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Commercial Real Estate Market Predicted to Drop Again



Although fundamentals are sound, activity in commercial real estate markets is expected to ease in the months ahead, according to the National Association of Realtors (NAR).


Although fundamentals are sound, activity in commercial real estate markets is expected to ease in the months ahead, according to the National Association of Realtors (NAR).
 
The Commercial Leading Indicator for Brokerage Activity edged down 0.7 percent to an index of 119 in the first quarter from a downwardly revised reading of 119.9 in the fourth quarter. It is 0.8 percent below the first quarter of 2007 when it stood at 120.
 
This is the third consecutive quarterly dip since reaching a record of 120.5 in the second quarter of 2007. Before that, the index showed generally positive expansion from the middle of 2003.
 
An index of 100 is defined as the level of commercial real estate market activity during the first quarter of 1990, the first period to be analyzed.
 
The quarterly decline results from falling employment in the sectors requiring office space, rising first-time unemployment claims, a lower rate of return as measured by NCREIF (National Council of Real Estate Investment Fiduciaries), and a falling NAREIT (National Association of Real Estate Investment Trust) price index. In addition, there was a modest decline in industrial production.
 
Realtor members who specialize in office and industrial properties indicate in a separate attitudinal survey that they anticipate a much lower level of business activity in the upcoming quarters.
 
"The job market is weak, but not recessionary," says Lawrence Yun, NAR chief economist. "There are large regional variations, with job growth in the South, while overall professional business service jobs are in the process of a long-term expansion.
 
"The U.S. is the world leader in the knowledge-based industry, and trade exports are solid - combined, these are solid underlying fundamentals for positive rent growth and net absorption in the commercial real estate market."
 
The commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables that reflect future commercial real estate activity, weighted to produce a single indicator of future market performance. It is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.



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  posted on 5/22/2008   Article Use Policy




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