BMI Real Estate Report 2016

2016
www.bmiresearch.com
UNITED STATES
REAL ESTATE REPORT
INCLUDES 5-YEAR FORECASTS TO 2019
Published by:BMI Research

United States Real Estate Report 2016
INCLUDES 5-YEAR FORECASTS TO 2019
Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: October 2015
ISSN: 2045-1474
BMI Research © 2015 Business Monitor International Ltd

Senator House All rights reserved.
85 Queen Victoria Street
London All information contained in this publication is
EC4V 4AB copyrighted in the name of Business Monitor
United Kingdom International Ltd, and as such no part of this
Tel: +44 (0) 20 7248 0468 publication may be reproduced, repackaged,
Fax: +44 (0) 20 7248 0467 redistributed, resold in whole or in any part, or used
Email: subs@bmiresearch.com in any form or by any means graphic, electronic or
Web: http://www.bmiresearch.com mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.
CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Political ................................................................................................................................................. 11
Economic ............................................................................................................................................... 12
Operational Risk ..................................................................................................................................... 13
Industry Forecast .............................................................................................................. 14

Office Real Estate Industry Forecast ........................................................................................................... 14
Table: Office Rental Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Office Yields (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Retail Real Estate Industry Forecast ........................................................................................................... 20
Table: Retail rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Table: Retail Yields (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Industrial Real Estate Industry Forecast ...................................................................................................... 26
Table: Industrial Rental Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Table: Industrial Yields (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Residential And Non-Residential Building - Outlook And Overview ................................................................... 32
Table: Residential and Non-Residential Building Industry Data (United States 2013-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Table: Residential and Non-Residential Building Industry Data (United States 2019-2024) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Table: Construction And Social Infrastructure Key Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Macroeconomic Forecasts ............................................................................................... 39

Economic Analysis ................................................................................................................................... 39
Table: US - Key Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Table: US - Private Consumption Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table: US - Private Investment Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Table: US - Government Consumption And Investment Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Table: US - Net Exports Forecasts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Industry Risk/Reward Ratings ......................................................................................... 45

Table: Developed Countries Risk Reward Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Market Overview ............................................................................................................... 47
Competitive Landscape .................................................................................................... 49

Property Developers ............................................................................................................................... 49
Property Managers ................................................................................................................................ 50
Demographic Forecast ..................................................................................................... 52

Table: Population Headline Indicators (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table: Key Population Ratios (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Table: Urban/Rural Population & Life Expectancy (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Table: Population By Age Group (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
© Business Monitor International Ltd Page 4

Table: Population By Age Group % (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Methodology ...................................................................................................................... 57
Industry Forecast Methodology ................................................................................................................ 57
Sources ................................................................................................................................................ 58
Risk/Reward Index Methodology ............................................................................................................... 59
Table: Real Estate Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Table: Weighting Of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

BMI Industry View

BMI View: A budding business environment, low inflationary policy and loose borrowing conditions
contribute to a positive outlook on US commercial real estate. Recent financial troubles in China, resulting
in a stock market sell-off, influenced uneasy consumer confidence and stagnant job creation over the last
quarters of 2015, which look to cause slight headwinds to the sector. Although overall, good financial
availability and growing demand should buoyant rental rates in the long term.
The US economy currently sits in good health and by many measures looks in the best shape since the great
recession, this is primarily supported by lower oil prices stable labour market and growing business
sentiment. Although, recent devaluation in the Chinese stock market, resulting in a significant slowdown in
growth for the Asian economy, and appreciation in the dollar will cause slight headwinds for the broader
US nation, and subsequently influence the performance of commercial real estate. However, the good
underlying fundamentals look to buffer the nation from external pressures, and we forecast real GDP to be
subdued at 2.5% over 2015, while 2016 will see this rate rise marginally to 2.6% owing to further foreign
interest into securing 'safe haven' investments in the wake of global economic troubles.
The recent appreciation in the greenback weighs heavy on export-orientated services. There are raised
concerns among industry players regarding manufacturing production due to weaker exports, although this
should result in good demand for warehouse space as companies look for larger storage facilities. The
current limited supply and growing demand for contemporary industrial units, such as logistics parks, will
keep the sub-sector growth robust and possibly see marginal rental cost rise by early 2016, despite a slight
slowdown in economic growth that has been witnessed over 2015.
Looking towards the office industry, we opine that this sub-sector will prove to remain an appealing option
for potential investors over the next few years. We can accredit this good outlook to the growing demand
from domestic and international corporates to operate within premium grade office units, which at the
moment is in fairly limited supply across the cities we cover. There are projects in the pipeline, with some
expecting to reach the market over 2016, especially in prime locations within New York City and Los
Angeles on the back of a healthy job market and lower unemployment. Conclusively, the current
momentum in demand should result in upward rental trend.
Concerning retail establishments, consumers in the US are currently more cautious with spending on goods,
as a result of the uncertain economic period brought on by headwinds from the Chinese economy
slowdown. This has seen retail sales stagnate, with consumers focusing more on 'eating out' and substantial

purchases including 'cars', which will see demand dwindle for high-street retail units and therefore subdue
rental rates. We expect this to be a common theme within Chicago, Los Angeles and Philadelphia, while
Dallas will see contracting rentals owing to take up of class B and C properties, instead of class A; New
York City however will witness upward trend as a result for growing demand for premium grade premises
in prime locations.
Regarding the commercial real estate industry as a whole, it is important to consider the vulnerabilities from
within the economy, such as dwindling consumer confidence and a rising higher-yield bonds market
indicative of struggling financial periods, as well as external pressures from potentially further contractions
in the global economy. Although, the underlying strength in the US economy should absorb the majority of
potential issues, that would look to impact the commercial real estate market over the coming years.

SWOT
United States Real Estate SWOT
Strengths ■
Positive outlook on US economic recovery holds optimism for the broader
commercial real estate market.
■
Household spending and thus retail sales are recovering and driving up rents of retail
space.
■
Growing office real estate market due to strong US job creation market
■
Foreign companies view the US as a 'safe haven' investment and should see growing
revenues into the commercial real estate sector.
Weaknesses ■
Uncertainty from H115 stock market sell-off is resulting dwindling consumer
confidence, retail sales for non-essentials could take a dip.
■
Stronger greenback weighs in on exports, industrial real estate could witness rising
vacancies as corporates look to reduce costs.
■
Online retail and e-commerce is absorbing large proportions of sales, good for
industrial distribution but affects high-street retail units.
Opportunities ■
Growing real wages reveal a more affluent population, should result in higher
demand for luxury and non-essential retail outlets.
■
Ease on borrowing for commercial real estate companies adds as an incentive for
development or establishing operations.
■
Healthy job creation and low unemployment figures look to bring further demand into
the office sector, as corporates are more likely to inaugurate.
Threats ■
Strong dollar will deter export-orientated companies from operating within the US.
■
Uncertainty among consumers could gain tract if any more headwinds affect the
broader economic climate, resulting in less demand for retail units.

United States Real Estate SWOT - Continued
■
Looming interest rates rise pose a risk to the possible integration of new commercial
real estate, as companies would look to avoid higher costs.

Political
Political SWOT Analysis
Strengths ■
The US is an undisputed superpower and therefore occupies centre stage in most
international diplomacy.
■
A long-standing democracy with vigorous and open political debate, the US
continues to attract large numbers of immigrants committed to citizenship and self-
advancement.
Weaknesses ■
Political debate between Republicans and Democrats has historically been polarised
and divisive.
■
As today's superpower, the US attracts the enmity of a wide range of political groups
opposed to the current international status quo.
Opportunities ■
The widespread dissatisfaction of the voting public with the performance of Congress
may encourage both major parties to experiment with more consensual approaches
to certain policy areas.
Threats ■
The perception of inflexibility and bias in US foreign policy, particularly in the Middle
East, may stiffen opposition and at worst provide fertile recruiting ground for radical
anti-US groups such as al-Qaeda. Partly as a reaction to foreign policy difficulties, US
public opinion may return to an isolationist and protectionist mode.
■
Compromise is becoming increasingly difficult in domestic politics, and gridlock on
spending issues could prompt another government shutdown, or even drive the US to
a default on its debt.

Economic
Economic SWOT Analysis
Strengths ■
The world's largest economy, with an impressive record of entrepreneurial dynamism
and innovation, and high research and development spending.
■
Despite some threats to its reserve status, the US dollar is treated as an international
currency, meaning investors around the world are prepared to hold US debt. Because
of this, the US is uniquely able to run large fiscal and current account deficits.
Weaknesses ■
Despite the dollar's role as an international currency, excessive US debt levels are a
risk. A decision by the Japanese and Chinese central banks to reduce their larger
dollar holdings could cause sharp falls in the value of the US currency.
■
A low savings rate by US households on a historic basis, although this has begun to
reverse.
Opportunities ■
Further liberalisation of international trade through the WTO, coupled with a more
competitive dollar exchange rate, could boost export growth and help address the
US's external imbalances.
Threats ■
Intensified competition from China and other low-wage economies could accelerate
the loss of manufacturing jobs.
■
Long-term budget imbalances, if left unaddressed, could eventually require an abrupt
cut back in spending that would weigh on economic growth.

Operational Risk
SWOT Analysis
Strengths ■
The US boasts the world's largest single internal consumer market, which presents
tremendous opportunities for businesses of all types and sizes.
■
Few countries offer a better environment for entrepreneurial activity, with a highly
flexible labour force, a legal system that is friendly to business, and significant centres
of technological innovation (such as California's Silicon Valley).
Weaknesses ■
Much of the physical infrastructure is in need of improvement, with congested roads
and airways.
■
US corporate tax is, on average, among the highest in the OECD (though effective
taxes are much lower).
Opportunities ■
The US has often been the origin of new drivers of economic growth booms, and
sectors ranging from biotechnology to alternative energy are being discussed as
possible catalysts.
Threats ■
The US's chronic fiscal deficits may force the federal government to find ways to raise
effective corporate tax rates, following a multi-decade downtrend.

