UCLA Anderson School of Management Blog

Commercial Real Estate Insights from Westfield Corp.’s Peter Lowy

By Carolyn Gray Anderson

The June 2016 second-quarter economic forecast asked hard questions about the overall outlook for the U.S. and California, particularly the future of commercial real estate. In his keynote address, Peter Lowy made the answers sound easy.

Lowy is co-CEO of Westfield Corporation, one of the world’s leading shopping center companies, with retail destinations in London, New York, San Francisco and Los Angeles among its portfolio of 34 malls and 6,480 retail outlets in the U.S., UK and Europe. He is also a chairman of the company. Last year, Westfield Corporation’s approximately 400 million customer visits to Westfield shopping centers generated over $16 billion in retail sales. With new investments underway, Westfield’s value is expected to exceed $50 billion by 2020.

Lowy has 30 years’ experience in the shopping center and real estate investment trust industry and has been with Westfield Group since 1983. So when he told the Forecast audience that his company is thriving, he didn’t have to talk long to convince them — and he may have provided the “sliver of optimism” Dean Judy Olian hoped for when she introduced him.

He identified the three areas where the most significant shifts have occurred and how Westfield is approaching them profitably: technology, consumer behavior and the retail business model.

1. Technology is an opportunity for traditional retail to build stronger connections with its customers.

Lowy evangelized at length on the power of mobile and other technologies to draw consumers to physical locations and to streamline their experience with retailers both in person and remotely.

Westfield’s multivalent app purports to guide shoppers to the nearest mall via the quickest route, advise on the closest parking, enable retailers to download every SKU available to individuals’ phones, and steer the shopper not just to stores but products and services. Naturally, the app facilitates ticket purchases, restaurant reservations and food orders that can be picked up or delivered. “We have already created the technology backbone to connect our customers to these services,” Lowy said. The product was developed by the company’s Westfield Labs, where it focuses on “removing the friction from physical commerce.” The goal is seamless customer experiences whether at a local mall, an airport or in transit.

UCLA Anderson Economic Forecast: Slowly, Steady Growth Continues

 

The UCLA Anderson quarterly economic forecast conference takes place on June 8 at UCLA. Peter Lowy, co-CEO of Westfield Corp., will deliver the keynote address.

Will the Commercial Real Estate Boom Continue?

Commercial real estate prices have more than doubled since the financial crisis lows of 2009, and in many cities the skyline is dotted with construction cranes. Similarly, multi-family housing has been on a tear with rent growth outstripping income growth for most of the current decade, making affordability a political issue. The critical questions professionals will be asking at this quarter’s UCLA Anderson Forecast conference concern whether or not these trends will continue — or if the bull market is over.

All the Anderson economists’ reports will be presented at UCLA Anderson Forecast’s quarterly conference, which features a number of panels focused on commercial real estate and Peter Lowy's keynote address.

The National Forecast

In his Forecast essay for the nation, UCLA Anderson Forecast Director Ed Leamer takes a deep dive into the factors driving the current U.S. economy, one that has been growing steadily at 2% following quarterly growth rates of 3% for the 40 years between 1965 and 2005. Leamer writes that growth since 2010 has been so eerily steady that it is defining an entirely new corridor at 2% instead of 3%. “Something is different, terribly different. What should forecasters be thinking?” Leamer asks. “We are thinking 1.7% real GDP growth in 2016, 2.8% in 2017 and 2.1% in 2018, averaging 2.2, with a strong labor market averaging about 200,000 increases in payrolls per month and a steady unemployment rate around 5%. More of the same, in other words. We are starting to see more evidence of inflation ahead, and are forecasting interest rate increases to keep real rates of interest pretty constant.”

Autonomous Cars the Driving Force in California’s Technology Future

By Carolyn Gray Anderson

According to Henry Bzeih, chief technology strategist for Irvine-based Kia Motors America, quite literally driving the California economy is what’s to come in autonomous vehicle technology.

Bzeih spoke at April’s UCLA Anderson Economic Forecast, predicting that a major disruption akin to the leap from invention of the wheel to development of the combustion engine — which took millennia — will occur within the decade. In terms of both software and hardware content, the technology quotient for existing automobiles exceeds that of vehicles used for space travel, which means, Bzeih said, “The recipe for a fully autonomous vehicle is already in the car today.”

Bzeih believes that California — and not only Silicon Valley but just as likely Orange County and other parts of the state — will lead the country in vehicle technology innovation. But the hurdles before launch, he said, include psychological and cultural barriers and the fact that California, Nevada, Michigan and Florida are to date the only states in the union that have passed any laws pertaining to autonomous vehicles.

“The answer is convergence,” Bzeih said, and referenced cyberpunk author William Gibson’s observation that the future is already here, it’s just not very evenly distributed. With the proper vehicle-to-vehicle and vehicle-to-infrastructure communication, and the crucial component of good vehicle-to-human interface, companies like Kia can take driver assistance features (like smart cruise control) to partial automation by 2020 and full automation by 2030 — to which Forecast senior economist Professor Jerry Nickelsburg responded that it would still beat the L.A. Metro’s purple line extension into Westwood.

