A real estate investment is only as solid as the community in which it is located. For this reason, significant emphasis has been placed on demographic statistics, as these numbers direct real estate trends. It becomes apparent, from reviewing these statistics, demographic trends and economic growth reflect the overall health of any given market. Four demographic indices, which are considered to be the most indicative of a market, have been analyzed. On the following pages, the historical data and the forecasted expectations (for the 1996 to 2001 time frame), for these indices, will be set forth. The indices which have been chosen are: population, household, income and employment growth. Employment growth has been broken down into refined categories by employment type. Forty-Five Metropolitan Statistical Areas (hereinafter known as MSA) have been compiled for the following analyses.

The demographic data has been provided by NPA Data Services, Inc., a respected data compilation and analytical research organization based in Washington, D.C. The data has been assimilated in a way which allows for comparisons to be made in regard to annual growth as a percentage change, as well as annual growth as an absolute change, which measures change in actual numbers. The purpose of comparing both percentage change and absolute change is to identify those MSAs which are not only expected to expand rapidly but also contribute a larger volume to the overall expansion. Both percentage change and absolute change are essential, as both rate of increase and absolute growth projections are indices which must be examined when analyzing a market. For each following table, the annual growth rates and rankings for the top 10 MSAs have been provided and included are their absolute annual growth numbers and rankings. This allows the reader to understand the total contribution of a particular MSA.

Attention should be drawn to Tables 1 and 2. Table 1 lists the top 10 MSAs with the greatest forecasted annual growth rate by percentage change. Table 2 lists the top 10 MSAs with the greatest forecasted absolute change. After examining the data contained in these tables, it becomes clear the areas expected to do well in the next five years are San Diego, Atlanta, Orange County, Denver and Seattle. It should also be noted the '96-'01 data represented are projections and the '91-'96 data are not necessarily identical to last year's rankings, but represent five year historical data.

Population

Table 3 identifies the forecasted annual growth in population for the anticipated top 10 MSAs, as well as their historical annual growth. Nine of the top 10 MSAs were in the top ten last year. There was some shuffling among those previously in the top ten with West Palm Beach bumping Phoenix from the number one position to the number four position. Denver is the only new addition moving up into the tenth spot. Seattle has moved off the top 10 table to the 11th position. It is interesting to note that Denver is the only cold weather climate city in the top 10. Expectations for population growth are not as optimistic this year, as the VIL top 10 average growth rate is 2.4%, compared to historical growth rates from '91 to '96 of 2.6%.

Households

The demand for housing and goods is directly related to the number of households in an area. For this reason, observed demographic trends are important factors, as they affect the values of residential and retail properties. The importance of household growth is particularly significant in residential real estate, as it determines the particular needs of buyers and tenants; yet it is also important in commercial real estate, as it provides insight into the fundamental purchasing power within a given MSA. As household growth parallels population growth, the top 10 MSAs on the Household Growth Table (Table 4) are also the top 10 MSAs on the Population Growth Table (Table 3), though in a somewhat different sequence. Denver has moved into the 9th position, and, as in the preceding table, bumped out Seattle. Seattle dropped to the 12th position. Phoenix, again, moved out of the number one spot to the number three spot, replaced by Las Vegas. Household forecasted growth expectations for the VIL top 10 is 2.8% annually, compared to 2.6% annually last year.

Average Household Income

Growth in average household income as well as households is a major determinant of an area's retail and housing potential. As this is the case, trends in household income have a direct bearing on the demand for retail space and apartments.

Table 5 displays the forecasted growth in household income for the next five years for the top 10 MSAs. As this category is extremely volatile, there are several changes from 1995. Boston, New York, and Newark are replacing Hartford, Orlando, and Denver, on the table. Hartford, Orlando, and Denver, have fallen to the 33rd, 15th and 21st positions, respectively. Miami, in the number one position for the last three years, remains in the number one position. Nassau-Suffolk moves up to the number two position, formerly inhabited by Hartford.

As exhibited in Table 12, the highest average household income is again earned in Nassau-Suffolk, presently $73,915. Following, are Newark at $65,985 and San Francisco at $65,807. It should be noted that Nassau-Suffolk experienced only a modest increase in their average household income over that of the previous year of approximately $95. Worse yet, Newark and San Francisco actually show a decrease of $853 and $948, respectively, in their 1996 average household incomes. These trends, no doubt, reflect the effects of corporate downsizing and "belt tightening". Projections indicate that Nassau-Suffolk will remain in the number one position and in the year 2001 the projected average household income will be $79,972. Average household income for the VIL top 10 averaged 1.6% forecasted annual gain compared to last year's forecast of 1%. Of the 45 MSAs reviewed, forecasted income is projected to increase 1.1% annually, which exceeds last year's forecast of 0.7%.

Employment

Employment data is probably the strongest determining factor in ascertaining the well-being of any given market. Job growth and job potential are the catalysts which initiate population and household growth. Job growth also generally provides growth in income and spending, which is essential to a healthy economy.

