The national industrial and office property market index advanced to 119.70, compared with 119.40 in February 2006 and 115.75 in November 2005.
This is good news for owners of industrial and office property, SIOR says. An Index Value of 100 reflects well-balanced commercial real estate conditions. Values greater than 100 represent strong market conditions favoring existing owners, as landlords and as sellers of properties. Values below 100 indicate favorable negotiating conditions for tenants and for those looking to acquire real estate.
Industrial properties such as warehouses and distribution centers are further along than office in their cyclical recovery. The industrial subindex registered 122.24 in the second quarter, up modestly from its 121.69 score in the first quarter.
Industrials achieved very strong scores in improving occupancy and in the virtual disappearance of subleasing activity as a drag on market performance. In addition, rental rates have risen materially in two-thirds of the nation’s industrial markets, compared to one year ago.
Tenants find sufficient bargaining strength to extract leasing concessions in just 30 percent of the markets responding. Development is reaching nearly normal levels, and owners of prime land see strong acquisition demand. Economic trends, however, are the subject of some concern as questions about the effect of both local and national economic conditions on industrial market trends returned lower scores than in the previous quarter.
The office subindex rose 1.96 points since February, and now stands at 117.41. The office market is experiencing broad-based rental rate increases, driven by occupancy gains reported by just over 70 percent of the survey panel. Investment pricing is strong – at or above replacement cost as indicated by 79 percent of the respondents. Development is still lagging, however, and this presages further improvement in vacancy rates for the year ahead.
Subleasing has minimal impact on offices right now, but tenants still have some bargaining power to negotiate lease concessions in about half the markets covered. In trying to capture this opportunity while it lasts, tenants have brought leasing activity to normal or higher-than-normal levels reported by the survey panelists.
The SIOR index, compiled from survey responses from more than 300 SIOR Industrial and office real estate brokers in late April/early May, is a diffusion index, calculated by methods similar to the index of leading indicators, the consumer confidence index, and the purchasing managers index.