Industry Forecast
Office Real Estate Industry Forecast
BMI View: Healthy demand for office property will be a common theme across each of the cities we cover
in our forecast. Conversion of residential space, expansion projects and integration of new technology and
creative industry tenants represent the majority of incoming demand; and we anticipate rentals to raise in
particular locations such as Los Angeles, Philadelphia and Chicago due to limited supply.
Recent turmoil in commodity prices, brought on by the precipitous drop in oil barrel value, influenced the
slight 0.2% contraction in GDP witnessed Q115, a stark contrast to the 2.2% increase witnessed in Q414.
Regardless, the lower oil prices will actually aid the development of corporate confidence and contribute to
the sustained level of inflation which is expected to maintain under the desired 2% rate from the Fed
Reserve till at least mid-2016. These beneficial aspects will support growing job opportunities, as
companies are more likely to expand given the improved financial stability in the market. Currently,
unemployment sits at a seven-year low and the demand for office property is rising as a result of a positive
economic environment. We maintain our view that real GDP growth will hover around the mid-2% mark,
reaching 2.6% by 2019, representing a gradual recovery in the economy but also indicative of the resilience
to the global slowdown and should therefore bode well for the broader office commercial real estate sector.

Positive Outlook On US Economic Recovery

USA GDP In USDbn & % Growth y-o-y (2012-2019)
25,000 2.7
2.6
20,000
2.5
15,000
2.4
10,000
2.3
5,000
2.2
0 2.1
2012 2013 2014 2015 2016f 2017f 2018f 2019f
Nominal GDP, USDbn (LHS) Real GDP growth, % y-o-y (RHS)
f = BMI forecast. Source: BEA/BMI
There is a budding services sector in the US brought on by continued advancements in technology and
innovative establishments, which has seen advancements within the subsequent quaternary sector and is fast
becoming a major industry within the US economy. Tertiary services represent the predominant contributor
towards GDP, with 75% of the US population involved within this industry on the back of sustainable
financial services. We expect the US tertiary sector GVA output to gradually rise over the next five years
amid the positive business environment, with a growth of 4.6% forecasted for 2016, and augment at a
similar high level over the next five years. The increase of tertiary services will result in stable demand for
office space and lead to an influx of construction. In New York, for example, there are many office projects
in the development pipeline that will reach the market over the next two years.

Rising Demand For Premium Office Space

Tertiary Services GVA Output In USDbn & % Growth (2012-2019)
20,000 5
15,000 4.5
10,000 4
5,000 3.5
0 3
2012 2013 2014 2015 2016f 2017f 2018f 2019f
Tertiary sector nominal GVA, USDbn (LHS)
Tertiary sector USD nominal growth, % y-o-y (RHS)
For New York office space we expect the rental rates per square metre in 2015 to range between USD 26.6
and USD 151, with an average rate of USD 88.8. This almost equals the 2014 level (average rent of USD
88.9), which demonstrates that demand has remained stable. The relatively high NY rents compared to the
other key location rents can be attributed to high demand and unmatched supply. The steady rent level
reflects steady demand and supply levels in New York. Especially premium grade office properties are in
the project pipeline. Current projects include Manhattan West Project which will create two office towers
(besides retail facilities, rooftop gardens, restaurants and cafes and residential area) or the new World Trade
Center. Given the general good conditions for office space growth and steady demand in New York City,
we expect rental rates to increase slightly next year and beyond. A high increase will be capped by the high
volume of new projects. New York City office property also has relatively long lease terms, which
demonstrates further that there is steady demand.
In Los Angeles we forecast the 2015 office rental rates per square meter to range between USD 15.00 and
USD 43.00 with an average rate of USD 29.00. This presents a slight increase in rent compared to 2014
where the average LA office rent was USD 28.50. This development can be explained with higher demand.

Especially premium grade office space is in demand. This is also underpinned by the rise of the maximum
price of office space, from USD 42.70 in 2014 to USD 43.00 in 2015. A sample project is the construction
of the ICON Office Building, which began in June 2015. The developed buildings will comprise a 14-storey
office tower covering 30,007 square meters, an adjacent creative office tower of six storeys with an area of
8,361 square metres and parking for 1,600 vehicles. We expect the trend of high demand of office space in
LA to continue next year and beyond and thus anticipate that office rents will rise slightly accordingly.
Table: Office Rental Rates
2010 2011 2012 2013 2014 2015

Min Max Min Max Min Max Min Max Min Max Min Max
New York USD per
square metre 28.0 60.0 20.7 86.0 24.0 133.8 27.5 147.5 26.5 151.3 26.6 151.0
Average rent per
square metre (USD) 44.00 53.35 78.90 87.50 88.90 88.80
% growth y-o-y - 21.25 47.89 10.90 1.60 -0.11
Los Angeles USD per

square metre 29.0 114.0 18.9 85.4 14.3 51.3 14.5 43.0 15.0 42.7 15.0 43.0
Average rent per
square metre (USD) 71.75 52.15 32.80 28.75 28.85 29.00
% growth y-o-y - -27.32 -37.10 -12.35 0.35 0.52
Chicago USD per

square metre 43.9 61.8 25.0 51.7 14.8 39.0 15.0 36.0 15.3 36.4 15.58 36.36
Average rent per
square metre (USD) 52.85 38.35 26.90 25.50 25.85 25.97
% growth y-o-y - -27.44 -29.86 -5.20 1.37 0.45
Dallas USD per square

metre 11.30 12.20 9.50 21.80 12.60 35.00 13.00 37.00 13.40 37.60 13.40 38.00
Average rent per
square metre (USD) 11.75 15.65 23.80 25.00 25.50 25.70
% growth y-o-y - 33.19 52.08 5.04 2.00 0.78
Philadelphia USD per

square metre 19.0 27.0 12.6 27.0 13.8 36.3 15.0 35.0 15.0 33.2 15.0 32.5
Average rent per
square metre (USD) 23.00 19.80 25.05 25.00 24.10 23.75

Office Rental Rates - Continued
2010 2011 2012 2013 2014 2015

% growth y-o-y - -13.91 26.52 -0.20 -3.60 -1.45
Source: BMI
In Chicago the 2015 rental rates per square metre for office space are expected to range between USD 15.58
and USD 36.36 with an average rate of USD 25.97. This presents a similar level in comparison with the
2014 average rent of USD 25.85. The steady rental cost is owing to a stable vacancy rate coupled with
nominal demand. For next year and beyond we expect rents to increase slightly due to increased leasing
activity in suburban Chicago.
In Dallas, we forecast the 2015 rental rates per square meter to range between USD 13.40 and USD 38.00,
with an average rate of USD 25.70. This is a marginal increase compared to the 2014 average rent of USD
25.50. The increased maximum office rent in Dallas of USD 38.00 compared to USD 37.60 in 2014
demonstrates that there is higher demand for premium office space. An example project is the McKinney &
Olive mixed-use project which will create a mixed-use office/retail/residential building. For the coming
years we expect higher demand and thus rising rents due to the good local job market and a higher
employment level.
In Philadelphia, we expect the 2015 rental rates per square meter to range between USD 15.00 and USD
32.50, with an average rate of USD 23.75. This reveals a decrease in comparison with 2014 where the
average rent was USD 24.10. This development can be attributed to good supply and lower demand. One
important project is the Comcast Innovation and Technology Center which will contain 59 storeys and is
going to be eighth highest building of the United States. Nevertheless, we also expect in Philadelphia the
demand for office space to increase and catch up with supply.

Table: Office Yields (%)
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
New York Net 6-7 5-10 4.5-8 4-6 4-6 4-6 4-6 4-6 4-6 4-6
Yield %
New York Yield 2.7-3.7 1.7-6.7 0.7-42218 0.7-2.7 0.7-2.7 0.7-2.7 0-2 -1-1 -1.9-0.1 -2.3--0.3
Spread %
Los Angeles 8 5-10 8 7-8 7-8 6-8 6-8 6-8 6-8 6-8
Net Yield %
Lost Angeles 4,7 1.7-6.7 4,7 3.7-4.7 3.7-4.7 2.7-4.7 2-4 1-3 0.1-2.1 -0.3-1.7
Yield Spread %
Chicago Net 8.9 5.5-7.5 8-10.5 8-12 8-12 8-12 8-12 8-12 8-12 8-12
Yield %
Chicago Yield 5,6 2.2-4.2 4.7-7.2 4.7-8.7 4.7-8.7 4.7-8.7 4-8 3-7 2.1-6.1 1.7-5.7
Spread %
Dallas Net Yield 6-7.5 7-8 7 7 7-7.5 7-8 7 7 7 7
%
Dallas Yield 2.7-4.2 3.7-4.7 3,7 3,7 3.7-4.2 3.7-4.7 3 2 1,1 0,7
Spread %
Philadelphia 8-10 8-10 8-9 8-9 8-9 8-9 8-9 8-9 8-9 8-9
Net Yield %
Philadelphia 4.7-6.7 4.7-6.7 4.7-5.7 4.7-5.7 4.7-5.7 4.7-5.7 4-5 3-4 2.1-3.1 1.7-2.7
Yield Spread %
United States 3.3 3.3 3.3 3.3 3.3 3.3 4.0 5.0 5.9 6.3
Interest Rate
(%)
f = BMI forecast. Source: BMI
Chicago offers the highest net yields out of the five cities covered, with potential yields of 8-12%,
while New York City offers the lowest, which range from just 4% to 6%. In all key locations there are no
rent-free months for office space, so vacancy rates can be left out from the expenses bill. The interest rate in
the US will remain on a level of 3.3% over 2015 and then, in our view, increase in the coming years, with
an interest rate of 4.0% in 2016, reaching 6.3% by 2019. So the yield spread should also be considered.
In 2015, New York`s yield spread will be between 0.7% and 2.7%. This will decline in 2016 to a yield
spread rate of 0% to 2%, and is likely to continue decreasing in the following years. In spite of its high
rental rates, New York will offer the lowest potential yields by 2019. Meanwhile, Chicago's net yield is the
highest with a rate of 4.7% to 8.7%. Yet it is also likely to lower in the coming years with an expected net
yield of 1.7% to 5.7% in 2019. Also in Philadelphia the 2015 net yield is relatively high with a value range
of 4.7% to 5.7%, likely to decrease over the following years with an expected rate of 1.7% to 2.7% in 2019.

