Graphs and Observations

Download the Fall 2016 NAIOP Sentiment Index Report. 

Employment

1. How likely is it that your company will add employees within the next 12 months?

Employment

Expectations regarding employment growth over the next 12 months declined slightly (by 2.00 percent) since the last survey in March 2016, and by much less than they did six months ago, when the score fell by 8.30 percent. The score for this question is still highly positive (1.65). Essentially, survey respondents indicated that they are likely to add jobs over the next year, but at a modest rate.

Occupancy Rates

2. Based on your own projects, where do you believe occupancy rates will be in 12 months?

Occupancy Rates

The 0.95 score for occupancy rates is positive and showed the least amount of change from the last survey in March 2016, declining by just 1.00 percent. Occupancy is expected to increase, but at a decreasing rate.

Direct from the Survey Participants

“The top of this cycle is a plateau versus a peak, and [we will be there] for the next year.”

Face Rents

3. Based on your own projects, where do you believe face rents will be in 12 months?

Face Rents


With a score of 1.33, face rents, much like occupancy rates, are expected to grow, but at a slower rate over the next year. The survey to-survey reading fell by 1.20 percent, from 1.45 in March 2016. The overall growth in face rents is expected to remain positive.

Effective Rents

4. Based on your own projects, where do you believe effective rates will be in 12 months?

Effective Rents

Effective rents, with a score of 1.08 and a decline of 2.00 percent, are expected to increase at a moderate rate in the coming year. Respondents expect effective rents to continue to grow at a slightly lower rate than face rents. Relative to face rents, this score may indicate that operating expenses and/or concessions are expected to increase over the coming 12 months.

Direct from the Survey Participants

“I used ‘The Same’ many times due to the uncertainties brought about by the upcoming election, which I feel is the most stratified in terms of future business environment policies in my lifetime.”

Construction Materials Costs

5. For projects on which you are seeking bids, where do you believe the cost of construction materials will be in 12 months?

Construction Materials Costs

A score of -1.68 and a decline of 1.30 percent indicate that respondents expect the cost of construction materials to be slightly higher in the next year. After being the biggest “winner” in the last survey (with the best gain to help the composite Index), expectations regarding the cost of construction materials turned; costs are expected to rise by more in this survey than in the previous one.

Construction Labor Costs

6. For projects on which you are seeking bids, where do you believe the cost of construction labor will be in 12 months?

Construction Labor Costs

The score for construction labor costs, -1.78, remains basically unchanged from March 2016 (when it had a score of -1.80), but remains better than those reported in the February and September 2015 test surveys. This means respondents expect construction labor costs to rise, but not by as much as they did a year ago.

Direct from the Survey Participants

“It is difficult to assess the position of the industry in 12 months; many research analysts and survey results indicate the cycle is peaking. Publicly traded REITs have been net sellers [throughout] the first six months of 2016. Brokers are saying they have more listings but fewer closings year-over-year. I believe we will hit a pause, but since supply and demand are in an acceptable ratio, if there is a correction, real estate will fare quite well compared to other industries.”

Available Equity

7. For projects you will be financing/refinancing, how plentiful do you believe equity will be in 12 months?

Available Equity

Equity is expected to remain available, with a reading of 1.13. However, the view is not as optimistic as it was six months ago, when the reading was 1.33. This decline is a continuation of the downward trend that started in February 2015, but the decline is much less severe than the September 2015 to March 2016 drop of 6.70 percent. Overall, respondents believe equity will still be available, but less plentiful.

Available Debt

8. For projects you will be financing/refinancing, how plentiful do you believe debt will be in 12 months?

Available Debt

Like equity, debt capital, with a score of 0.85, is expected to be available. For the second consecutive survey, this question’s score declined by the largest amount, contracting by 3.50 percent between March and September 2016, reflecting continuing concerns about increased equity requirements as well as the possibility of higher interest rates. Since February 2015, this score has fallen by 13.50 percent.

Direct from the Survey Participants

“[The] low [interest] rate environment is going to bite us again. People are making foolish decisions based on cheap money. The Fed needs to raise rates.”

First-Year Capitalization Rates

9. Where do you expect first-year cap rates to be for deals you will close 12 months from now?

First Year Cap Rates

Since the beta test surveys were conducted in 2015, survey responses have indicated that cap rates will increase slightly in the coming year. The March 2016 score was -0.50, while the September 2016 score was less negative (with a score of -0.38), resulting in a 1.20 percent change. This indicates that respondents may anticipate slightly more risk, a slight increase in interest rates or both.

General Sentiment

10. What is your general sentiment regarding conditions in the commercial real estate industry; as a commercial real estate professional, how do you see the industry in 12 months?

General Sentiment

The general sentiment score of 0.33 indicates that respondents expect a positive commercial real estate market over the next 12 months, albeit a less positive one than indicated by the March 2016 survey and in the two test surveys in February and September 2015. Compared to the previous reading of 0.58 in March 2016, this reading fell by 2.50 percent; compared to September 2015, it fell by 6.50 percent (from 0.98).

Direct from the Survey Participants

“CRE today is [an asset-driven investment type]. For office, we are bullish and see improvement in all areas; industrial, we continue to be optimistic; retail, [we are] very selective at the opportunities that we are willing to look at. With multifamily, [we are] concerned about overbuilding in some urban core markets while suburban markets with high barriers [to entry] and low rental rates look very attractive.”