NAIOP Sentiment Index Drops Below 50 for the First Time Since Its Inception

A comparison of industry sentiment by category from the average between 2016 and March 2019, September 2019 and March 2020.

The NAIOP CRE Sentiment Index — based on a survey of commercial real estate developers, owners, investors and service providers — has come in at 45 for the month of March, dropping from 57 in September 2019 to a number below 50 for the first time since its inception in 2016.

The NAIOP Sentiment Survey is conducted semi-annually, in March and September. The survey is sent to roughly 10,500 NAIOP members in the U.S. who are developers, building owners, building managers, brokers, analysts, consultants, lenders and investors in the office, industrial, retail and multifamily sectors. If every participant in the survey selected the most optimistic answer to every question, the index would be 100. Conversely, if all of the participants chose the most pessimistic response to every question, the index would be 0.

The survey was conducted against the backdrop of escalating concerns regarding the coronavirus (COVID-19) pandemic in mid-March. While a score below 50 typically indicates unfavorable conditions for commercial real estate over the next 12 months, the association believes that the current ranking of 45 is better understood as a commentary on present-day sentiment in the industry rather than a reliable predictor for future market conditions.

Of specific categories, the average sentiment on employment saw the sharpest decline, dropping more than 20 points from 74 in September 2019 to 51 in March of this year. The average sentiment for available equity and debt also declined from 67 in September of last year to 47 and 46, respectively. 

While industry sentiment dropped in many categories, a silver lining was found in the outlook for construction materials and labor costs — both categories saw improvement from 29 in September 2019 to 42 and 43 in March. This could signal that respondents believe there will be less demand in these areas due to a slowdown in the construction industry. 

The survey — which took place from March 11 to March 25 — saw respondents’ expectations about general industry conditions fall between the first seven days and the last eight days of the survey period. Comments from respondents suggest that sentiment deteriorated from the start of the survey period and that it had become more difficult to predict future industry conditions. In response, the association has decided to re-administer the survey later this year. 

A total of 439 distinct companies are represented in the survey, with roughly 50 percent of respondents working in the industrial sector. Following industrial, 21 percent of respondents worked in the office sector; 24 percent were in traditional multifamily; and 5 percent worked in retail. 

NAIOP, otherwise known as the Commercial Real Estate Development Association, is an organization for developers, owners, investors and related professionals in office, industrial, retail and mixed-use real estate.

Katie Sloan 

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