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Read the UCLA Anderson Economic Forecast press release

Forecast: Industrialize Your Job Now

 

By Carolyn Gray Anderson

UCLA Anderson Distinguished Professor of Decisions, Operations, and Technology Management Uday Karmarkar addressed the December edition of the UCLA Anderson Forecast conference, self-referencing as a humble “tourist” among the gathered economists and followers of the forecast. Forecast Director Edward Leamer introduced him following a discussion of robotics and other forms of automation in the traditional workplace, but said of Karmarkar, “He doesn’t have to worry about robots taking his job anytime soon.”

Karmarkar might himself disagree, observing wryly that “the golden age of education is almost over.” Keeping pace in the information age, he said, means that bundling, brand and presence trump scale. With a background in manufacturing dating to the 1970s and ’80s, Karmarkar made the shift to information-intensive industries during a period of “back-room” industrialization, such as the introduction of sophisticated office equipment.

“Ask yourself how you can industrialize your job,” he said, “because it’s going to happen.”

UCLA Anderson Forecast: Fed Expected to “Normalize” Interest Rates While Job Growth and Wage Increases Drive Consumption

For information on the UCLA Anderson Forecast and this quarter’s conference, please visit www.anderson.ucla.edu/centers/ucla-anderson-forecast.

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UCLA Anderson Forecast’s fourth 2015 quarterly economic report for the United States says the Federal Reserve will start to normalize interest rates as its prolonged “zero interest rate” policy reaches its end, with the most recent financial crisis long over and the unemployment rate indicating near full employment. In California, the there is no indication of any slowdowns or declines in the continuing growth of both employment and income in California and, in fact, the employment sector will grow throughout the forecast period.

The National Forecast
In his forecast for the national economy, UCLA Anderson Senior Economist David Shulman cites a paradox in the current employment picture. While October’s 5.0% unemployment rate is essentially the traditional definition of “full employment,” the employment-to-population ratio is 59.3%, four percentage points below the level recorded prior to the start of the financial crisis in 2006. As such, the recovery may not feel like much of a recovery for many Americans. “Nevertheless,” Shulman says, “employment remains healthy, with the economy generating jobs at a 200,000-a-month clip that will bring with it further declines in the unemployment rate to 4.6%.”

The December forecast also says the Federal Reserve “is about to get the inflation it has been waiting for.” As a result, Shulman says, “With the financial emergency long over, the unemployment rate indicating near full employment and the likelihood that inflation will soon approach its 2% target, we expect the Fed to begin normalizing interest rates by increasing the Federal Funds rate this month. … Thus, we forecast that by the end of 2016 the federal funds rate will be about 1.5% and it will approximate 3.25% at the end of 2017.”

San Francisco Fed's Dr. John Williams Meets with UCLA Anderson Students; Says California Economic Outlook is Bright; Expresses Reverence for 'Facts and Empiricism"

by Troy Holland ('17)

Last Monday’s UCLA Anderson Forecast featured a keynote address by Dr. John Williams, president and CEO of the Federal Reserve Bank of San Francisco. He began by touching on the intense scrutiny surrounding the FOMC’s recent decision to hold the federal funds rate steady. To emphasize the Fed’s plight surrounding the rate and to tip his hat to L.A.’s marquee entertainment industry, Williams said, “Everyone’s a critic!”

A packed Korn Convocation Hall listened as Williams offered the contrasting cases for the rate's going up versus being held flat, giving one a sense of the burden the nation’s central bank faces in guiding the U.S. economy to sustained growth. Turning locally, Williams agreed with the Forecast that a near full-employment rate coupled with strong economic growth in coastal metropolitan areas makes California’s outlook bright.

After the keynote speech I was lucky enough to be able to attend an intimate Q&A with fellow Anderson students where Williams gave further nuance to the decision-making processes he and his colleagues use. Notably, his responses had a common theme: a reverence for facts and empiricism. Hearing first-hand anecdotes from the head of a Federal Reserve branch from one of the most dynamic regions of the world — just another day “In the Next.”

Forecast for California Real Estate Market Signals a Boom in Multi-Family Housing

Left to right: David Shulman, Jerry Nickelsburg, John C. Williams, Ed Leamer, William Yu

By Paul Feinberg

The UCLA Anderson Forecast sustained an optimistic theme throughout the September edition of its quarterly conference. The positive economic feelings began with the presentation of the national and California forecasts, presented by Forecast Director Ed Leamer and Senior Economist Jerry Nickelsburg respectively, and a keynote address from Dr. John C. Williams, president and CEO, Federal Reserve Bank of San Francisco.

