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NAIOP CRE Sentiment Index

The NAIOP CRE Sentiment Index

Spring 2019

About the NAIOP CRE Sentiment Index

The NAIOP Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months. The forecast is not based on an analysis of historical data, but rather it represents a look into the future by real estate developers, investors, operators and brokers. These NAIOP members are asked to respond to questions bsed on their ongoing work, including projects in their pipelines.

Key Findings

The NAIOP CRE Sentiment Index for March 2019, a composite of nine survey questions, fell to 0.56, a 1.00% decline from the September 2018 level of 0.66. The September 2018 level was the highest for the Index since the full survey commenced in March 2016. The latest results again show consistent responses compared the the six prior surveys. Even with the Index's slight decrease, the general indication is that commercial real estate will continue steady, sustainable growth during the next 12 months. Additionally, overall market conditions should be slightly better into the first quarter of 2020. This consistent, positive Index level is a sign that the overall real estate development market should support continued expansion for another year.

Notable Changes From the September 2018 Survey

Year-over-year, the 3.50% improvement in the cost of construction labor and the 3.30% improvement in the cost of construction materials helped keep the overall Index positive. The availability of debt was also seen as a positive contribution to development in the next 12 months (an improvement of 1.50%). In earlier surveys, the availability of capital had been a concern, but those worries appear to have eased in the past 18 months. Respondents indicated that rents (both face and effective) and occupancy rates now appear to be more pressing issues for developers. In terms of contribution to the overall index, occupancy rates fell by 3.20%, effective rents fell by 2.70% and face rents fell by 1.50%. These three items were the major contributors behind the 1.00% overall fall in the Sentiment Index since September 2018.
Agreement / Disagreement Among Respondents

The most consistent responses (meaning there was the most agreement among survey participants) were face rents and the availability of debt into the next year. These two categories were both strong contributors to the overall Index change since September 2018; however, they had differing effects. Face rents retracted a bit (down 1.50%), although they remained quite positive, and the availability of debt reached its highest level since the survey began (up 1.50%).

Questions regarding employment received the least consistent responses among survey participants. Even though the highest average score for any question was in the category of adding employees, there was a lot of variation in the individual responses. Likewise, the cost of construction labor and materials appeared to be a strong negative concern, but that was tempered somewhat by variation in the individual responses. The employment-related readings are consistent with the uneven real estate-related job growth in various regions across the U.S. during the past few years.

See the link below for the complete report, graphs, and observations:

The data is compiled and analyzed by Thomas Hamilton, Ph.D., MAI, CRE, and Gerald Fogelson Distinguished Chair in Real Estate at Roosevelt University in Chicago. The survey questions and statistical methodology were created, refined and finalized between 2014 and 2016 by the NAIOP Distinguished Fellows listed on the online NAIOP Sentiment Index.​

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