We can conclude that all key locations offer good opportunities for letting out office property as vacancy
rates are non-existent. New York City offers good investment opportunities in terms of its high level of
absolute rent prices, projects in the pipeline and employment level. However, New York´s local population
is growing at a decreasing rate and net yield and yield spread are low in comparison with other key
locations. Also Chicago and Philadelphia offer good investment opportunities. Chicago disposes of the
highest net yields that we expect to remain steady in the coming years. Its population and job market tend to
grow at a moderate level. Philadelphia also boasts of high net yields and yield spread. Its population is
bound to increase and the outlook for the non-manufacturing job market is positive. Dallas can be viewed as
location with the best potential for the office real estate market. It shows the highest rent increase in
absolute terms and also has relatively high net yields and yield spreads. The city has a lot of space to grow
and its economy is prospering due to the US energy boom.
Retail Real Estate Industry Forecast
BMI View: Strong underlying fundamentals reveal good signs of a developing US economy. Lower
unemployment and higher income figures support out forecast growth in household spending, a key driver
for the broader retail real estate market. Stable rental cost is the common theme amongst the cities we
cover, with exceptions to rental rises in New York and lowering trend in Dallas.
Retail real estate is currently in a sweet spot, luxury retailers are benefitting from income gains amongst
high earners, especially in key shopping destinations such as New York City and Los Angeles, whilst high
street units are enjoying rises in consumer spending. Although, it is important to note that the effects from
the recent financial difficulties in China influenced a stock market sell-off H115 in the US, resulting in
uncertainty amongst consumers. This has consequently resulted in confidence feigning in more recent
quarters, although alternative forms of retail such as Online distribution and E-commerce are booming, and
more Americans are utilising this service. This does pose a risk to the longevity of high-street stores,
however the maintaining interest rates and the opine amongst industry players that inflation will not rise till
at least mid-next year gives confidence to many and spending should rise accordingly as a result.
Good foundations in the economy support the retail sub-sector, with unemployment at a seven-year low and
forecasted to sink from 6.2% 2014 to 5.5% 2015, spending figures should rise as a consequence. We
forecast household spending to grow 2.96% over 2015 recording USD7,025bn on the back of growing real
wages and higher employment, this is a rise from USD6,823bn witnessed last year and reveals resilience to
external pressures within this particular market, and therefore constitutes a safe investment for many
corporates. A further 4.33% growth in 2016 will support higher demand, especially among middle-class and

higher earners who are more likely to indulge in non-essential goods purchases, therefore offering potential
for development of premium grade retail space further down the line.
Rising Spending Promotes Greater Demand

Household Spending In USDbn & % growth y-o-y (2012-2019)
10,000 6
7,500
4
5,000
2
2,500
0 0
2012 2013 2014 2015 2016f 2017f 2018f 2019f
Household Spending, USDbn (LHS)
Household spending, USDbn, % y-o-y (RHS)
f = BMI forecast. Source: BMI/National Statistics
The generally positive outlook is underpinned by the economy recovery in the US and the good job growth
coupled with lower unemployment should support rising real wages, as more corporates are willing to raise
incomes due to good financial stability. We are of the assumption that net incomes per capita will gradually
increase over the coming years, with a rise from USD43,082.76 observed in 2015 to USD49,172.53 by
2019, indicative of the growing affluence among the US population and presents opportunity for
development further into the forecast period.

Growing Affluence Represents Opportunity For Development

Net Income Per Capita In USD (2012-2019)
50,000
47,500
45,000
42,500
40,000
37,500
2012 2013 2014 2015 2016f 2017f 2018f 2019f
United States - Net Income, per capita, USD
f = BMI forecast. Source: BMI/National Statistics
The New York retail rental market is witnessing an upward rental trend owing to strong demand and steady
supply. The Manhattan West Project will create premium retail space whereas the Roosevelt Field Mall
Renovation Project rather caters to customers from across the cross-section of society. New York is the
United States` most important economic center and continues to do so. The recent job recovery is based on
the sustainable growth of industries like IT or the tourism industry. The financial industry is not as
important anymore in creating jobs. The local unemployment rate has decreased from 7.2 % in 2014 to
6.2% in 2015. We expect the maximum rate of retail rent to increase slightly in 2015, rising from
USD470.80 per square metre in 2014 to USD472.50 in 2015, which reflects a higher demand for premium
retail space in NYC. The retail rental space price would then span from USD70 to USD472.50. The
expected 2015 average retail rent of USD 271.25 exceeds the 2014 average retail rent by 0.31 %. Given the
positive economic outlook and job market prospects for New York, we expect demand for retail products
and thus retail space rents in 2016 to increase.
The retail property market in Los Angeles is stable due to stable demand and ample supply of retail space.
One example project which has been completed this year is the Sunset and Gordon luxury mixed used

tower, which will entail rental units, office space, retail and restaurant space. For 2015, we forecast the
minimum retail rental rate to be at USD44 and the maximum rate to be at USD272.50. The average retail
rental space is assumed to be USD158.25, which is a minor decrease in comparison with the 2014 average
rental rate of USD159.45. The local population is expected to expand at a slower pace compared to previous
decades. Also job growth is moderate. For 2016 and beyond we expect a negative trend for retail rental
prices as the economic importance of the city is diminishing.
Table: Retail rents
2010 2011 2012 2013 2014 2015
New York USD 65,00 110,00 90,00 279,20 48,80 485,20 70,50 470,00 70,00 470,80 70,00 472,50
per square
metre
Average rent per 87,50 - 184,60 - 267,00 - 270,25 - 270,40 - 271,25 -
square metre
(USD)
% growth y-o-y - - 110,97 - 44,64 - 1,22 - 0,06 - 0,31 -
Los Angeles 31,60 85,50 20,20 264,70 36,50 273,80 45,00 275,00 44,70 274,20 44,00 272,50
USD per square
metre
Average rent per 58,55 - 142,45 - 155,15 - 160,00 - 159,45 - 158,25 -
square metre
(USD)
% growth y-o-y - - 143,30 - 8,92 - 3,13 - -0,34 - -0,75 -
Chicago USD 19,50 30,40 16,20 48,90 11,30 53,80 13,00 55,00 12,50 54,70 12,50 54,00
per square
metre
Average rent per 24,95 - 32,55 - 32,55 - 34,00 - 33,60 - 33,25 -
square metre
(USD)
% growth y-o-y - - 30,46 - 0,00 - 4,45 - -1,18 - -1,04 -
Dallas USD per 17,30 26,20 15,80 103,90 20,00 70,00 21,00 70,00 21,00 69,70 21,00 69,00
square metre
Average rent per 21,75 - 59,85 - 45,00 - 45,50 - 45,35 - 45,00 -
square metre
(USD)
% growth y-o-y - - 175,17 - -24,81 - 1,11 - -0,33 - -0,77 -

Retail rents - Continued
2010 2011 2012 2013 2014 2015
Philadelphia 14,00 17,00 12,40 38,50 19,50 58,80 20,00 63,00 20,00 62,30 20,00 62,00
USD per square
metre
Average rent per 15,50 - 25,45 - 39,15 - 41,50 - 41,15 - 41,00 -
square metre
(USD)
% growth y-o-y - - 64,19 - 53,83 - 6,00 - -0,84 - -0,36 -
Source: BMI
In Chicago the retail real estate market is also stable with a moderate demand and limited supply. For 2015
we assume the rent for retail space to range between USD12.50 and USD54.00. Maximum retail rent has
decreased from 54.70 in 2014 and minimum rent has remained stable. We predict the average rental rate for
retail space to decrease slightly by 1% to a level of USD33.25. An big project is the Lakeshore East Tower
project which will create a mixed-use tower that will also comprise retail space of up to 770,000 square feet,
including a 100,000 square foot Village Market Center. For 2016 and beyond we expect demand and thus
retail rental prices to rise moderately as the Chicago job market is recovering further. Current
unemployment is at 6.5% compared to 7.7% in 2014. Jobs were created in the field of professional and
business services, education and health services and government.
The retail rental market in Dallas is considered stable with the retail space price ranging between USD21
and USD69. Compared to 2014 the maximum retail rent has slightly lowered from USD69.70. This
development can be explained by limited supply of class A retail property. There is a higher occupation of
class B and class C property. The average retail rental rate is expected to decrease on a minor scale by 0.8%
to USD45 compared to USD45.3 in 2014. Dallas´ economy outpaces the national economy in terms of its
unemployment rate, which is at 4.2%, and job growth. Especially the technology sector is in search of
labour. This indicates that that in the future there is demand for nonessential goods which would increase
retail rents in 2016 and beyond.
In Philadelphia the retail rental market is also quite stable, with the price ranging between USD20 and
USD62, compared to USD20 and USD62.30 in 2015. The average rental rate at USD41 has remained the
same compared to 2014 Philadelphia´s job market also shows signs of recovery. For 2016 and beyond we
expect moderate demand and limited supply, which will keep the retail rents stable.

