Past Indexes and Understanding the Index
Understanding the Index
The survey’s final question about overall sentiment regarding future conditions is designed to serve as a verification of the Sentiment Index and is not included in the calculation of the Index. The score for the final question is 0.58, whereas the Index is slightly lower at 0.46. Said differently, when responses to the first nine questions — which relate to real estate fundamentals — are combined into the composite Index, the result is only slightly less positive than when respondents were asked a single, subjective question regarding overall sentiment toward the CRE marketplace. When these two indicators are very close to each other (within 2.0 percent for the March 2018 survey), the single general sentiment question is validated, which is the case, again, with this survey.
The NAIOP CRE Sentiment Survey is conducted biannually, in March and September. The survey is sent to roughly 5,000 NAIOP principal members in the U.S. who are developers, investors and operators in the office, industrial, retail and multifamily sectors. It asks 10 questions about jobs, the space markets, construction costs and the capital markets. Respondents indicate whether their 12-month outlook for each category is positive, negative or neutral. The responses are not equally weighted. Instead, weighting varies based on whether the responses to a question are tightly packed or dispersed. Questions with tightly packed responses (meaning there is more consistency among the answers to that question) are more heavily weighted than those with more dispersed responses (which indicate less consistency).
If every participant in the survey selected the most optimistic answer to each and every question, the Index would be positive 5. Conversely, if all of the participants chose the most pessimistic response to each and every question, the Index would be negative 5. The Index is on a 10-point scale, meaning that changes to the composite scores — and the Index itself — will range between zero and 10. A one-point change in the Index equates to a 10 percent change (on an absolute basis).
Changes in the scores of the individual survey questions between the September 2017 and March 2018 surveys ranged between 0.0 and 3.2 percent. This is typical of what was seen in all surveys since March 2016, with the exception of the September 2017 survey. The overall composite index for March 2018 (0.46) decreased by 0.30 percent since September 2017 (0.49) and
it has been at about this level since March 2016. The current survey indicates that there continues to be positive, but guarded optimism in the CRE industry due to capital markets (positive influences) and to construction labor and materials costs (negative influences).
Distinct companies that participated in this survey total 357, representing 17.9 percent of the 1,989 distinct companies invited. Product types owned/under development by respondents broke out to roughly 31 percent office, 34 percent industrial, 18 percent retail and 17 percent multifamily; Western regions were slightly more represented than Eastern regions followed by the South and the Midwest. The response rate for this survey was 8.6 percent and the margin of error for the Index was 4.55 percent — both of which were improvements over the September 2017 and March 2017 surveys.
Survey participants are sent a three-page summary of results showing the percentage breakdown of responses to each question just three days after the survey closes. This final report is released to all NAIOP members and the public three weeks later. Survey responses for this Index were gathered between February 21 and March 7, 2018. The first two readings in this survey were beta tests sent to approximately 600 NAIOP members in February and September 2015, generating response rates of around 17 percent. Comparing this survey to the previous beta tests, respondents’ consistency across questions was nearly the same, with face rents being the most consistently answered question and construction materials costs, construction labor costs and employment being the least consistently answered questions. As such, the 2016, 2017 and 2018 results do not vary significantly from those in the beta tests.