas 20% $280 15% $260 Retail Sales (Bil.) 10% Y-o-Y Change 5% $240 0% $220 -5% Recessions $200 -10% -15% $180 01 03 05 07 09 11* 71 75 79 83 87 91 95 99 03 0
Slide 4: Capital Spending by Corporate America Key to Sustainable Recovery
Capital Spending by Corporate America Key to Sustainable Recovery – Profit Trend Positive Indicator Corporate Profits Fixed Investment in Equipment and Software 30% $2,000 YOY Change in Investment Corporate Profits (Billions) 15% $1,500 0% $1,000 -15% $500 -30% $0 4 4 4 4 4 4 4 4 4 4 4 Q Q Q Q Q Q Q
Slide 5: Companies Still Hesitant to Add Permanent Jobs
Companies Still Hesitant to Add Permanent Jobs Temporary Employment Non-farm Employment 30% 6% Non-farm Employment (Y-o-Y Change) Temporary Employment (Y-o-Y Change) Temporary Non-Farm 2008-2009: -652,800 -8.7M 2010: +310,300 +0.9M 15% Ann.2011*: +201,600 +1.9M 3% 0% 0% -15% -3% -30% -6% 19 1 * 19 2
Slide 6: Employment Growth Is Expected to Gain Momentum in 2011 and 2012
Employment Growth Is Expected to Gain Momentum in 2011 and 2012 – Even If Just Catching up to Long-Term Average Total Job Losses Annual Emp Growth-1st Year Following Annual Emp Growth-2nd Year Following Annual Emp Growth-3rd Year Following 6% Historical Avg. Emp Growth 3% 2.6m Change 2.0m 0.9m 0% -3
Slide 7: U.S. Employment by Sector
U.S. Employment by Sector YOY Change Through March 2011 U.S. Employment Sectors Absolute Change % Change Prof. & Business Services 529,000 3.2% Education & Health Services 420,000 2.2% Trade, Transport & Utilities 238,000 1.0% Manufacturing 196,000 1.7% Leisure & Hospitality 193,000 1.5% Other Servi
Slide 8: Philadelphia Employment by Sector
Philadelphia Employment by Sector YOY Change Through March 2011 Employment Sectors Absolute Change % Change Education & Health Services 12,840 2.3% Leisure & Hospitality 8,498 3.9% Prof. & Business Services 3,870 1.0% Construction 3,523 3.7% Other Services 1,837 1.5% Financial Activities 768 0.4% Tr
Slide 9: Crude Oil Prices vs. 10-Year Treasury Rate
Crude Oil Prices vs. 10-Year Treasury Rate Crude Oil (WTI) 10-Year Treasury Rate $150 15% Crude Oil (price per barrel) $120 12% 10-Year Treasury Rate $90 9% $60 6% Recessions $30 3% $0 0% 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 * 11 * Through April 5 Sources: Marcus & Millichap R
Slide 10: Limited Pricing Power, Weak Housing, Stagnant Wages Keeping Inflation at Bay
Limited Pricing Power, Weak Housing, Stagnant Wages Keeping Short-Term Inflation at Bay, Giving the Fed Time Unemployment Rate Core CPI Capacity Utilization 15% 90% Unemployment Rate and Core CPI 12% 85% Capacity Utilization 9% 80% 6% 75% 3% 70% 0% 65% 71 75 79 83 87 91 95 99 03 07 11* * Unemploymen
Slide 11: Commercial Real Estate Vacancies Stabilizing
Commercial Real Estate Vacancies Stabilizing – Apartment Sector Already in Full Scale Recovery 25% 90's Peak 2001-2008 2009 2010 2011* Average Vacancy Rate 20% 15% 10% 5% 0% Apartment Retail Office Industrial * Forecast Source: Marcus & Millichap Research Services, REIS, CoStar Group, Inc.
