Download presentation
Presentation is loading. Please wait.
Published byGarry Blankenship Modified over 9 years ago
1
Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric Advisors Session IV | Downtown vs. Suburban Investing Presented by: Gleb Nechayev, Senior Economist Umair Shams, Economist William Wheaton, Senior Consultant
2
Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric Advisors Urban Core vs. Encompassing MSA Markets: Differences in Pricing versus Performance
3
Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric Advisors Re-Defining America’s Downtowns: From Central Business District to Central Urban Core
4
CBRE | Page 4 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Re-Defining Downtowns: Motivation Our ultimate goal is to understand property performance within metropolitan markets: Are there any advantages to most central locations? Are patterns of urban economic activity changing spatially? The challenge is in defining the “central location”: 1.Definitions based on political boundaries are too broad and encompass suburban areas 2.CBD or “downtown” definitions are too narrow in their focus on office business districts. Hence, they fail to capture variations in demographic and employment trends. As a result, we have embarked on an effort to re-define “downtowns” with a new definition that is broader than CBD, but narrower than “Central City”
5
CBRE | Page 5 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Re-Defining Downtowns: Motivation We call such areas the “Central Urban Core” (CUC) of a region, where CUC must meet several objectives: 1.It covers the major employment center within the central city, generally comprising financial and service firms 2.It expands the area to include major shopping venues and cultural attractions (museums, theaters, and sports complexes) 3.It then expands that area to encompass contiguous denser residential neighborhoods whose residents generally work at the employment central and patronize the retail and cultural amenities 4.Based on zip code areas to make it usable for investors We utilize a GIS-based methodology (Google Earth), which layers several sources of data on the map and then make our selections
6
CBRE | Page 6 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Re-Defining Downtowns: Motivation The resulting definition has many advantages: CUC reflects the center of city urban economic activity A definition, while still tied to city center, allows to compare performance across property sectors (e.g. comparing performance of apartments vs. office) A definition that is data-driven to the largest extent possible Not tied to a proprietary data source Utilizes transparent methodology (no “black boxes”)
7
CBRE | Page 7 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Re-Defining Downtowns: Method Use Steps 1-4 plus local market knowledge to identify final zip codes and quality control Spatial density distribution 2010 (Census) Spatial income distribution 2010 (Census) Spatial population change dynamics: 2000 – 2010 (Census) Start with current EA CBD definition and perform a centroid test on zip code areas Let’s illustrate this process using San Francisco CBD
8
CBRE | Page 8 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Step 1: San Francisco CBD
9
CBRE | Page 9 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Step 2: Population Change
10
CBRE | Page 10 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Step 3: Income Distribution
11
CBRE | Page 11 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Step 4: Density Distribution
12
CBRE | Page 12 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pre-Final Result: San Francisco CUC
13
CBRE | Page 13 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Step 5: QC and Finalize, San Francisco CUC
14
CBRE | Page 14 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pricing and Growth Since 2000 MetricSan Francisco CUCSan Francisco MSA Average Apartment Cap Rates 2003 -2012 (RCA) 4.8%5.0% Average Office Cap Rates 2003 -2012 (RCA) 6.1%6.4% Average Annual Revenue Growth, 2001-2011: MH 0.8%0.2% Average Annual Revenue Growth, 2001-2012: Office -1.6%-2.2% Average Annual Population Growth (2000-2010) 0.8%0.3% Average Annual Employment Growth (1999-2009) -1.1%-0.5% Sources: RCA, CBRE Econometric Advisors, Census Bureau.
15
CBRE | Page 15 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Key Questions Did urban cores see stronger population and job growth than their metros? Were any differences in those trends reflected in revenue growth variation? Has the relative pricing of CUCs accounted for these differences?
