NAIOP Sentiment Index
Release Date: Fall 2017
Download the Fall 2017 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 CRE Sentiment Index for September 2017, a composite of nine survey questions, decreased slightly to 0.49 (from 0.56, as measured in the March 2017 survey), but posted the second lowest reading in the history of the three-year old survey. It returned to the level noted in September 2016, when commercial real estate fundamentals were generally positive but uncertainty regarding the U.S. presidential election clouded the general economic outlook. Since the survey’s Index is greater than zero, this indicates that respondents believe, as a group, that general market conditions over the next 12 months will continue to be favorable for the CRE industry, and overall conditions will be better in 12 months (September 2018) than they are today. This survey reflects an expectation that the CRE market will be moving ahead at a more cautious pace than what was expected six months ago, and at about the same pace as measured one year ago.
Notable Changes From the March 2017 Survey
The two largest positive changes in the survey that helped keep the Index in positive territory were much greater confidence in the availability of debt and equity capital. Survey scores for both debt capital (a 3.00 percent increase) and equity capital (a 4.70 percent increase) show a major trend reversal for these two categories after both slid consistently over the prior three surveys. At the same time, however, respondents are more concerned about the costs of construction materials and labor, as these survey components each slid by 3.50 percent, hitting all-time lows. Expectations for first-year cap rates rebounded 2.80 percent (although they are still expected to be higher in 12 months) and optimism for occupancy rates fell by 6.50 percent to a new low-water mark in this survey.
Respondents continue to be generally optimistic about the CRE market in the coming year; however, the score for the survey’s individual, general sentiment question fell 3.00 percent (from 0.65 to 0.35) between March and September 2017.
Agreement/Disagreement Among Respondents
The most consistent responses (meaning there was the most agreement among survey participants) continue to relate to the questions regarding face rents and occupancy rates. Tendencies among both of those responses indicated steady, continuing growth in these areas over the next year. The least consistent responses, signaling disagreement among the respondents, were about employment growth and the expected costs of construction labor and materials over the next year. In fact, construction labor costs registered the most disagreement among the respondents. These employment-related readings are consistent with the uneven real estate-related job growth that has occurred in various regions across the country since the U.S. presidential election last November.
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