NAIOP Sentiment Index
Release Date: Fall 2016
Download the Fall 2016 NAIOP Sentiment Index Report.
About the NAIOP 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 the outlook of commercial real estate developers, owners and investors. These NAIOP members are asked to respond to questions based on their ongoing work, including projects in their pipelines. For more information, see Understanding the Index.
The NAIOP Sentiment Index for September 2016, a composite of nine survey questions, is 0.47. This means that respondents believe overall market conditions in 12 months (September 2017) will continue to be favorable for the commercial real estate industry, and that they will be slightly better than they are today. While still positive, the Index has declined steadily, by 0.63 points (that is, by 6.30 percent on an absolute basis) since the first beta test of the survey was conducted in February 2015. This seems to reflect an expectation that the CRE market is approaching a period of slowing growth. The results of this biannual survey provide a quantitative assessment of key metrics relating to the commercial real estate industry, providing figures that can be compared to anecdotal activity or other industry benchmarks.
Notable Changes From the March 2016 Survey
The two main positive changes in the survey that helped keep the Index positive relate to the cost of construction labor and capitalization rates. Respondents expect labor costs to rise a bit more slowly and cap rates to rise at a lesser rate than they expected six months ago. The readings for labor costs and first-year cap rates demonstrated improvements of 0.20 and 1.20 percent, respectively.
The most notable declines relate to questions regarding capital availability and effective rents. The composite score for availability of equity declined by 2.00 percent (falling from 1.33 to 1.13); the score for availability of debt declined by 3.50 percent (falling from 1.20 to 0.85). The score for effective rents declined by 2.00 percent (falling from 1.28 to 1.08). Despite this downward trend, the readings are still positive, meaning respondents expect capital to remain available and effective rents to rise.
Agreement/Disagreement Among Respondents
By far, the most consistent responses (meaning there was the most agreement among respondents) were to the question regarding face rents, indicating positive growth over the next year. The least consistent responses were to the question about employment growth, indicating uncertainty about employment growth over the next year. (This was the least consistent reading in the previous survey as well.) This reading is in line with the unsteady job growth that has occurred in the recent past and reflects uncertainty due to the upcoming U.S. presidential election.
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.
Read more about Distinguished Fellows