Inaugural NAIOP Sentiment Index: 12 Good Months Ahead

The organization's very first Sentiment Index brings good news for commercial real estate in 2016.
Thomas Bisacquino, NAIOP

Thomas Bisacquino, NAIOP

WashingtonNAIOP, the commercial real estate development association, just released its very first Sentiment Index, which focuses on what the next 12 months will bring, and the news is good. The spring 2016 Index figure of 0.60 indicates that commercial real estate players expect positive market conditions to persist—and possibly even improve between now and March 2017.

Past performance does not play much of a role in the Sentiment Index; it’s all about the future as anticipated by industry developers, owners and investors. And in a nutshell, Thomas Bisacquino, NAIOP president & CEO, told Commercial Property Executive, the survey respondents’ outlook is “confident, yet cautious.”

Among the big takeaways form the survey is the prediction of a rise in the cost of construction materials and labor; but on the positive side, the increases are smaller than those anticipated in NAIOP’s beta test survey in September 2015. With -5 signifying much higher prices and 0 indicating unchanged pricing, the score for construction materials went from -2.10 in September to -1.55 in March, marking a 0.55-point improvement. The score for construction labor improved as well, going from -2.13 to -1.80.

Additionally, per the Sentiment Index, decreases pertaining to debt, equity and employment are forecasted; however, there’s no sense of panic among the respondents. They still anticipate continued access to capital, and expect equity to be reasonably available. As for jobs, survey participants envisage adding more jobs, albeit at a slower rate.

Another key finding involves face rents, effective rents and occupancy rates—all of which will go on the upswing. The only change is the rate of increase. Face rents scored 1.45, compared to 1.75 in September’s beta survey. The pace of growth in effective rents will also slow down. And occupancy rates will increase at a steady rate, although a supply/demand equilibrium is on the horizon.

Again relatively good news all around, and the respondents’ forecast—sunny with a chance of clouds, at some point—is what NAIOP had anticipated. “We expected their sentiment to be positive—this is an industry of entrepreneurs and risk takers. The industry is robust today, and its strength will propel it for the next year,” Bisacquino said. “Their outlook is realistic, yet tempered with the knowledge that a slowdown is unavoidable.”