Table: Retail Yields (%)
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
New York 6-7 5-10 4.5-8 4-6 4-6 4-6 4-6 4-6 4-6 4-6
Net Yield %
New York 2.7-3.7 1.7-6.7 1.2-4.7 0.7-2.7 0.7-2.7 0.7-2.7 0-2 -1-1 -1.9-0.1 -2.3--0.3
Yield Spread
%
Los Angeles 9 5-10 8-9 7-9 7-9 6-9 6-9 6-9 6-9 6-9
Net Yield %
Lost Angeles 5,7 1.7-6.7 4.7-5.7 3.7-5.7 3.7-5.7 2.7-5.7 2-5 1-4 0.1-3.1 -0.3-2.7
Yield Spread
%
Chicago Net 8-9 5.5-7.5 8-10.5 8-12 8-12 8-12 8-12 8-12 8-12 8-12
Yield %
Chicago 4.7-5.7 2.2-4.2 4.7-7.2 4.7-8.7 4.7-8.7 4.7-8.7 4-8 3-7 2.1-6.1 1.7-5.7
Yield Spread
%
Dallas Net 6-8 7-8 7 7 7 7 7 7 7 7
Yield %
Dallas Yield 2.7-4.7 3.7-4.7 3,7 3,7 3,7 3,7 3 2 1,1 0,7
Spread %
Philadelphia 8-10 8-10 8-9 8-9 8-9 8-9 8-9 8-9 8-9 8-9
Net Yield %
Philadelphia 4.7-6.7 4.7-6.7 4.7-5.7 4.7-5.7 4.7-5.7 4.7-5.7 4-5 3-4 2.1-3.1 1.7-2.7
Yield Spread
%
United States 3,3 3,3 3,3 3,3 3,3 3,3 4,0 5,0 5,9 6,3
Interest Rate
(%)
New York offers the highest absolute retail rents and also a growing trend for the future. Yet New York
exhibits the highest vacancy rents which range between two and nine months. In the other key locations the
vacancy rates equal 0 which implies a much higher demand. Chicago and Philadelphia offer the highest
retail yields for retail real estate over 2015 ranging between 4.7% and 8.7% and 4.7 and 5.7%, respectively.
However, over the coming years we predict the retail yields to decrease and by 2019 to reach a level of
1.7% and 5.7% for Chicago and 1.7% and 2.7% for Philadelphia. Yet this level compares still relatively
well with the other key locations where the retail yields are not that high at present and are also bound to
decrease over the following years. That is why we consider Chicago and Philadelphia the best places to
invest.

Industrial Real Estate Industry Forecast
BMI View: A stronger greenback and global economic woes have had adverse implications for trade flows,
with Imports and Exports having slightly contracted by 2.62% and 1.44% respectively over 2015 as a
result. Although, imports demand is on the rise due to the higher currency PPP, while reduced exports will
increase the need for warehouse space to compensate for overstock. Additionally, a limited supply of
adequate space will therefore contribute to rental cost upward trend.
Traditionally, a negative trade balance characterizes the US economy with a high proportion focused on
imports rather than exports, even though the US constitutes the second largest manufacturer in the world.
Despite the external headwinds to the industry causing contractions in imports and exports, imports demand
has witnessed large rises in more recent periods owing to the higher PPP of the dollar that has allowed for
more cost-effective options of goods. Consumer imports are a particular aspect that is on the rise, offsetting
the decline in energy imports to record 0.3% real growth in imports over 2015, and we opine that the rise in
demand should see a moderate increase in the need for warehouse units, amid a market that is currently
lacking the required space. Online retail is a booming industry and should also support the need for this
particular space, alongside contemporary distribution centres and creative logistics solutions that are a
growing demand constituent. This should therefore contribute to upward rental rate trend in the next two
years as the inflow of industrial premises lags behind demand.
Regarding trade flows, the strong dollar will continue to weigh in on the industrial market over 2015 with
exports recording a mere 0.34% real growth for the period. Imports have recorded a similar drop in real
growth to 1.69% 2015 from 3.13% witnessed over 2014, a factor accredited to the sluggish global economy
that has reduced sentiment for capital flows to compensate for financial risks. For the coming years we
expect the strong dollar dynamic with its negative impact on exports and beneficial implications on imports
to continue. This will result in higher demand for warehouse space storing manufactured goods, the latter
constituting the largest group of imported goods, in conjunction with the e-commerce and online retail
industries supporting the need for logistics and distribution solutions.

Recovering Trade Flows

Imports & Exports In USDbn (2012-2019)
7,500
5,000
2,500
0
2012 2013 2014 2015 2016f 2017f 2018f 2019f
Imports, USDbn Exports, USDbn
The manufacturing sector has been hit hard by the strength of the dollar, particularly in key industries such
as autos and aircraft. Average growth in output fell from 3.1% in 2014 to 2.0% in 2015. Yet, for the coming
years until 2019 we expect an average output growth rate of 3% per year. This trend should express itself in
moderate growth rates for the rents of industrial warehouse space in key manufacturing hubs.

Manufacturing To Rebound
Manufacturing GVA Output In USDbn & % Growth y-o-y (2012-2019)
3,000 5
4
2,000
1,000
2
0 1
2012 2013 2014 2015 2016f 2017f 2018f 2019f
Manufacturing nominal GVA, USDbn (LHS)
Manufacturing USD nominal GVA growth, % y-o-y (RHS)
The prevailing theme within the industrial real estate sector reveals that absorption of property is exceeding
development completions; this has spurred rental rate hikes and raised competition for industrial space. In
regards to the broader economy, investors are generally seeing robust performances due to a positive macro-
economic environment; higher wages are leading to stronger income growth, which will boost spending and
subsequently increase demand for industrial facilities in the form of distribution and logistics - presently a
popular venture among corporates in New York City. The increase in online and mobile purchasing
volumes represents contemporary frontiers that are also influencing greater demand for relevant distribution
establishments. We hence expect the shift in demand and service paradigms, global economy dynamics and
strong demographic market performances to support continuing growth in the industrial real estate sector.
In New York the level of rents for industrial space has remained relatively stable in 2015 compared to 2014.
The average rent has risen by 0.52% in 2015 from USD14.55 in 2014 to USD14.63 in 2015. In New York
we can witness the execution of many infrastructure projects like the Main Terminal Redevelopment Project
of LaGuardia Airport which indicates an increased demand for the transport of people and goods. At the
East Coast port of New York/New Jersey (NY/NJ), we forecast growth to be 4.1% in 2015, reaching

132.45mn tonnes. For next year we expect NYC's industrial real estate prices to rise, given higher demand
and steady supply.
In Los Angeles we see a similar development of price growth, with the average price for industrial space
reaching USD 8.20, which is 5.81% higher than in 2014. Many infrastructure projects are in the pipeline,
like the Improvement Project at Los Angeles International Airport. Manufacturing takes an important role in
the local economy with aerospace and technology being important industry branches. The high-tech sector
is expanding, which will also increase the demand for warehouse space. Also international trade is a
significant component of the local economy. The twin ports of Los Angeles and Long Beach account for
40% of the US' container transports. Vacancy rates for industrial real estate equal 0 in LA indicating steady
demand. For 2015 and next year we anticipate an upward trend for industrial real estate prices owing to
higher demand and steady supply of premium grade industrial properties.
Table: Industrial Rental Rates
2010 2011 2012 2013 2014 2015
New York 7.00 21.00 6.60 24.00 7.30 21.50 10.00 18.50 10.10 19.00 10.25 19.00
USD per
square metre
Average rent 14.00 - 15.30 - 14.40 - 14.25 - 14.55 - 14.63 -
per square
metre (USD)
% growth y- - - 9.29 - -5.88 - -1.04 - 2.11 - 0.52 -
o-y
Los Angeles 2.90 8.10 4.50 17.30 2.80 12.30 3.50 11.00 3.70 11.80 3.90 12.50
USD per
square metre
Average rent 5.50 - 10.90 - 7.55 - 7.25 - 7.75 - 8.20 -
per square
metre (USD)
% growth y- - - 98.18 - -30.73 - -3.97 - 6.90 - 5.81 -
o-y
Chicago USD 2.20 3.30 4.20 15.00 3.20 12.00 3.50 11,00 3.50 12.10 3.50 12.25
per square
metre
Average rent 2.75 - 9.60 - 7.60 - 7.25 - 7.80 - 7.88 -
per square
metre (USD)
% growth y- - - 249.09 - -20.83 - -4.61 - 7.59 - 0.96 -
o-y

Industrial Rental Rates - Continued
2010 2011 2012 2013 2014 2015
Dallas USD 2.50 4.40 4.50 15.90 2.60 9.20 2.50 8.50 2.40 8.90 2,46 9,00
per square
metre
Average rent 3.45 - 10.20 - 5.90 - 5.50 - 5.65 - 5,73 -
per square
metre (USD)
% growth y- - - 195.65 - -42.16 - -6,.78 - 2.73 - 1,42 -
o-y
Philadelphia 3.50 13.00 4.90 20.00 3.10 9.30 4.00 10.00 3.50 9.60 3,50 9,75
USD per
square metre
Average rent 8.25 - 12.45 - 6.20 - 7,00 - 6.55 - 6,63 -
per square
metre (USD)
% growth y- - - 50.91 - -50.20 12,90 - -6.43 - 1,15 -
o-y
Source: BMI
In Chicago the average rent for industrial space will only climb marginally in 2015, reaching USD7.88,
which is a 1% increase compared to the previous year. Also here, airports, roads, rail undergo improvement.
Chicago is a manufacturing hub with significant production of traditional products and new ones like high-
tech products. Especially the new industries like green buildings material are experiencing growth. Chicago
´s inland port is a major transportation hub. The local distribution and logistics industry is experiencing
growth implying also increase of warehouse space. For 2015 and beyond we expect the rents to increase
further on a marginal level.
In Dallas we predict an industrial rent increase of 1.42%, with an average rent of USD5.73 in 2015. In
contrast to Texas´ suffering economy - due to lower oil prices - Dallas has a thriving economy, with highest
growth in the business sector and tech industry. Local growth is bringing in strong demand and good
absorption of existing as well as upcoming industrial space in Dallas. For 2015 and next year we anticipate
upward pressure on industrial real estate prices, which can be explained by high demand and limited supply
of industrial space.
In Philadelphia we predict a marginal increase of 1.15% for the average industrial space rent in 2015,
reaching USD6.63. The local manufacturing industry is further declining. Health care and education are the