16
CBRE | Page 16 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Outline of the Study Compare growth in population (2000-2010), employment (1999-2009) and revenue (2001-2011) in CUCs relative to their markets Compare cap rates (2003-2012 average) in CUCs and their encompassing markets Compare differences in cap rates between CUCs and their markets with the differences in revenue, population, and employment growth between CUCs and their markets)
17
CBRE | Page 17 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Population Growth 2000-2010 Average Population Growth Sources: Census Bureau, CBRE Econometric Advisors. Miami San Diego Raleigh Atlanta Charlotte Austin Phoenix Detroit Memphis San Antonio Jacksonville
18
CBRE | Page 18 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Employment Growth 1999-2009 Average Employment Growth Sources: Census Bureau, CBRE Econometric Advisors. Washington DC
19
Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric Advisors Office
20
CBRE | Page 20 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pricing Differences Over Time: Office Sources: RCA, CBRE Econometric Advisors. 150 bps gap
21
CBRE | Page 21 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pricing Differences Across Office Markets 2003-2012 average cap rates Sources: RCA, CBRE Econometric Advisors.
22
CBRE | Page 22 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Office Revenue Growth Over Time Source: CBRE Econometric Advisors.
23
CBRE | Page 23 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Office Revenue Growth Across Markets 2001-2011 Average Revenue Growth (Gross Asking Rents) Sources: CBRE Econometric Advisors.
24
CBRE | Page 24 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Cap Rate Spread vs. Job Growth Spread Sources: RCA, CBRE Econometric Advisors.
25
CBRE | Page 25 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Cap Rate Spread vs. Revenue Growth Spread Sources: RCA, CBRE Econometric Advisors.
26
CBRE | Page 26 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Sources: NCREIF, CBRE Econometric Advisors. 2007-2012 Office Returns and Revenue Growth: CUC vs. Market Spreads
27
Global Research and Consulting Econometric Advisors CBRE Econometric Advisors Client Conference 2012 October 2, 2012 Global Research and Consulting Econometric Advisors Multi-Housing
28
CBRE | Page 28 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pricing Differences Over Time Sources: RCA, CBRE Econometric Advisors. 10-15% gap
29
CBRE | Page 29 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Pricing Differences Across Markets 2003-2012 Average Cap Rates Sources: RCA, CBRE Econometric Advisors.
30
CBRE | Page 30 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Revenue Growth Over Time Source: CBRE Econometric Advisors.
31
CBRE | Page 31 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Revenue Growth Across Markets 2001-2011 average revenue growth, % Source: CBRE Econometric Advisors. Oklahoma City Norfolk Sacramento Cincinnati El Paso Baltimore Miami San Diego Newark LA Fort Lauderdale St. Louis Charlotte Oakland San Jose Atlanta Salt Lake Seattle Indianapolis Riverside Denver Memphis Mean
32
CBRE | Page 32 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Sources: RCA, Census Bureau, CBRE Econometric Advisors. Cap Rate Spread vs. Population Growth Spread Miami San Antonio San Diego Orlando Nashville Austin Pittsburgh Los Angeles Sacramento Mean Boston Philadelphia
33
CBRE | Page 33 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Cap Rate Spread vs. Revenue Growth Spread Sources: RCA, CBRE Econometric Advisors.
34
CBRE | Page 34 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Sources: NCREIF, CBRE Econometric Advisors. 2007-2012 MH Revenue Growth & Returns: CUC vs. Market Spreads Difference in revenue growth (CUC-Market) Difference in total return (CUC-Market)
35
CBRE | Page 35 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 What Will Drive Future CUC Returns? Sources: CBRE Research, CBRE Econometric Advisors.
36
CBRE | Page 36 Global Research and Consulting ● Econometric Advisors CBRE Econometric Advisors Client Conference 2012 Conclusions Directly comparing CUCs across MSAs can just reflect the impact of MSA differences. Need to see how relative pricing (CUC-MSA) compares to relative performance Cap rate differences between CUCs and their markets over the past decade can’t be explained by the differences between CUCs and their MSAs in: employment, population, or revenue growth. Investors seem to be paying a premium for CUC assets largely on the expectation of a further widening of the gap in cap rates relative to the metros; how long can this last?
Similar presentations
© 2025 SlidePlayer.com. Inc.
All rights reserved.