SIOR’s comprehensive Commercial Real Estate Index, published for the first time, stood at 115.75. For this Index, a score of 100 indicates a broadly balanced market, and the higher the score, the stronger the market conditions.
Recent improvements in commercial vacancy rates, active demand for new building sites, and a vanishing overhang of sublet space are the clearest indicators of increasingly positive fundamentals for industrial and office real estate.
SIOR’s survey respondents gave modest credit to local and national economic conditions supporting the property markets for the gains. Rents are rising moderately at this stage of the real estate cycle. Investment pricing now is typically providing a premium over new building construction costs.
Leasing activity is back to normal levels, report the survey panelists. But tenants still can effectively bargain for concessions in their leasing contracts, and supply/demand conditions have yet to bring development activity back to its long-term sustainable volume.
Examining the data for the two key property types, the industrial real estate markets appear to be slightly ahead of offices in the recovery phase of the cycle. The Index score for industrial property is 118.05, versus 114.66 for offices. Industrials are advantaged by lower volumes of sublet space, fewer rental concessions, and are more advanced in readiness to accept new construction. Offices, by comparison, have enjoyed better asking rent gains, a slightly more active market for site acquisition, and a more significant positive contribution from local economic conditions.
The survey was completed by 243 designated SIOR members, representing 114 metropolitan markets across the United States.