strongest industry sectors. Trade, transportation and utilities also constitute a considerable segment of the
local economy. The increase of the latter will also result in higher demand for warehouses. For 2015 and
beyond we expect strong demand and low supply of industrial space resulting in high rental growth rates.
Table: Industrial Yields (%)
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
New York 6-7 5-10 4.5-8 4-6 4-6 4-6 4-6 4-6 4-6 4-6
Net Yield %
New York 2.7-3.7 1.7-6.7 1.2-4.7 0.7-2.7 0.7-2.7 0.7-2.7 0-2 -1-1 -1.9-0.1 -2.3--0.3
Yield Spread
%
Los Angeles 8 5-10 8 7-8 7-8 6-8 6-8 6-8 6-8 6-8
Net Yield %
Lost Angeles 4,7 1.7-6.7 4,7 3.7-4.7 3.7-4.7 2.7-4.7 2-4 1-3 0.1-2.1 -0.3-1.7
Yield Spread
%
Chicago Net 8-9 3-5 8-10.5 8-12 8-12 8-12 8-12 8-12 8-12 8-12
Yield %
Chicago 4.7-5.7 -0.3-1.7 4.7-7.2 4.7-8.7 4.7-8.7 4.7-8.7 4-8 3-7 2.1-6.1 1.7-5.7
Yield Spread
%
Dallas Net 6-8 7-8 7 7 7-7.5 7-8 7 7 7 7
Yield %
Dallas Yield 2.7-4.7 3.7-4.7 3,7 3,7 3.7-4.2 3.7-4.7 3 2 1,1 0,7
Spread %
Philadelphia 9 8-10 8-9 8-9 8-9 8-9 8-9 8-9 8-9 8-9
Net Yield %
Philadelphia 5,7 4.7-6.7 4.7-5.7 4.7-5.7 4.7-5.7 4.7-5.7 4-5 3-4 2.1-3.1 1.7-2.7
Yield Spread
%
United States 3.3 3.3 3.3 3.3 3.3 3.3 4.0 5.0 5.9 6.3
Interest Rate
(%)
Chicago currently has the highest net yields, ranging between 8% and 12%. Also for the coming years we
expect the net yields to stay on the same level. Philadelphia has relatively high net yields, ranging from 8%
to 9%. For the coming years we predict the net yields from Philadelphia to stay on the same level.
Taking into account all factors, we see the highest potential for industrial real estate investment in Los
Angeles. Los Angeles exhibits the highest rental growth rates with many new infrastructure projects in the

pipeline that are exceeded by demand. Vacancy rates are extremely low and net yields fare relatively well at
6% to 8%, with the tendency to stay on the same level in the coming years.
Residential And Non-Residential Building - Outlook And Overview
Table: Residential and Non-Residential Building Industry Data (United States 2013-2018)
2013 2014 2015f 2016f 2017f 2018f
Residential and Non-residential Building Industry Value As % of 71.95 71.80 72.27 72.04 71.72 71.51
Total Construction
Residential and Non-residential Building Industry Value, USDbn 446.02 468.65 491.31 505.88 517.58 530.19
Residential and Non-residential Building Industry Value Real Growth
(%) 5.38 3.45 4.48 1.18 0.36 0.39
Residential and Non-residential Building Industry Value as % of GDP 2.66 2.69 2.73 2.70 2.64 2.59
f = BMI forecast. Source: US Census Bureau, BEA, BMI
Table: Residential and Non-Residential Building Industry Data (United States 2019-2024)
2019f 2020f 2021f 2022f 2023f 2024f
Residential and Non-residential Building Industry Value As % of 71.35 71.16 71.08 71.04 70.92 70.82
Total Construction
Residential and Non-residential Building Industry Value Real Growth 0.39 0.32 0.37 0.69 0.11 0.35
(%)
Residential and Non-residential Building Industry Value as % of GDP 2.54 2.49 2.44 2.40 2.35 2.30
f = BMI forecast. Source: US Census Bureau, BEA, BMI
BMI View: Driven by strong fundamentals, the US homebuilding sector will expand in 2015. We have
maintained this view throughout the year, and are now revising up our forecast (from 0.7% to 6.3%) for
residential construction real growth on the back of substantial data revisions by the US Census Bureau.
The US residential construction sector is set to post significant growth in 2015, driven by a strong US
economy, low mortgage rates, and continued increases in employment rates. This sector will, in turn, boost
the US economy's performance in general. Its contribution to the US headline GDP figure this year has been

significant, with growth in residential building adding 0.32% and 0.25% to percent change in the real GDP
figure for the US economy in Q115 and Q215 respectively. Accounting for 39.7% of total US construction,
the residential sector will strongly impact overall US construction, which we now forecast to grow at 3.8%
in 2015.
Stronger Growth in 2015 & 2016
US Residential Building Construction Industry Value And Growth
400 20
15
300
10
200
5
100
0
0 -5
2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Residential Building Industry Value, USDbn (LHS)
Residential Building Industry Value Real Growth (%) (RHS)
f = BMI forecast. Source: US Census Bureau
Due to strong fundamentals and positive signs from industry indicators, we previously forecasted the
homebuilding sector to recover in H2, following a reportedly poor Q1 (5% contraction reported) (see
'Homebuilding To Recover In H2', But Slowdown Trend Remain, 23 June). However, the US Census Bureau
has since revised up Q115 figures and revised down 2014, and is now reporting an average 7% y-o-y
seasonally adjusted growth rate for residential construction spending in the first half of the year. Our
positive outlook for the residential construction industry in H2 has not changed; as such we have upgraded
our own forecasts for the year from a 0.7% to a 6.3% growth rate. We also expect this momentum to
continue into next year before normalising, with 3.0% growth expected for 2016.

Homebuilding Bolstered By Macroeconomic fundamentals

US Real GDP Growth % y-o-y (RHS), and Unemployment % change (LHS)
8 2.8
7 2.6
6 2.4
5 2.2
4 2
2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Real GDP growth, % y-o-y (RHS)
Unemployment, % of labour force, eop (LHS)
e/f=estimate/forecast, Source: US Census Bureau, BMI
New homebuilding will be driven by strong macroeconomic factors, with the US economy expanding and
unemployment continuing to fall. We hold a positive outlook for the US economy, which we expect to grow
at real rate of 2.5% in 2015 and maintain that level over the next five years. Also job creation - with July
positing 215,000 new jobs - continues to be positive, adding to household wealth, strengthening the US
consumer and thus supporting housing demand.

Low Mortgage Rates Will Persist

30-year Mortgage Rate*, % And Mortgage Application Index
*Mortgage Bankers Fixed Rate Mortgage Effective Rate, Source: Bloomberg
Low mortgage rates also continue to support housing demand in 2015, with a strong reverse correlation
between the two (see chart above) - and we expect this trend to persist into 2016. With only a small hike -
0.25% - expected in the federal funds rate later this year, we expect mortgage rates to remain low into 2016.
The 30-year fixed rate has fallen recently from 4.35% at the end of June to 4.19% as of August 31st,
prompting a corresponding uptick in mortgage applications.

Leading Indicators Point to Continued Growth
Homebuilder Confidence Index (RHS), Housing Starts ('000s) And Housing Permits ('000s) (LHS)
Source: Bloomberg
Leading indicators continue to point to sustained growth in the US residential construction industry. Starts
and permits both continue to trend upwards, with new home starts maintaining a level above the significant
monthly 1,000,000 mark since March 2015. The National Association of Home Builders Housing Market
Index (which measures builder confidence) ticked up to 61 in August, marking its highest point since
November 2005, indicating continued positive sentiment in the industry.
Non-Residential Facing Industrial Headwinds
We expect non-residential building to slow in 2015 owing to a drop in industrial construction related to the
oil and gas industry. Whilst the US shale revolution drove growth in industrial construction, there are
threats to this over 2015 from the lower energy price environment and sweeping capex cuts by energy
companies. Exceptions to this trend could be downstream investment, such as new refining and
petrochemicals capacity and liquefied natural gas export terminals - many of which are already in the
planning phases.

Despite weakness in industrial construction, a continued economic recovery is placing upside potential on
commercial construction where we see the strongest signs of life (office buildings, retail units and
warehouses in particular) these segments should be supported over 2015 and 2016 by strong private
consumption which is supporting economic growth in the US.
Social infrastructure accounts for around half of the total and is likely to continue to suffer as a result of
ongoing fiscal consolidation. Social infrastructure is looking weak as a result of the ongoing fiscal situation,
which is weighing on government investment. A perennial upside risk to the non-residential sector is that
the US is increasingly looking to develop social infrastructure through public-private partnerships (PPPs).
We have repeatedly highlighted the country's strong potential for growth in this area, which represents a
viable financing method for public projects, particularly given the pressure to cut spending at both a federal
and state and local level.
Despite utilising the model in certain areas such as highway concessions, the US lags behind many of its
mature market peers - most notably its neighbour Canada, whose market has been bolstered by the entrance
of the country's large pension funds - in adopting methods of private procurement for public projects,
particularly in social infrastructure. We believe that the adoption of the PPP model is a viable long-term
play; however, as only 25 states have enacted specific legislation, we believe it will be a while beforeit
accounts for a significant share of the construction project market.

Table: Construction And Social Infrastructure Key Projects
World Trade
Centre (6 New York Liberty Development
skyscrapers), Corporation[Operator]{United States},
Manhattan, Commercial Silverstein Properties[Construction]
New York Construction 14,800.00 {United States}
Resorts World
Las Vegas Commercial square
Project Construction 7,000.00 352,077 metres Genting Malaysia[Construction]{Malaysia} 2018
Apple
Spaceship Foster & Partners[Design/Architect]{United
Campus 2, Commercial Kingdom}, Rudolph & Sletten[Construction]
California Construction 5,000.00 {United States} 2016
Brookfield Multiplex[Operator]{Australia},
Wells Fargo[Sponsor], Deutsche
Manhattan West Bank[Sponsor]{Germany}, Bank of New
Project, Commercial York Mellon[Sponsor], Toronto-Dominion
Manhattan Construction 4,500.00 Bank[Sponsor]
PWP Landscape Architecture[Design/
Architect], Transbay Joint Powers
Transbay Authority[Financier], Pelli Clarke
Transit Center, Pelli[Design/Architect]{United States},
San Francisco, Commercial square AECOM[Consultant/Project Management]
California Construction 4,200.00 metres {United States} 2017
BMI

Macroeconomic Forecasts
Economic Analysis
BMI View: Following a sluggish start to 2015, real GDP growth will pick up in the coming quarters,
bolstered by a rebound in private consumption growth and gradual increases in government spending. Over
the longer term, US innovation and a rebound in the housing sector will see growth average higher than
what we have seen over the past decade.
Continued gains in the labour market and high consumer confidence will see private consumption in the US
pick up in the coming quarters, boosting headline growth. We forecast real GDP growth of 2.5% in 2015,
increasing slightly to 2.6% in 2016. Moreover, growth will average around 2.5% over the next 10 years, a
significant improvement from the 1.6% average seen over the past decade.
Table: US - Key Economic Indicators
2013 2014 2015f 2016f 2017f 2018f 2019f
Real GDP growth, % y-o-y 2.2 2.4 2.5 2.6 2.5 2.6 2.5
Dependent ratio, % of total working age 50.4 51.0 51.7 52.3 53.1 53.8 54.6
Unemployment, % of labour force, ave 7.4 6.2 5.5 5.6 5.6 5.6 5.5
Total labour force, '000 155,389 155,922 156,934 157,028 158,057 159,048 159,985
f = BMI forecast. Source: BEA, BMI
There are a number of factors which underpin our view for an acceleration in growth this year, despite the
contraction in the first quarter of the year. First, some of the factors which weighed on growth are the result
of the sudden collapse in the price of oil, and will thus prove transitory. Indeed, lower fuel costs will
ultimately be beneficial to household consumption, and lower energy costs will help support energy-
intensive industries. Likewise, the multiyear rally in the dollar is nearing an end (see 'Dollar Bull Run Not
Over, But Further Upside Limited', March 26), so further growth in import demand will be more subdued in
the coming quarters. Private consumption, the main engine of US growth, will benefit from improving
consumer sentiment and a tighter labour market, with unemployment having nearly halved since peaking in
late 2009, coming in at 5.4% in April. Finally, government spending will gradually pick up as constraints on
expenditures are gradually relaxed.

