NAIOP Sentiment Index
Release Date: Spring 2017
Download the Spring 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 Sentiment Index for March 2017, a composite of nine survey questions, reversed a consistent two-year downward trend moving up slightly to 0.56. Since the survey’s Index is greater than zero, this indicates that respondents believe, as a group, that overall market conditions 12 months from now (in March 2018) will continue to be favorable for the commercial real estate industry, and conditions will be better than they are today. Although the Index is positive, it has declined by 0.54 points (that is, by 5.40 percent on an absolute basis) since the first beta test of the survey was conducted in February 2015. However, it is 0.90 percent higher than the previous survey conducted in September 2016, reflecting an expectation that the CRE market will be moving ahead at a more robust pace than what was expected six months ago.
Notable Changes From the September 2016 Survey
The two largest positive changes in the survey that helped keep the Index in positive territory were much greater confidence in employment and in occupancy rates. Survey scores for both adding employees (a 5.00 percent increase) and occupancy rates for new projects (a 5.30 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 were much more concerned about the costs of construction materials and labor and about first-year cap rates than they were six months earlier. Expectations for both materials and labor costs fell to larger negatives (decreases of about 3.00 percent) and optimism for first-year cap rates fell by 4.50 percent.
Overall, respondents were generally more optimistic about the CRE market in the coming year. The score for the survey’s individual, general sentiment question increased from 0.33 to 0.65 between September 2016 and March 2017.
Agreement/Disagreement Among Respondents
The most consistent responses (meaning there was the most agreement among survey participants) relate to the questions regarding face rents and occupancy rates. Those responses indicate that steady, continuing growth is expected in these areas over the next year. The least consistent responses align with questions about employment growth and the expected costs of construction labor over the next year. For three surveys in a row, consensus about employment growth within the respondents’ firms has been one of the least consistent. These employment-related readings are consistent with the uneven real estate-related job growth that has occurred in various regions across the country in the recent past and reflects uncertainty both before and since the 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