| Connecticut Commercial Real Estate |
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| Leading Commercial Real Estate Index Contracts in First Quarter |
WASHINGTON, May 21, 2008
Although fundamentals are sound, activity in commercial real estate markets is expected
to ease in the months ahead, according to a forward-looking index for the commercial
real estate sectors published by the National Association of Realtors®.
The Commercial Leading Indicator for Brokerage Activity1 edged down 0.7 percent to an
index of 119.0 in the first quarter from a downwardly revised reading of 119.9 in the
fourth quarter, and is 0.8 percent below the first quarter of 2007 when it stood at 120.0.
This is the third consecutive quarterly dip since reaching a record of 120.5 in the second
quarter of 2007. Before that, the index showed generally positive expansion from the
middle of 2003; NAR’s track of the index dates back to 1990.
Lawrence Yun, NAR chief economist, expects somewhat diminished business
opportunities for commercial real estate practitioners in the months ahead. “The
moderate erosion in the index suggests that commercial activity, as measured by net
absorption and the completion of new commercial buildings, will be positive but somewhat
weaker over the next six to nine months. Private nonresidential investment in structures
is likely to subtract one-third to one-half percentage point off GDP growth,” he said.
“Along with the impact of the credit crunch, a weakening in leasing and building sales
activity should come as no surprise because commercial real estate follows changes in
overall economic activity.”
The quarterly decline results from falling employment in the sectors requiring office
space, rising first-time unemployment claims, a lower rate of return as measured by
NCREIF (National Council of Real Estate Investment Fiduciaries), and a falling NAREIT
(National Association of Real Estate Investment Trust) price index. In addition, there was
a modest decline in industrial production.
Realtors® members who specialize in office and industrial properties indicate in a
separate attitudinal survey2 that they anticipate a much lower level of business activity in
the upcoming quarters.
“The job market is weak, but not recessionary,” Yun said. “There are large regional
variations, with job growth in the South, while overall professional business service jobs
are in the process of a long-term expansion.
“The U.S. is the world leader in the knowledge-based industry, and trade exports are
solid – combined, these are solid underlying fundamentals for positive rent growth and
net absorption in the commercial real estate market.”
The commercial leading indicator is a tool to assess market behavior in the major
commercial real estate sectors. The index incorporates 13 variables that reflect future
commercial real estate activity, weighted appropriately to produce a single indicator of
future market performance, and is designed to provide early signals of turning points
between expansions and slowdowns in commercial real estate.
The 13 series in the index are industrial production, the NAREIT price index, NCREIF
total return, personal income minus transfer payments, jobs in financial activities, jobs in
professional business service, jobs in temporary help, jobs in retail trade, jobs in
wholesale trade, initial claims for unemployment insurance, manufacturers’ durable
goods shipment, wholesale merchant sales, and retail sales and food service.
More than 80,000 NAR members offer commercial services, and 60,000 of those are
currently members of the REALTORS® Commercial Alliance, NAR’s commercial division.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest
trade association, representing 1.2 million members involved in all aspects of the
residential and commercial real estate industries.
# # #
1The index was revised minimally back through 2005 due to a comprehensive revision in
industrial production data by the U.S. Census Bureau.
NAR reviewed a wide variety of indicators, examined the relationships of indicators that
demonstrated a historical impact on commercial real estate, and modeled a forward-
looking index based on historic trends. Although individual indicators sometimes move in
opposite directions, together they offer a better indication of future market activity.
Quarterly data for 13 selected series were reviewed back through the first quarter of
1990. The modeling demonstrated a change in commercial brokerage activity that could
be seen two quarters later as measured by net absorption in the industrial and office
sectors, and the completion of new commercial buildings as measured by the value of
building construction put-in-place of office, warehouse, retail and lodging structures. An
index of 100 is defined as the level of commercial real estate market activity during the
first quarter of 1990, the first period to be analyzed.