In addition, from a technical standpoint, we expect the BEA will substantially revise its historical GDP
prints - including Q115 - to reflect an update in its methodology in the coming weeks. For several years,
analysts have noted the tendency of first-quarter growth to be significantly lower than other quarters,
despite the BEA's seasonal adjustments. In mid-May, the BEA acknowledged that its GDP figures suffer
from 'residual seasonality', and that a number of changes, including past data revisions, would be
implemented in conjunction with the Q215 release, scheduled for July 30. These include incorporating
improved adjustments for defence spending, inventories, and other unnamed components of GDP.
Key Characteristics Of GDP By Expenditure
The US remains the world's largest economy, and despite increasing trade linkages with other regions
around the world, domestic factors still dominate the country's economic outlook. Relative to other
developed economies, the US has a relatively smaller public sector, with government consumption and
investment combined contributing about 18 percentage points to total GDP. The US is among the world's
leaders in technology and high-value manufacturing, and innovation remains a key driver of growth. The
country holds more than 2.4mn patents still in force, more than any other country.
Consumption Has Long Been Driving Force

US - GDP Breakdown, % Of Total
Source: Bureau of Economic Analysis

Private Consumption: Private consumption accounted for 68.5% of total GDP in 2014, and has remained
within the narrow range of between 67.0% and 69.0% for more than a decade, despite relatively large
movements in other components of the economy associated with commodity price fluctuations and the
global recession of 2008-2009. We expect that private consumption will remain the principal engine of US
growth in the coming decade, with the headline figure closely tracking changes in household spending
patterns. As consumer confidence begins to rise, the labour market improves, and wages tick up, we expect
that the consumer sector will help to boost real GDP growth.
Table: US - Private Consumption Forecasts
2013 2014 2015f 2016f 2017f 2018f 2019f
Private final consumption, USDbn 11,484.3 11,928.6 12,376.8 12,901.9 13,482.3 14,102.7 14,730.0
Private final consumption, % of GDP 68.5 68.5 68.4 68.4 68.5 68.5 68.5
Private final consumption, real growth % y- 2.4 2.5 2.6 2.5 2.5 2.5 2.3
o-y
Private Investment: With uncertainty and risk aversion with regards to foreign markets both on the rise,
lower energy costs, and a brightening outlook for the consumer sector, investor interest will pick up in the
coming years. Residential investment, which accounts for nearly 20% of all private investment, will benefit
from continued low interest rates and rising incomes. This will mark a turnaround from the early part of this
year, when certain types of private sector investment significantly slowed, owing to a pullback in capital
spending in the oil and gas and related sectors, following the collapse in the price of crude. Meanwhile, the
US dollar has strengthened considerably over the past several years, putting increasing pressure on the
competitiveness of US export manufacturers, but this trend is nearing an end.
Table: US - Private Investment Forecasts
2013 2014 2015f 2016f 2017f 2018f 2019f
Fixed capital formation, USDbn 2,564.0 2,694.3 2,865.5 3,047.5 3,241.1 3,447.0 3,666.0
Fixed capital formation, % of GDP 15.3 15.5 15.8 16.2 16.5 16.7 17.0
Fixed capital formation, real growth % y-o-y 4.7 5.3 2.5 4.5 5.0 5.3 5.3

Both Consumption And Investment To Pick Up

US - Breakdown Of Personal Consumption (LHS) And Private Investment (RHS), % of Total
Source: BEA
Government Consumption And Investment: The US federalised system of government leaves

considerable autonomy to local governments, with state and municipal spending accounting for over 60% of
total government consumption and investment. Taking all government spending together, education
accounts for the largest share of the total, at 26.5%, followed by defence, at 24.5%. We expect government
officials will continue to relax spending constraints on both defence and non-defence programmes in the
years ahead, although political pressure to maintain fiscal discipline will limit the scope of this change
somewhat (see 'Fiscal Consolidation To Unwind Post-2015', July 2). Meanwhile, there is a growing
political consensus around the need for greater capital investments, particularly with regards to transport
infrastructure.

Table: US - Government Consumption And Investment Forecasts
2013 2014 2015f 2016f 2017f 2018f 2019f
Government final consumption, USDbn 3,143.9 3,175.8 3,234.1 3,305.5 3,383.5 3,470.1 3,560.7
Government final consumption, % of GDP 18.7 18.2 17.9 17.5 17.2 16.9 16.6
Government final consumption, real growth % y-o-y -2.0 -0.2 0.7 0.5 0.4 0.5 0.5
Spending Restraints Will Gradually Relax

US - Government Spending Breakdown
Source: BEA
Net Exports: Although we believe that the dollar bull run is nearing an end, the greenback will remain
strong by historical standards, particularly as investor uncertainty persists in other developed markets such
as the eurozone. This, coupled with a strengthening US consumer sector, will bolster demand for imports
and diminish export competitiveness. This will weigh on net exports in real terms, despite a lower import
bill (owing to lower fuel costs) which will support the nominal trade balance. Finally, the steep decline in
the price of oil will weigh on US crude producers' margins, and reduce the pace of domestic energy

production expansion over the next several quarters, requiring greater volumes of fuel imports than would
have otherwise been the case.
Table: US - Net Exports Forecasts
2013 2014 2015f 2016f 2017f 2018f 2019f
Net exports of goods and services, USDbn -497.3 -504.7 -491.6 -495.4 -530.2 -567.3 -606.9
Net exports of goods and services, % of GDP -3.0 -3.1 -2.7 -2.6 -2.7 -2.8 -2.8
Net exports of goods and services, real growth % y-o-y -7.1 7.9 -5.8 -1.7 4.4 4.4 4.4

Industry Risk/Reward Ratings
BMI View: The US ranks as the third in terms of its risks and rewards. We accredit the position to the
nation's high economic performance with positive underlying prospects, a high volume of commercial bank
loans and a secure legal environment that should sustain investor confidence in the developed state for the
coming forecast period.
Table: Developed Countries Risk Reward Index
Industry Country Rewards Industry risks Country risks Risks Real estate Rank
rewards rewards score
UK 82.5 74.4 79.7 90.0 79.7 86.4 83.0 1
France 75.0 83.4 77.9 95.0 72.9 87.3 82.6 2
US 80.0 84.0 81.4 85.0 80.3 83.3 82.4 3
Germany 72.5 75.9 73.7 85.0 76.1 81.9 77.8 4
Source: BMI
Rewards
Industry Rewards
The US real estate industry value is very high at a value of USD2,408.4bn in 2015 and has the potential to
grow significantly in the coming years, at a rate of 5% CAGR. Also the volume of loans credited to the
American real estate market by commercial banks is high, which demonstrates that investor confidence is
high. In light of this, we have given the United States an industry reward score of 80 out of 100, ranking
second best country in this field.
Country Rewards
In the area of country rewards the US also disposes of high values. In total we have awarded it a country
rewards score of 84, which is the highest value in the comparative group. This high score can be attributed
to low financial barriers, a high GDP per capita summing up to USD53,574. Also the urbanisation rate is
high at a rate of 83%, which ensures demand for office, retail and industrial retail space.

Risks
Industry Risks
With regard to industry risks the US performs well relatively to its peer group with a score of 85 being on
the same level as Germany. Risks on the American real estate market may arise from the development of
client loans relative to the nominal GDP in the coming years and also relative to the client deposits ratio,
funding real estate projects by debts, which further burdens the US balance sheet.
Country Risks
Here the US scores with a record level of 80, which is the highest in the comparative group. This can be
ascribed to the US positive outlook on its long/term economic growth and a good legal and bureaucratic
environment which ensures that real estate projects can be completed on a secure basis.