Employment trends in the United States are difficult to predict in the midst of widespread political and economic changes. Continued corporate downsizing and major mergers have dampened job creation. However, this trend is slowing, as businesses are hiring as many workers as were laid off. The economy created more than 1.7 million jobs year over year, as of August 1995. The leading sectors were entertainment (268,000 jobs), health services (257,000 jobs), construction (191,000 jobs) and computer services (104,000 jobs). The Federal government eliminated 27,000 jobs from August, 1994 to August, 1995. Additional job loss is sure to occur from the estimated 146 possible defense base closures and realignment being considered by the Department of Defense.

Table 6 lists the top 10 MSAs in terms of forecasted total employment growth. Table 7, on the following page, illustrates, by a graphical representation, the historical and forecasted actual total employment growth by absolute annual growth and annual growth rate percentage for all 45 MSAs. Those cities which move vertically upward on the chart and also move horizontally to the right display both strong annual and absolute growth rates. These MSAs are the ones to watch as employment growth impacts a wide sector of the economies with a resulting effect on the real estate community.

Attention should be directed to Table 6 where the top 10 MSAs in terms of forecasted total employment growth are illustrated. There is only one change from last year, where Fort Worth slipped into the 10th position, replacing Columbia, which is currently in the 16th position. The remainder of the MSAs merely shuffled positions, with West Palm Beach ousting Orange County from its former number one position to its current number four position. The VIL top 10 average for '91-'96 was 2.8%, compared to forecasted annual growth of 3.3%. Again, optimism appears to be the trend in most demographic categories.

Manufacturing Employment

Forecasted manufacturing growth for the top 10 MSAs is highlighted on Table 8. Given the relatively high wage and benefit structure usually associated with this type of employment, it is of particular significance. Year to date employment figures for the durable manufacturing firms show an increase of 120,000 jobs.

Las Vegas, number one in the 1995 projections, held onto its ranking in 1996. Minneapolis is new to the table and in the number 10 position, removing Columbia, which has fallen to the 12th position. Generally speaking, relative and absolute gains are forecasted to be less than in the past among the top 10 MSAs, excluding Las Vegas. For many of the remaining MSAs in our study, further absolute declines in manufacturing employment are projected for the next five years, as the United States moves toward becoming a more service oriented society in terms of employment.

Wholesale and Retail Employment

Table 9 illustrates forecasted growth in wholesale and retail employment for the top 10 MSAs. Wholesale and retail statistics are important, as they indicate growth trends of retail properties.

Interestingly enough, there are only two new members to the top 10 table this year. Charlotte and Columbia have inched off the chart to the 11th and 12th positions, respectively, having been replaced by two Texas MSAs, Fort Worth and Dallas, which are in the 9th and 10th positions, respectively. Orlando seized the number one position, bumping Orange County to the fourth position. Atlanta has moved from the 8th position to the 5th position. This is perhaps due to Atlanta's increased economic potential as a result of the upcoming 1996 Olympics.

FIRE Employment

(Finance, Insurance and Real Estate)

FIRE employment trends are critical in determining office building absorption rates. MSAs with the highest forecasted rate of annual FIRE employment growth over the next five years are set forth in Table 10. The 1996 Table contains many of the same MSAs which were reported in 1995; ey have just reorganized. West Palm Beach swapped the number two spot for the number one spot with Orange County. Orlando remains in the third position. Phoenix moved up a couple of notches to the 4th position. Columbia fell to the 11th position from the 10th position. Portland, Maine moved to the 9th position.

Services Employment

Table 11 illustrates services employment growth for the top 10 MSAs. As with FIRE, employment trends in services are critical in forecasting office building absorption rates. Analysis of the services and FIRE demographic trends, along with analysis of property specific factors can aid in indicating which office markets will be the strongest. Fortunately, growth in this category has been ongoing and there are expectations of further growth. This is encouraging, as these expectations imply increased demand for office space, which his been a poor performer until this year. The internet provider firms are generating demand for office space as this industry expands. It is ironic that this office user who leads the charge in new technology should also lead the need for office space as it was once thought that new technology might severely limit the need for office space in the future. Orange County holds on to the number one spot with Orlando being a close second. New to the table this year are Las Vegas in the 8th position and Houston in the 10th position. Atlantic City and San Antonio have dropped to 15th and 13th, respectively.

A Final Note

As in 1994 and 1995, Viewpoint has compared annual growth rates with absolute growth rates to determine the 10 best performing MSAs based on demographic growth. Not every MSA is able to satisfy the dual requirements of having the highest forecast rate of change (percentage) and the highest forecast absolute change (actual numbers). Thus, making an unequivocal top 10 list impossible to determine. However, five MSAs do fulfill the dual requirement, including: Orange Counly, Denver, Seattle, Atlanta and San Diego.