Following the keynote from Williams, real estate became the theme of the day with a set of talks from John Tipton, operating partner of the Law Firm of Allen Matkins; David Shulman, UCLA Anderson Forecast senior economist; and William Yu, UCLA Anderson Forecast economist. After a brief discussion of positive trends in commercial real estate — rooted in across-the-board developer optimism — Tipton spoke of the current Allen Matkins UCLA Multi Family Market Outlook that showed strong developer optimism in every sector. Tipton also noted that low vacancy rates supported the rental rate increases being seen.

Shulman examined the national real estate markets. He and the Forecast economists are predicting that housing starts are “on the road to 1.4 million per year in 2016,” up from 1.14 million in 2015 and just 1 million in 2014. While housing starts will approach 1.5 million, this total remains well below the 2 million starts the nation saw at peak before the last recession.

Forecast: Federal Reserve Bank of San Francisco’s John C. Williams says Economy Is Moving in the Right Direction

By Nathan Moorman

Everything seems to be moving in the right direction, according to Dr. John C. Williams, president of the Federal Reserve Bank of San Francisco and keynote speaker at the UCLA Anderson Forecast's third quarterly economic forecast conference in 2015.

Williams said this is the seventh year of expansion and the economy has momentum to continue in that direction despite global headwinds and risks. Consumer spending increased more than 3 percent in the last year. Auto sales are on pace to reach 17 million this year — the highest they’ve been since the 2000s. Household debt is down and real incomes are growing strongly.

Williams also expects the unemployment rate to fall below 5 percent later this year and remain there through 2016, with the U.S. on pace to add 2.5 million jobs this year. This means we should reach or exceed full employment on a broad set of measures by the end of this year or early in the next one.

He forecasts real GDP increasing at a 2.25 percent annual rate in the second half of 2015 and GDP growth to be slightly above 2 percent next year. There also might be more of an up side on the way with housing potentially rebounding more strongly and a possible consumer spending surging resulting from low gas prices. However, the potential down side of further slowdown from weakening foreign economies or further depreciation of the dollar remains.

Despite all the improvements, Williams cautioned against too much optimism. With continued growth, it might be time to raise interest rates in order to prevent large imbalances from occurring — recall the dot-com bubble and the housing bubble of the 2000s. He stressed heading off circumstances like those as early as possible since fewer options are available as the imbalances become more severe.

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John C. Williams is the president and CEO of the Federal Reserve Bank of San Francisco. He also serves as the managing editor of the International Journal of Central Banking. He holds a doctorate from Stanford, a master’s of science with distinction in economics from the London School of Economics and an A.B. with high distinction from the University of California, Berkeley.

UCLA Anderson Forecast: Quarterly Economic Report Looks at U.S. and Los Angeles Housing Markets

UCLA Anderson Forecast’s third quarterly economic report in 2015 for the United States considers whether or not the economy can withstand an increase in the prime lending rate. The forecast concludes that the answer is, “Yes.” All the Anderson economists’ reports will be presented at the sold-out quarterly conference on Monday, September 28, 2015, starting at 1:15 p.m. The conference features a number of panels focused on the housing industry and includes a keynote address from Dr. John C. Williams, president and CEO of the Federal Reserve Bank of San Francisco.

The forecast for the national economy for the next two years is a healthy one, a slim chance of a recession and a slight chance of a surge in growth. In California, the forecast remains largely unchanged since June. Growth in employment in California will continue, albeit it at a slower pace by 2017, as the unemployment rate falls to about 4.8%, similar to that of the nation as a whole.

Home Ownership Decline: A Bump in the Road for the Housing Market?

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Forecast panelist Joel Singer discusses the rocky trajectory of home ownership.

On September 28, 2015, the UCLA Anderson Forecast quarterly economic outlook presents Housing Is Back, which examines the state of the California housing market. John Williams, president of the San Francisco Federal Reserve Bank, will offer his perspective on interest rate policy, and two panels of experts will address questions of affordability, mortgage finance and gentrification.

Register for the Forecast conference.

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By Joel Singer

The national home ownership rate has followed a bumpy rollercoaster with a series of up-and-down movements in the past 20 years, with the end of 2014 marking a period of notable decline. This downward trend has fueled speculation about the future of home ownership in the United States following risks exposed during the recession and foreclosure crisis, as the U.S. home ownership rate fell to the lowest level in more than two decades in the fourth quarter of 2014.

Historically, the national home ownership rate rose steadily through the late 1960s and 1970s, from 63 to 65.6 percent, before declining slightly in the early 1980s. To address a decade of stagnation, national leaders pushed efforts to expand home ownership in the mid-1990s, which led the rate to rise rapidly from 1994 to 2004, from 64 percent to a record high of 69 percent. However, the recent national home ownership rate has declined almost fully to its 1994 level.

While the decline has provoked worry about home ownership access, many experts believe the fall in the home ownership rate actually is at the tail end of its decline and that advantageous conditions are percolating. For example, mortgage delinquency and foreclosure rates have greatly decreased, wage growth is expected to follow a period of strong job growth, and there are signs that mortgage credit conditions are improving.