The NAIOP CRE Sentiment Index

Release Date: Spring 2020

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Key Findings

The NAIOP CRE Sentiment Index for March 2020 is 45, falling below 50 for the first time since the index began in 2016. This is a substantial drop from September 2019 (57; see Figure 1).

Respondent expectations for general industry conditions, measured separately from the index, fell even more sharply, from a score of 53 to a 38. (see Figure 2). This measurement, which allows for a comparison between respondents’ general outlook for the commercial real estate industry as a whole and expectations about their own projects and markets, has usually been within a few points of the Sentiment Index in past surveys. A sharply lower outlook for general industry conditions suggests that respondents were more pessimistic about general conditions than the fundamentals of their own projects and markets.

Respondents provided a slightly negative outlook on every condition that comprises the index (occupancy rates, face rents, effective rents, construction materials costs, construction labor costs, equity and debt availability, and first-year cap rates) except for employment within their own firms, which they expected to be almost flat (a score of 51 on a 100-point scale; see Figure 3).

There was greater variation in the range of answers that respondents provided to individual survey questions than in the past, suggesting increased uncertainty about future industry conditions.

Respondents’ expectations about general industry conditions fell between the first seven days and the last eight days of the survey. Comments from survey respondents also suggest that sentiment had deteriorated since the survey first began in mid-March and that it had become more difficult to predict future industry conditions.

A Note About the March 2020 Survey

The NAIOP CRE Sentiment Index was designed to estimate general conditions in the commercial real estate industry over the next 12 months by asking industry professionals to predict conditions for their own projects and markets. However, the March 2020 survey that informs the index was conducted between March 11 and March 25, a period of rapidly increasing economic uncertainty associated with the coronavirus outbreak.

The survey data and comments from respondents reflect this growing uncertainty. Given the added difficulty of forecasting future market conditions during this period, the March survey results are better understood as a snapshot of industry sentiment than as a reliable
predictor of future market conditions.