Commercial Real Estate Index Shows Slowing Activity Expected
(WASHINGTON, DC) - The economic downturn will slow commercial real estate markets into 2009, according to a forward-looking index for the commercial real estate sectors published by the National Association of Realtors.
Lawrence Yun, NAR chief economist, said all components of the Commercial Leading Indicator for Brokerage Activity1 were down, with the exception of personal income. "Aside from weakening conditions in the index variables, the commercial mortgage-backed securities market is all but frozen, making it very difficult to rollover existing debt that is coming due," he said. "It is encouraging to hear the Treasury Department is considering using the Troubled Asset Relief Program to help revive the commercial real estate debt market, but time is of the essence, and it must be implemented immediately."
The CLI slowed 1.7 percent to an index of 116.5 in the third quarter from an upwardly revised reading of 118.5 in the second quarter, and is 3.1 percent lower than a level of 120.3 in the third quarter of 2007, which was the second highest index on record. NAR's track of the commercial leading indicator dates back to 1990.
The decline in the index means commercial real estate activity, as measured by net absorption and the completion of new commercial buildings, is projected to weaken over the next six to nine months.
The Society of Industrial and Office Realtors, in its SIOR Commercial Real Estate Index, a separate attitudinal survey of approximately 600 local market experts,2 also expects a lower level of business activity in upcoming quarters. The SIOR index has declined for seven consecutive quarters and is 33.6 percentage points below the 100 point criteria that represents a balanced marketplace.
NAR's commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. That 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 (National Association of Real Estate Investment Trust) price index, NCREIF (National Council of Real Estate Investment Fiduciaries) 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 82,000 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.