The NAIOP CRE Sentiment Index reveals that overall sentiment is down from the Spring 2022 report, suggesting that respondents expect unfavorable conditions for commercial real estate over the next 12 months.
The current index is 47, down from April’s reading of 53 and 56 in the fall of 2021. Just before the pandemic, the index was 57, before dropping to a low of 45 in March 2020. The survey was conducted from September 14 to 22.
The responses show that higher interest rates, higher capitalization rates and a decrease in the supply of equity and debt are expected over the next 12 months. Respondents predict a sharper rise in capitalization rates and a greater contraction in the supply of stocks and debt than in any previous survey.
Their outlook for occupancy rates, headline rents and effective rents are also less optimistic, although they still expect rent growth.
A positive sign in the September 2022 survey is that respondents expect the pace of construction cost inflation to slow over the next year. Rising interest rates appear to have dampened inflation expectations. Respondents expect construction material and labor costs to continue to rise, but at a slower pace than expected in the April 2022 survey or both 2021 surveys.
Despite the outlook, the developers expect to maintain the volume of recent transactions over the coming year. Developers and building owners expect to complete about the same volume of new projects and transactions over the next 12 months as they have over the past 12. The reason for the disparity may be greater optimism for the sectors and markets in which they operate than for the commercial real estate sector as a whole.
Most respondents (54.9%) expect to be more active in industrial property related projects or transactions over the next 12 months.
“Uncertainty about interest rates and inflation is certainly contributing to the current index; however, we are seeing signs of long-term strength in our industry. said Marc Selvitelli, CAE, President and CEO of NAIOP.
The NAIOP CRE Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months by surveying industry professionals about future conditions in their projects and markets. The survey includes questions about jobs, space markets, construction costs, capital markets and other real estate development fundamentals. If each survey participant chose the most optimistic answer to each question, the index would be 100. Conversely, if all participants chose the most pessimistic answer to each question, the index would be 0. # # #
About NAIOP: NAIOP, the Commercial Real Estate Development Association is the leading organization for developers, owners, investors and related professionals in office, industrial, commercial and mixed-use real estate. NAIOP provides industry-leading networking and education and advocates for effective legislation on behalf of our members. NAIOP promotes responsible and sustainable development that creates jobs and benefits the communities in which our members work and live. For more information, visit naiop.org.