Commercial Real Estate Sentiment Rebounds, Says NAIOP Index

The NAIOP CRE Sentiment Index, a key forecast of commercial real estate market conditions over the next 12 months, has increased significantly from the last survey in fall 2023. The Index rose to 52, from 46 in September, indicating that respondents expect conditions for commercial real estate development to be somewhat better over the next year.

The NAIOP CRE Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months by surveying industry professionals on the future conditions of their projects and markets. The survey includes questions about jobs, space markets, construction costs, capital markets and other real estate development fundamentals. If every participant in the survey selected the most optimistic answer to every question, the index would be 100. Conversely, if all the participants chose the most pessimistic response to every question, the index would be 0.

Among the key findings:

• Respondents have a positive outlook for every component that comprises 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. The outlook for the availability of debt, the availability of equity and first-year cap rates improved significantly.
• Demand for commercial real estate is expected to improve slightly. The outlook for occupancy rates and effective rents rose. Comments suggest respondents expect favorable demand for industrial, retail and multifamily, but that office properties will continue to face a challenging market.
• Developers and building owners now expect their deal volume to grow slightly over the next year.
• Developers and building owners expect somewhat favorable local economic conditions over the next 12 months.

“The outlook for the availability of debt, the availability of equity and first-year cap rates improved more than for other measures,” according to the report. “The outlook for occupancy rates and effective rents rose, with both measures now suggesting some improvement over the next year.”

“The NAIOP Sentiment Index is positive and the outlook is improving for commercial real estate development,” said Marc Selvitelli, president and CEO of NAIOP.  “After several quarters of contraction, commercial real estate developers are again looking to expand  over the next year.”

A total of 456 respondents from 343 distinct companies participated in this survey, which was conducted in March and April.

Download the Sentiment Index here.