Market Overview
BMI View: The US is regarded in great shape from the aftermath of the financial crisis. Low interest rates
will be a prevalent feature for the foreseeable future as the Federal Reserve is expected to maintain current
levels to avoid deflationary policy implementation, coupled with greater levels of employment and rising
real wages that should support continued growth in the commercial real estate market.
US commercial real estate retains a large contingency of local players active in the market, of which the
majority of the owners and operators are comprised of REITs; which are currently experiencing further
growth of investments as a result of greater foreign interest into the US property sector. Fundamentals are
improving and pricing is developing alongside volume; the sector also revealed solid returns as commercial
property transactional volumes reached USD288.5bn by Q314. Over 2015, there has been similar strong
activity within the market, particularly in mergers and acquisitions on the back of stable economic growth
and greater construction sector growth. Besides a large proportion of market control from domestic players,
other notable investors consist of private equity funds or institutional investors like insurances or pension
funds. The saturated market has placed pressure on margins and makes it more difficult for foreign investors
to compete. Nevertheless, foreign investors like Middle Eastern sovereign wealth funds are outbidding
traditional US players as they look for higher investment returns and new places to expand. Especially New
York is a popular destination for foreign-funded real estate. Concerning the origin of foreign capital it can
be concluded that most foreign investors in the American real estate market come from Canada (about
USD15bn in 2014), followed by other countries with a much smaller proportion of invested capital like
China or Norway (about USD4bn in 2014).
We highlight the US geopolitical stability as one of the main drivers of foreign and domestic interest into
the nation's commercial real estate sector, alongside technological advancements and innovation within the
market. The healthy outlook on the broader economy is an attractive prospect for foreign capital, and with
the agreement between prospective member states on the Trans pacific Trade partnership (TPP) in Q415,
this highlights the growing potential for economic growth in the US through the establishment of a common
framework in order to promote better trade between ephemeral nations. This presents a beneficial
opportunity for commercial real estate players further down the line, as we anticipate improved trade,
greater foreign capital flows and raised corporate confidence, especially when the effects of the agreement
become fully ratified. Furthermore, there is also a similar agreement currently in the process of acceptance
between European states and the US, dubbed the Transatlantic Trade and Investment Partnership (TTIP),
which looks to promote similar aspects to the TPP agreement on eastern side of the nation. Both the TPP
and TTIP will influence greater potential for commercial real estate, as a result of the improved support for

corporate establishment between domestic and international players that will see greater influence on
demand.
In the office sector REITs are the most dominant investor group, whilst in the industrial and retail sectors
institutional investors and equity funds constitute major players in the market, followed by REITs.
Reasoning for higher REIT activity can be attributed to the potential for larger gains on investment that
have seen equity REITs become more popular in recent times. Regarding recent activity, Philadelphia
witnessed construction begin Q215 on the introduction of the Comcast Innovation & Technology Center
Mixed-Use Tower; a 120,773 sq m project valued at USD1.2bn representing a collaboration between
domestic operators Liberty Property Trust and Comcast Corporation, anticipated for a 2017 completion
and will represent a flagship project for both parties.
In our view the US retail real estate offers the most attractive investment opportunities. The market is set to
grow due to a prosperous GNP rate, lower unemployment and higher incomes across the broader US
population. Higher household spending proves to be beneficial for the retail sector and thus retail real estate.
Especially high-end retail boasts of high margin potential in the next few years, whilst net yields are also
relatively high in all examined key locations. A notable project entering the market is the 36,421 sq m
Waldorf Astoria Hotel in Beverley Hills comprising a value of USD200mn and expected to reach
completion by 2017, the build, sponsored by Guggenheim Partners, represents an opportunity for retail
establishment in the area as tourism will flow to the new development.
Industrial space in the US is relatively cheap compared to the rents for office and retail real estate. Yet the
prospects for the development of industrial space are positive considering increasing trade flows and a
growing freight industry in the coming years. Although the US manufacturing sector is currently suffering
from lower demand due to the appreciation of the US dollar, we expect the average output to grow steadily
in the coming years, resulting in moderate growth of industrial rents. The increase of online retail will lead
to a rise in demand for big box storage and distribution warehouses across much of the country including
the need for lager storage or expansion projects due to companies retaining more stock form poorer exports.
Prevalent market activity across the commercial real estate sub-sectors is expected to pick up across H1
2016 as new developments reach the pipeline and investor confidence grows in the wake of better economic
performances. The remainder of 2015 will see activity slightly stagnate as a result of global economic
slowdown and a rally in the dollar, which will look to keep industry players vigilant and act more prudently
when considering investment opportunities for the coming quarters.

Competitive Landscape
BMI View: The competitive landscape in the United States is quite saturated, with many of the largest
construction companies globally domiciled in the region. This has placed pressure on margins, with
consideration regarding the exterior headwinds present to the broader economy that will prove difficult for
new players to enter the market.
The US real estate development market is dominated by long-standing local players across all three areas of
the commercial real estate construction market. This makes it difficult for smaller and foreign real estate
developers to enter. Yet the hardening conditions on the bond market have stimulated the will of foreign
investors to outbid the local developers.
Property Developers
The largest US real estate developers are the Howard Hughes Corporation, Alexander & Baldwin Inc.,
and The St. Joe Company.
The Howard Hughes Corporation owns, manages and develops commercial, residential and mixed-use real
estate throughout the US. The Howard Hughes Corporation is traded on the New York Stock Exchange and
is headquartered in Dallas, Texas. Properties include master planned communities, operating properties,
development opportunities and other assets. There are assets in retail, office, multifamily and resort.
Alexander & Baldwin was founded in 1870 in Hawaii, where it is still a major land stakeholder. The
company is active in real estate development, commercial real estate, agriculture, natural materials and
infrastructure construction. Through its real estate subsidiary A&B Properties Inc., Alexander & Baldwin
develops and sells real property, primarily in Hawaii, and operates a commercial portfolio comprising 5
million square feet of retail, office and industrial space comprising 59 properties located in Hawaii and on
the U.S. mainland. By December 2014, it held 2,330 million assets under management.
The St. Joe Company together with its consolidated subsidiaries is a real estate development and operating
company with real estate assets and operations currently concentrated primarily between Tallahassee and
Destin, Florida. As of March 31, 2015 the St. Joe Company holds a total amount of assets of 1,305,492
USD. The company currently uses these assets in its residential or commercial real estate developments,
resorts and leisure operations, leasing operations or its forestry operations.

Property Managers
An overview of the players in the US REIT sector provides a broad view of a number of the major
owners and operators in the property sector across the US. The major US REITS in the commercial property
sector include Boston Properties, Brandywine Realty Trust, Brookfield Properties, Corporate
Office Properties Trust, Liberty Property Trust, Pennsylvania Real Estate Investment Trust and SL
Green Realty Trust.
In the industrial sector, Pro Logis, Clarion Partners and Duke Realty Corp. are the biggest American
property managers according to the volume of industrial space managed worldwide.
Headquartered in San Francisco, California, Pro Logis operates globally in the Americas, Europe and Asia
and owns 55 million square metre of distribution space. The company leases nearly 2,900 industrial
facilities in 21 countries to more than 4,700 customers, including third-party logistics providers,
transportation companies, retailers, and manufacturers.
Clarion Partners was founded in New York City in 1982, and has presence in major markets across the
United States, as well as São Paulo, Brazil, London, England and Mexico City. It focuses on high quality
property and covers industrial, office, retail, multifamily residential and hotel property. Clarion Partner
currently holds $36 billion in total assets under management.
Duke Realty Corp is a self-administered and self-managed real estate investment trust (REIT) and owns,
maintains an interest in or has under development 141 million rentable square feet of bulk distribution,
medical office and suburban office assets in 22 major US metropolitan areas. As of December 31, 2014, the
Company's portfolio included owned or jointly controlled 729 industrial, offices, medical office and other
properties, of which 706 properties with approximately 146.9mn square feet were in service. The Company
owns interest in 500 bulk distribution industrial properties, which are primarily warehouse facilities.
In the retail sector Simon Property Group and General Growth Properties are the key players.
Simon Property Group is ranked as the United States` largest Real Estate Investment Trust and a S&P 100
company. It owns or has an interest in 230 retail real properties including Malls, Premium Outlets and The
Mills comprising 190 million square feet in North America, Europe and Asia.

General Growth Properties, Inc. is an S&P 500 company and owns and manages shopping malls throughout
the United States. In the moment it operates 130 properties with an approximate value of USD46bn. Target
markets are New York City, Chicago, Miami, Boston, Washington, D.C., San Francisco and LA.
In the office sector Hines, Brookfield Office Properties and Trammell Crow Company are the largest
property managers.
Hines was founded in 1957 by Gerald D. Hines in Houston, Texas. Its portfolio comprises more than 1,180
properties including skyscrapers, corporate headquarters, mixed-use centers, industrial parks, medical
facilities, and master-planned resort and residential communities. Hines manages 511 properties with over
16 million square meters.
Brookfield Office Properties Inc. is a division of Brookfield Property Partners, a global commercial
property company that owns, operates and invests in best-in-class office, retail, industrial, multifamily and
hotel assets. Brookfield Office Properties owns, develops and manages premier office properties in the
United States, Canada, Australia and the United Kingdom. Its portfolio is comprised of interests in 112
properties totalling 88 million square feet in the downtown cores of New York, Washington, D.C., Houston,
Los Angeles, Toronto, Calgary, Ottawa, London, Sydney, Melbourne and Perth. Landmark properties
include Brookfield Places in Manhattan, Toronto and Perth, Bank of America Plaza in Los Angeles,
Bankers Hall in Calgary and Darling Park in Sydney.
Trammell Crow Company is a Dallas-based real estate development, investment and operations company
founded by Trammell Crow, and operated as an independent subsidiary of CBRE Group, Inc. It was
founded by Trammell Crow in 1948. The company´s services encompass office, industrial, retail,
healthcare, residential, and mixed use projects.

Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
500
400
300
200
100
0
1990
2000
2005
2010
2015f
2020f
2025f
2030f
2035f
2040f
2045f
2050f
United States - Population, mn
f = BMI forecast. Source: World Bank, UN, BMI

United States Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (United States 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, total, '000 252,847 282,895 296,139 309,876 321,773 333,545 345,084
Population, % y-o-y na 1.1 0.9 0.9 0.7 0.7 0.7
Population, total, male, '000 123,979 139,559 146,375 153,291 159,493 165,371 171,086
Population, total, female, '000 128,868 143,336 149,764 156,584 162,279 168,173 173,998
Population ratio, male/female 0.96 0.97 0.98 0.98 0.98 0.98 0.98
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (United States 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Active population, total, '000 166,572 187,908 199,156 208,342 213,218 215,843 216,930
Active population, % of total population 65.9 66.4 67.3 67.2 66.3 64.7 62.9
Dependent population, total, '000 86,275 94,987 96,983 101,533 108,554 117,702 128,153
Dependent ratio, % of total working age 51.8 50.5 48.7 48.7 50.9 54.5 59.1

Key Population Ratios (United States 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Youth population, total, '000 54,613 60,139 60,495 61,211 60,977 61,970 63,015
Youth population, % of total working age 32.8 32.0 30.4 29.4 28.6 28.7 29.0
Pensionable population, '000 31,662 34,847 36,487 40,322 47,577 55,731 65,138
Pensionable population, % of total working age 19.0 18.5 18.3 19.4 22.3 25.8 30.0
Table: Urban/Rural Population & Life Expectancy (United States 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Urban population, '000 190,394.4 223,648.9 236,698.5 250,293.2 262,622.0 275,098.3 287,603.8
Urban population, % of total 75.3 79.1 79.9 80.8 81.6 82.5 83.3
Rural population, '000 62,453.4 59,246.9 59,441.1 59,583.0 59,151.6 58,447.2 57,480.7
Rural population, % of total 24.7 20.9 20.1 19.2 18.4 17.5 16.7
Life expectancy at birth, male, 71.7 74.0 75.0 76.0 76.9 77.7 78.6
years
Life expectancy at birth, female, 78.7 79.5 80.1 80.9 81.6 82.2 82.8
years
Life expectancy at birth, average, 75.2 76.8 77.6 78.5 79.2 79.9 80.7
years
Table: Population By Age Group (United States 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, total, '000 18,933 19,247 19,897 20,177 19,701 20,672 21,282

Population By Age Group (United States 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 90-94 yrs, total, '000 756 1,127 1,188 1,476 1,735 1,964 2,080
Population, 95-99 yrs, total, '000 219 273 324 368 477 576 669
Population, 100+ yrs, total, '000 32 45 47 60 71 95 119
Table: Population By Age Group % (United States 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, % total 7.49 6.80 6.72 6.51 6.12 6.20 6.17

Population By Age Group % (United States 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 100+ yrs, % total 0.01 0.02 0.02 0.02 0.02 0.03 0.03

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case determined, as per standard practice, by the prevailing features of the industry data being examined.
Common to our analysis of every industry is the use of vector autoregressions. These allow us to forecast a
variable using more than the variable's own history as explanatory information. For example, when
forecasting oil prices, we can include information about oil consumption, supply and capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient
historic data or data quality is poor. In such cases, we use either traditional decomposition methods or
smoothing methods as a basis for analysis and forecasting.
BMI mainly uses OLS estimators and in order to avoid relying on subjective views and encourage the use
of objective views, we use a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-
linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for
example poor weather conditions that affect agricultural output, dummy variables are used to determine the
level of impact.
Effective forecasting depends on appropriately selected regression models. We select the best model
according to various different criteria and tests, including but not exclusive to:
■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account;
■ Testing the directional movement and magnitude of coefficients;
■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value);
■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity.
BMI uses the selected best model to perform forecasting.

Human intervention plays a necessary and desirable role in all of our industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
In each of the countries surveyed, we make contact with local sources (typically major commercial real
estate agents) and ask them 10 questions in relation to three commercial real estate sub-sectors:
■ Office
■ Retail
■ Industrial
We have combined the answers into the data tables and text that form part of the market overviews and
industry forecast scenario. In taking this grass-roots approach, we believe we ensure that we identify, in a
timely fashion, key issues that will likely drive rents and yields over the short, medium and long term. We
have developed a framework that facilitates comparisons between cities and sub-sectors in different
countries.
In developing our long-term forecasts, we have focused on net yields. Our view is that as yields are driven
by both rentals and capital values, the movements in yields provide a convenient short-hand for what is and
is not expected to happen in markets.
Sources
Sources used in real estate reports include UN statistics, national accounts, housing and economy ministries,
officially released company results and figures, trade bodies and associations and international and national
news agencies.

Risk/Reward Index Methodology
BMI's Risk/Reward Index provides a comparative regional ranking system evaluating the ease of doing
business and the industry-specific opportunities and limitations for potential investors in a given
market. The system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub categories:
■ Industry rewards. This is an industry-specific category taking into account current industry size and
growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall
score for potential returns for investors.
■ Country rewards. This is a country-specific category, and factors in favourable political and economic
conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period. This is further broken down into two sub categories:
■ Industry risks. This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry, and the relative maturity of a market.
■ Country risks. This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or country and industry rewards. These
two results in turn provide an overall Risk/Reward Index score, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
Risk/Reward Index score being a weighted average of the total score. As most of the countries and
territories evaluated are considered by BMI to be 'emerging markets', our indices are revised on a quarterly
basis. This ensures that we draw on the latest information and data across our broad range of sources, and
the expertise of our analysts.

Indicators
The following indicators have been used. Overall, the Real Estate Risk/Reward Index uses four subjectively
measured indicators, and over 20 separate indicators/datasets.
Table: Real Estate Risk/Reward Index Indicators
Indicator Rationale
Rewards
Industry rewards
Construction output, USDbn (previous Absolute size of construction sector used as proxy for size of real estate
year) sector.
Construction sector real growth, CAGR Indicates prospects for, and confidence in, the construction sector, and
(previous year to three years hence) hence a proxy for prospects/confidence for real estate sector.
Total commercial bank lending, USDbn Real estate projects are long term and capital intensive, with most finance
(end previous year) obtained from commercial banks. Indicates funding availability.
Commercial bank lending, CAGR (previous This indicates prospects for the stability of finance and, implicitly, its cost. In
year to three years hence) times of crisis, this is likely to be the most volatile indicator.
Country rewards
This captures the efficiency of the commercial banking sector and other
BMI's business environment index score elements of the financial services industry in making funding available to the
for financial infrastructure real estate sector.
Higher per capita GDP correlates with the expansion of the middle classes,
Per capita GDP, USD which are the key market for residential real estate, and the users of
commercial and retail real estate.
Urbanised states tend to be more conducive to real estate development, as
Urbanisation, % of total population living in they have deeper, more mature markets. However, we take a favourable
urban areas view of less urban, or even predominantly rural, states that are characterised
by persistently strong construction sector growth.
Risks
Industry risks
It is assumed that lending volumes and nominal GDP should, generally,
Lending risks, ratio of the growth in grow at the same rate. If lending growth substantially exceeds nominal GDP
nominal lending (ie by commercial banks to expansion, this would suggest deterioration in risk standards by lending
non-bank customers) to the nominal institutions. Conversely, if nominal GDP rises substantially faster than bank
growth in GDP over a five-year period (last lending, the cost of finance for real estate ventures is likely to rise, affecting
year to current year plus three) profitability.
This is used as a proxy for the stability of finance. Thus, a rapid decline in
Financial institution confidence, change in the ratio (ie a lending squeeze) is penalised. Conversely, we are more
tolerant of a rise in lending, as in itself, this may be positive for the industry.
the loan to deposit ratio over a five-year
period (last year to current year plus three) High rates of lending growth are penalised as they could indicate an
investment bubble unless BMI's short-term economic score for the state, a
proxy for vulnerability to an economic shock, is very high.
Where possible, we have identified a national index (usually for house
prices) and assess annual growth. The indicator is symmetrical, in that high
Real estate prices, % change y-o-y growth (which indicates a bubble) is penalised, as is sharp price falls (which
indicates that bubbles have been burst). Where no real estate price index is
available, this indicator does not affect the overall score for this section.

Real Estate Risk/Reward Index Indicators - Continued
Indicator Rationale
Country risks
BMI's long-term economic index score A measure of long-term economic stability.
BMI's business environment legal Denotes the strength of legal institutions in each state. Security of
framework index score investment can be a key risk in some emerging markets.
CAGR = compound annual growth rate. Source: BMI
Weighting
Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal
weight. The following weight has been adopted.
Table: Weighting Of Indicators
Component Weighting, %
Rewards 50, of which
Industry rewards 65
Country rewards 35
Risks 50, of which
Industry risks 65
Country risks 35
Source: BMI

Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

BMI Real Estate Report 2016

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BMI Real Estate Report 2016

Uploaded by

Copyright:

Available Formats

2016

Published by:BMI Research

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: October 2015

BMI Research © 2015 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 14

Macroeconomic Forecasts ............................................................................................... 39

Industry Risk/Reward Ratings ......................................................................................... 45

Market Overview ............................................................................................................... 47

Competitive Landscape .................................................................................................... 49

Demographic Forecast ..................................................................................................... 52

© Business Monitor International Ltd Page 4

Table: Population By Age Group % (United States 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

© Business Monitor International Ltd Page 5

BMI Industry View

© Business Monitor International Ltd Page 7

© Business Monitor International Ltd Page 8

United States Real Estate SWOT

© Business Monitor International Ltd Page 9

United States Real Estate SWOT - Continued

© Business Monitor International Ltd Page 10

Political SWOT Analysis

© Business Monitor International Ltd Page 11

Economic SWOT Analysis

© Business Monitor International Ltd Page 12

© Business Monitor International Ltd Page 13

© Business Monitor International Ltd Page 14

Positive Outlook On US Economic Recovery

f = BMI forecast. Source: BEA/BMI

© Business Monitor International Ltd Page 15

Rising Demand For Premium Office Space

f = BMI forecast. Source: BEA/BMI

© Business Monitor International Ltd Page 16

Table: Office Rental Rates

2010 2011 2012 2013 2014 2015

Los Angeles USD per

Chicago USD per

Dallas USD per square

Philadelphia USD per

© Business Monitor International Ltd Page 17

Office Rental Rates - Continued

2010 2011 2012 2013 2014 2015

© Business Monitor International Ltd Page 18

Table: Office Yields (%)

f = BMI forecast. Source: BMI

© Business Monitor International Ltd Page 19

Retail Real Estate Industry Forecast

© Business Monitor International Ltd Page 20

Rising Spending Promotes Greater Demand

f = BMI forecast. Source: BMI/National Statistics

© Business Monitor International Ltd Page 21

Growing Affluence Represents Opportunity For Development

f = BMI forecast. Source: BMI/National Statistics

© Business Monitor International Ltd Page 22

Table: Retail rents

2010 2011 2012 2013 2014 2015

© Business Monitor International Ltd Page 23

Retail rents - Continued

2010 2011 2012 2013 2014 2015

© Business Monitor International Ltd Page 24

Table: Retail Yields (%)

f = BMI forecast. Source: BMI