Slide 12: U.S. Commercial Real Estate Investment Trends
U.S. Commercial Real Estate Investment Trends Total Transactions Total Dollar Volume Apartment Industrial Office Retail Apartment Industrial Office Retail 60 $600 Total Transactions (000s) Total Dollar Volume (Bil.) 45 $450 30 $300 15 $150 0 $0 02 03 04 05 06 07 08 09 10 02 03 04 05 06 07 08 09 10 U
Slide 13: U.S. Commercial Real Estate Investment Trends
U.S. Commercial Real Estate Investment Trends Total Transactions Total Dollar Volume Apartment Industrial Office Retail Apartment Industrial Office Retail $150 15 Q1-2009: 4,234 $120 Q1-2009: $22.6B Total Dollar Volume ($ Bil.) 12 Total Transactions (000s) Q1-2010: 4,600 Q1-2010: $29.4B Q1-2011: 5,6
Slide 14: U.S. Commercial Property Price Trends
U.S. Commercial Property Price Trends $300 2002-2008 2009 2010 $120 -27% Avg. Price per Unit (000s) $225 Avg. Price per Sq. Ft. $90 -32% -22% $60 $150 $30 $75 -29% $0 $0 Apartment Office Retail Industrial Includes sales $1M+ Sources: Marcus & Millichap Research Services, CoStar Group, Inc.
Slide 15: Change in U.S. Commercial Real Estate Sales Activity
Change in U.S. Commercial Real Estate Sales Activity Change in Number of Transactions Change in Dollar Volume 100% 2002-2008 2009 2010 2002-2008 2009 2010 160% 50% 80% Y-o-Y Change Y-o-Y Change 0% 0% -50% -80% -100% -160% $1M-$9.99M $10M-$19.99M $20M+ $1M-$9.99M $10M-$19.99M $20M+ Includes sales of
Slide 16: Flight to Quality, Re-Pricing of Risk Reflected in Cap Rate Trends
Flight to Quality, Re-Pricing of Risk Reflected in Cap Rate Trends by Market Type Primary Secondary Tertiary 10% Average Cap Rate 9% 8% 7% 6% 2Q 04 3Q 04 4Q 04 1Q 04 2Q 05 3Q 05 4Q 05 1Q 05 2Q 06 3Q 06 4Q 06 1Q 06 2Q 07 3Q 07 4Q 07 1Q 07 2Q 08 3Q 08 4Q 08 1Q 08 2Q 09 3Q 09 4Q 09 1Q 09 2Q 10 3Q 10 4Q
Slide 17: U.S. Public REIT Valuation Indices
U.S. Public REIT Valuation Indices vs. S&P 500 S&P 500 All REITs Peak-Trough Trough-Current Apartment REITs S&P 500: -51% +88% All REITs: -68% +158% 800 Apt. REITs: -68% +223% Index (Dec. 1993 = 100) 600 400 200 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11* * Through March Index: December
Slide 18: Commercial Property Cap Rate Trends
Commercial Property Cap Rate Trends Average Cap Rates vs. 10-Year Treasury Commercial Property Cap Rate 10-Year Treasury Rate 12% Cap Rate Long- Term Avg. 10% 400 bps Average Rate 8% 450 bps 440 bps 440 bps 6% 220 bps 440 bps 4% 10-Yr Treasury Long-Term Avg. 2% 0% * 09 20 0 20 7 20 8 20 3 20 4 05 20
Slide 19: Total Nonfarm Employment Change: Philadelphia vs. United States
Total Nonfarm Employment Change Philadelphia vs. United States Philadelphia United States 6% Philadelphia Job Growth 2008-09: -130,300 2010: +11,400 2011*-12*: +68,900 Year-over-Year Change 3% 0% -3% -6% 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12* * Forecast Sources: Marcus & Mil
Slide 20: Existing Single-Family Home Price Trends
Existing Single-Family Home Price Trends 2002-2008 2009 2010 2002-Peak: 61% 34% Peak-2009: -8% -22% 2009-2010: 3% 0% $250 Median Home Price (000s) $200 $150 $100 $50 $0 Philadelphia United States Sources: Marcus & Millichap Research Services, Moody’s Analytics, Economy.com
Slide 21: Foreclosure Sales as a Percent of Total Home Sales
Foreclosure Sales as a Percent of Total Home Sales Philadelphia United States 28% Percent of Sales 21% 14% 7% 0% 2006 2007 2008 2009 2010 Sources: Marcus & Millichap Research Services, DataQuick
Slide 22: Supply and Demand: Apartment
Supply and Demand Apartment Philadelphia United States Completions Vacancy Completions Vacancy 2,800 8% 160 8% 7% 7% 2,100 120 Vacancy Rate Vacancy Rate Units (000s) 6% 6% Units 1,400 5% 80 5% 4% 4% 700 40 3% 3% 0 2% 0 2% 02 04 06 08 10 12* 02 04 06 08 10 12* * Forecast Sources: Marcus & Millichap R
Slide 23: Vacancy Ranking by Submarket: Apartment
Vacancy Ranking by Submarket Apartment 4Q Top 5 Submarkets 2010 Somerton/Bustleton 2.2% Foxchase/Lawndale 2.5% Upper Bucks County 2.6% Central Chester 3.8% Torresdale/Bensalem 3.9% Philadelphia Metro 5.5% 4Q Bottom 5 Submarkets 2010 North/Frankford/Holmesburg 7.8% Moorestown/Maple Shade/Mt. Laurel 7
Slide 24: Apartment Cap Rate Trends
Apartment Cap Rate Trends 2000-2008 2009 2010 12% Average Cap Rate 9% 6% 3% 0% es C ia a hi /D rn at lp YC ifo St de N al d ila te C Ph ni U Includes sales $1M+ Source: Marcus & Millichap Research Services, CoStar Group, Inc.
