The Commercial Leading Indicator for Brokerage Activity, a leading indicator for the commercial real estate market, shows an improvement in commercial sectors will continue into 2007, the National Association of Realtors reported today.
During the second quarter, the Commercial Leading Indicator for Brokerage Activity was at an index of 119.4, up 0.4 percent from a reading of 118.9 in the first quarter. The index is 2.5 percent above the second quarter of 2005 when it stood at 116.5. The second quarter index was the fifth straight quarter of growth.
NAR’s 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 appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.
David Lereah, NAR’s chief economist, said the improvement is long-term. “Our commercial leading indicator has risen in 11 out of the last 12 quarters, meaning the recovery in commercial real estate will be sustained well into 2007,” Lereah said.
“However, we are seeing a deceleration in the rate of growth — apparently in response to higher oil prices and interest rates — so the expansion in net absorption and commercial construction should continue, but at a slower pace.”
The second-quarter index suggests net absorption of space in the industrial and office sectors will improve over the next six to nine months, with overall completion of retail, office, warehouse and lodging structures expected to grow.
Net absorption in the office and industrial sectors in the fourth quarter is projected to be 70 million to 90 million square feet, with an estimated $300 billion to $310 billion in new commercial construction activity, higher than the $296 billion of new construction recorded in the second quarter.
The indicator suggests a 2.5 percent increase in leasing and sales activity for commercial real estate practitioners in the fourth quarter in comparison with the same period in 2005.
The 13 series in the index include industrial production, the REIT (real estate investment trust) price index, NCREIF (National Council of Real Estate Investment Fiduciaries) total return, personal income minus transfer payments, jobs in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial claims for unemployment insurance, manufacturers’ durable goods shipment, wholesale merchant sales, and retail sales and food service.
More than 100,000 NAR members offer some level of commercial service, with 60,000 specializing primarily in the commercial real estate market.