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 0.35, whereas the Index is slightly higher at 0.49. Said differently, when responses to the first nine questions — which relate to real estate fundamentals — are combined into the composite Index, the result is slightly more positive than when respondents were asked a single, subjective question regarding overall sentiment toward the CRE marketplace.
The NAIOP 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 March and September 2017 surveys ranged between 0.20 and 6.50 percent. This is a much wider range than that recorded in the previous two surveys (September 2016 and March 2017), but a narrower range than what was posted between the September 2015 and March 2016 surveys (0.20 and 9.50 percent). The overall composite index for September 2017 (0.49) decreased by 0.70 percent since March 2017 and is at about the same level as the Index in September 2016 (0.47). It is also within 1.00 percent of readings from the three prior surveys. This latest survey indicates that there continues to be guarded optimism in the CRE market.
To help increase the number of respondents, both the March and September 2017 surveys were open over a longer period of time than were for the prior surveys (12 days compared to two days) and that, coupled with tailored email outreach to previous survey participants, resulted in a slight increase in responses between March and September 2017, (increasing from 433 to 443). There were 328 distinct companies that responded to this survey. Product types owned/under development by respondents broke out to roughly 33 percent office, 34 percent industrial, 18 percent retail and 15 percent multi-family; east and west regions were slightly more represented in the sample than the south and Midwest. The response rate for this survey was 8.60 percent and the margin of error for the Index was 4.67 percent — both of which were improvements over the September 2016 and March 2017 surveys.
Survey participants are sent a 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 September 6 and 18, 2017. 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 and 2017 results do not vary significantly from those in the beta tests.