Slide 25: Supply and Demand: Retail
Supply and Demand Retail Philadelphia United States Completions Vacancy Completions Vacancy 2.8 12% 240 12% Square Feet (Mil.) 2.1 180 Square Feet (Mil.) Vacancy Rate Vacancy Rate 10% 10% 1.4 120 8% 8% 0.7 60 0.0 6% 0 6% 02 04 06 08 10 12* 02 04 06 08 10 12* * Forecast Sources: Marcus & Millichap Re
Slide 26: Philadelphia Retail Investment Trends
Philadelphia Retail Investment Trends Single-Tenant Multi-Tenant Average Price Cap Rate Average Price Cap Rate $320 10% $240 10% Average Price per Square Foot Average Price per Square Foot $240 9% $180 9% Average Cap Rate Average Cap Rate $160 8% $120 8% $80 7% $60 7% $0 6% $0 6% 02 04 06 08 10 02 0
Slide 27: Vacancy Ranking by Submarket: Retail
Vacancy Ranking by Submarket Retail 4Q Submarkets 2010 Delaware County 4.3% Bucks County 6.2% Burlington County 6.6% Philadelphia County 7.4% Gloucester County 8.9% Chester County 9.8% Montgomery County 10.9% Camden County 12.4% Philadelphia Metro 8.5% Sources: Marcus & Millichap Research Services,
Slide 28: Retail Cap Rate Trends
Retail Cap Rate Trends 2000-2008 2009 2010 10% 8% Average Cap Rate 6% 4% 2% 0% es C ia a hi /D rn at lp YC ifo St de N al d ila te C Ph ni U Includes sales $1M+ Source: Marcus & Millichap Research Services, CoStar Group, Inc.
Slide 29: Supply and Demand: Office
Supply and Demand Office Philadelphia United States Completions Vacancy Completions Vacancy 2.4 18% 100 18% Square Feet (Mil.) 1.8 16% 75 16% Square Feet (Mil.) Vacancy Rate Vacancy Rate 1.2 14% 50 14% 0.6 12% 25 12% 0.0 10% 0 10% 02 04 06 08 10 12* 02 04 06 08 10 12* * Forecast Sources: Marcus & Mi
Slide 30: Vacancy Ranking by Submarket: Office
Vacancy Ranking by Submarket Office 4Q Top 5 Submarkets 2010 West Philadelphia 7.8% Center City 11.3% North Philadelphia 11.3% Delaware County 11.5% Exton/Malvern/North Chester 13.4% Philadelphia Metro 15.2% 4Q Bottom 5 Submarkets 2010 Camden/Gloucester 19.3% Blue Bell/Plymouth Meeting 20.9% Bucks C
Slide 31: Office Cap Rate Trends
Office Cap Rate Trends 2000-2008 2009 2010 10% 8% Average Cap Rate 6% 4% 2% 0% es C ia a hi /D rn at lp YC ifo St de N al d ila te C Ph ni U Includes sales $1M+ Source: Marcus & Millichap Research Services, CoStar Group, Inc.
Slide 32: U.S. and Philadelphia Economic and Real Estate Market Outlook
U.S. and Philadelphia Economic and Real Estate Market Outlook May 4, 2011
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