2The SIOR Commercial Real Estate Index is a diffusion index based on a survey of
approximately 600 members of the Society of Industrial and Office Realtors® conducted
by NAR Research. For more information, contact Richard Hollander, SIOR, at 202/449-
8200
Although fundamentals are sound, activity in commercial real estate markets is expected
to ease in the months ahead, according to a forward-looking index for the commercial
real estate sectors published by the National Association of Realtors®.
The Commercial Leading Indicator for Brokerage Activity1 edged down 0.7 percent to an
index of 119.0 in the first quarter from a downwardly revised reading of 119.9 in the
fourth quarter, and is 0.8 percent below the first quarter of 2007 when it stood at 120.0.
This is the third consecutive quarterly dip since reaching a record of 120.5 in the second
quarter of 2007. Before that, the index showed generally positive expansion from the
middle of 2003; NAR’s track of the index dates back to 1990.
Lawrence Yun, NAR chief economist, expects somewhat diminished business
opportunities for commercial real estate practitioners in the months ahead. “The
moderate erosion in the index suggests that commercial activity, as measured by net
absorption and the completion of new commercial buildings, will be positive but somewhat
weaker over the next six to nine months. Private nonresidential investment in structures
is likely to subtract one-third to one-half percentage point off GDP growth,” he said.
“Along with the impact of the credit crunch, a weakening in leasing and building sales
activity should come as no surprise because commercial real estate follows changes in
overall economic activity.”
The quarterly decline results from falling employment in the sectors requiring office
space, rising first-time unemployment claims, a lower rate of return as measured by
NCREIF (National Council of Real Estate Investment Fiduciaries), and a falling NAREIT
(National Association of Real Estate Investment Trust) price index. In addition, there was
a modest decline in industrial production.
Realtors® members who specialize in office and industrial properties indicate in a
separate attitudinal survey2 that they anticipate a much lower level of business activity in
the upcoming quarters.
“The job market is weak, but not recessionary,” Yun said. “There are large regional
variations, with job growth in the South, while overall professional business service jobs
are in the process of a long-term expansion.
“The U.S. is the world leader in the knowledge-based industry, and trade exports are
solid – combined, these are solid underlying fundamentals for positive rent growth and
net absorption in the commercial real estate market.”
The commercial leading indicator is a tool to assess market behavior in the major
commercial real estate sectors. The index incorporates 13 variables that reflect future
commercial real estate activity, weighted appropriately to produce a single indicator of
future market performance, and is designed to provide early signals of turning points
between expansions and slowdowns in commercial real estate.
The 13 series in the index are industrial production, the NAREIT price index, NCREIF
total return, personal income minus transfer payments, jobs in financial activities, jobs in
professional business service, jobs in temporary help, jobs in retail trade, jobs in
wholesale trade, initial claims for unemployment insurance, manufacturers’ durable
goods shipment, wholesale merchant sales, and retail sales and food service.
More than 80,000 NAR members offer commercial services, and 60,000 of those are
currently members of the REALTORS® Commercial Alliance, NAR’s commercial division.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest
trade association, representing 1.2 million members involved in all aspects of the
residential and commercial real estate industries.
# # #
1The index was revised minimally back through 2005 due to a comprehensive revision in
industrial production data by the U.S. Census Bureau.
NAR reviewed a wide variety of indicators, examined the relationships of indicators that
demonstrated a historical impact on commercial real estate, and modeled a forward-
looking index based on historic trends. Although individual indicators sometimes move in
opposite directions, together they offer a better indication of future market activity.
Quarterly data for 13 selected series were reviewed back through the first quarter of
1990. The modeling demonstrated a change in commercial brokerage activity that could
be seen two quarters later as measured by net absorption in the industrial and office
sectors, and the completion of new commercial buildings as measured by the value of
building construction put-in-place of office, warehouse, retail and lodging structures. An
index of 100 is defined as the level of commercial real estate market activity during the
first quarter of 1990, the first period to be analyzed.
2The SIOR Commercial Real Estate Index is a diffusion index based on a survey of
approximately 600 members of the Society of Industrial and Office Realtors® conducted
by NAR Research. For more information, contact Richard Hollander, SIOR, at 202/449-
8200