NAIOP Index Tips Upward for First Time in 2 Years

The semi-annual survey indicates that CRE players are optimistic about the conditions of the real estate market, especially when it comes to employment growth and occupancy rates for new projects.

In a small but potentially significant change, the latest NAIOP Sentiment Index, based on a survey conducted in mid-March, has reversed a two-year downward trend in the semi-annual survey’s findings.

Tom Hamilton, Ph.D., MAI, CRE
Tom Hamilton, Ph.D., MAI, CRE

Though a substantially larger rise, or (more likely) a series of increases, would be needed to return the Index to where it was in February 2015, NAIOP highlighted the fact that the current Index number is 0.56 on a scale running from –5 to 5. This does indicate optimism about CRE conditions among the hundreds of respondents to the NAIOP survey, specifically that favorable market conditions are expected in 12 months.

The two largest positive changes in the survey, the ones that helped keep the Index in positive territory, were much greater confidence regarding employment and occupancy rates. And like the Index overall, these survey scores for both adding employees (a 5.0 percent increase) and occupancy rates for new projects (a 5.3 percent increase) reversed a trend: Both categories had slid consistently over the prior three surveys.

But not everything is rosy. Respondents were much more concerned about the costs of construction materials and labor and about first-year cap rates than they had been six months earlier. The declines in expectations were about 3.0 percent and 4.5 percent, respectively.

The most consistent responses (those with the greatest agreement among survey participants) related to face rents and occupancy rates. Participants expect “steady, continuing growth … in these areas over the next year,” according to NAIOP.

The least consistent responses were those regarding employment growth (where consensus has seldom been seen) and the expected costs of construction labor over the next year. NAIOP attributes this inconsistency to “the uneven real estate-related job growth that has occurred in various regions across the country in the recent past….

The 10-question, semi-annual survey is sent to roughly 5,000 NAIOP principal members in the United States, comprising developers, investors and operators in the office, industrial, retail and multifamily sectors.

The survey’s methodology was developed and the data were analyzed by Tom Hamilton, Ph.D., MAI, CRE, the Gerald Fogelson Distinguished Chair of Real Estate in the Chicago School of Real Estate at Roosevelt University.