1. Economic and Commercial Real Estate Outlook By Lawrence Yun, Ph.D. Chief Economist National Association of REALTORS ® May 14, 2015 Washington, D.C.

2. What’s the Market Like?

3. Commercial Investment Sales of Large Properties (Properties valued at $2.5 million and over)

4. Federal Reserve Commercial Property Price Index

5. Green Street Price Index … 15% above past peak

6. REALTOR ® Deal Size (Not $2.5 million Properties)

7. Sources of Financing for Deals

8. Housing Starts Recovering … Too Slowly Thousand units

9. Time to Sell a New Spec Home (in months)

10. Dodd-Frank? Big homebuilders in the gameBig homebuilders in the game Small homebuilders not really in the gameSmall homebuilders not really in the game Big commercial deals happeningBig commercial deals happening Small commercial deals slowly happeningSmall commercial deals slowly happening

11. Stock Market S&P 500 Index

12. Corporate Profits Sky High $ billion

13. How’s the Economy?

14. GDP Quarterly Activity

15. Annual GDP … Below 3% for 10 straight years

16. Sluggish Growth + Gap after Recession ($1.7 trillion gap … $5,000 per person) 3% Growth Line 2.2% Growth Line

17. Jobs (8 million lost … 12 million gained) In thousands

18. Fresh Unemployment Insurance Claims In thousands

19. Unemployment Rate Falling

20. But Employment Rate Not Rising

21. Part-time Workers In thousands

22. Wage Growth (% change from one year ago)

23. Slow Productivity Growth … Scale Back Hiring Plans

24. Top and Bottom States for Jobs The Best% Gain in 12 months Utah4.0% Florida3.8% Oregon3.4% Washington3.4% California3.2% Georgia3.2% North Dakota3.2% Nevada3.0% Idaho2.9% The Worst% Gain in 12 months West Virginia-0.7% Mississippi0.5% Maine0.5% Montana0.6% Alaska0.6%

25. Consumer Spending Impact

26. Oil Price

27. Supply and Demand: Oil in U.S. 19 21 5 9

28. Household Net Worth at All-Time High

29. Manageable Consumer Debt $ trillion

30. Retail Sales (excluding autos and gasoline) % change from one year ago

31. E-Commerce Retail Sales % change from one year ago

32. Jobs in Retail and Warehousing % change from one year ago

33. Strong Dollar Impact

34. U.S. Dollar – The Most Trusted

35. Imports and Exports $ billions

36. Who is Stalking the Dollar? (U.S. weakening against China)

37. Trade With China (mostly deficit)

38. Jobs Impact on Office and Apartments

39. Jobs in Professional Business Service thousands

40. Household Growth Ready to Pop?

41. Rental Vacancy Rate (Census Measurement)

42. Rents Rising at 7-year high

43. Affordability Index to Buy a Home (based on income, home price, and mortgage rate)

44. Multifamily Starts Thousand units

45. Monetary Policy and Forecast

46. Monetary Policy by Federal Reserve (zero rate policy … 7 th and final year) %

47. 10-year Treasury Rates

48. No CPI Inflation – Yet

49. Monetary Policy Quantitative Easing … FinishedQuantitative Easing … Finished Fed Funds Rate hike … September 2015Fed Funds Rate hike … September 2015 10-year Treasury reaching10-year Treasury reaching –2.5% by end of 2015 –3.5% by end of 2016

50. Cap Rates over the next 2 years Cap rates could hold steady despite rising interest rates …Cap rates could hold steady despite rising interest rates … Bigger than normal gap between cap rates and interest rates (narrow the gap first)Bigger than normal gap between cap rates and interest rates (narrow the gap first) Increased occupancy and falling vacancy (new supply lacking)Increased occupancy and falling vacancy (new supply lacking) Rising rents … can offset rising rates to support property valuesRising rents … can offset rising rates to support property values

51. Value of Non-Residential Construction ($ million)

52. Economic Forecast 201320142015 Forecast 2016 Forecast GDP Growth2.2%2.6%2.3%3.0% Job Growth+2.3 million+3.0 million+2.4 million+2.7 million CPI Inflation1.5%1.6%0.3%3.2% Consumer Confidence 738799101 10-year Treasury2.5%2.6%2.2%3.3%

53. OFFICE 201420152016 Vacancy Rate 16.2%15.8%15.6% Net Absorption ('000 sq. ft.) 36,19250,67857,782 Completions ('000 sq. ft.) 26,45041,79944,862 Rent Growth 2.6%3.2%3.6% INDUSTRIAL 201420152016 Vacancy Rate 8.9%8.5%8.1% Net Absorption ('000 sq. ft.) 107,580104,948105,044 Completions ('000 sq. ft.) 83,42468,75561,720 Inventory ('000,000 sq. ft.) 8,4688,5378,598 Rent Growth 2.4%2.8%2.9% RETAIL 201420152016 Vacancy Rate 9.8%9.7%9.4% Net Absorption ('000 sq. ft.) 11,21419,31424,313 Completions ('000 sq. ft.) 7,27512,19616,342 Rent Growth 2.0%2.4%3.0% MULTI-FAMILY 201420152016 Vacancy Rate 4.0% 4.2% Net Absorption (Units) 223,421170,065140,128 Completions (Units) 191,481146,461122,381 Rent Growth 4.0%3.9%3.5% Sources: National Association of REALTORS® / Reis, Inc. Commercial Real Estate Forecast