The NAIOP CRE Sentiment Index, a key forecast of commercial real estate market conditions over the next 12 months, increased significantly from the last survey in fall 2023. The index rose to 52 from 46 in September, indicating that respondents expect some improvement in commercial real estate development conditions over the next 12 months.
The NAIOP CRE Sentiment Index is designed to forecast the general condition of the commercial real estate industry over the next 12 months by surveying industry professionals about the future state of projects and the market. The survey includes questions about employment, the space market, construction costs, capital markets, and other real estate development fundamentals. If all survey participants selected the most optimistic answers to all questions, the index would equal 100. Conversely, if all participants selected the most pessimistic answers to all questions, the index would equal 0.
Key findings include:
Respondents have a positive outlook for all components of the index, except for construction costs, which are expected to rise. Respondents are now much more optimistic about capital market conditions than they were in September. Outlook for borrowing availability, equity availability, and first-year cap rates have improved significantly. Demand for commercial real estate is expected to improve slightly. Outlook for occupancy and effective rents has increased. Respondent comments indicate that they expect demand for industrial, retail, and multifamily to remain strong, but that office properties will continue to face a tough market. Developers and building owners expect transaction volumes to increase slightly over the next 12 months. Developers and building owners expect local economic conditions to become somewhat more favorable over the next 12 months.
“Outlooks for borrowing availability, equity capital and first-year cap rates improved more than other metrics,” the report said. “Occupancy and effective rent outlooks increased, with both metrics signaling some improvement over the coming year.”
“The NAIOP Sentiment Index is positive and the outlook for commercial real estate development is improving,” said Mark Servitelli, president and CEO of NAIOP. “After several quarters of contraction, commercial real estate developers are looking to expand again next year.”