The Commercial Leading Indicator for Brokerage Activity, a leading indicator for the commercial real estate market, has increased for six consecutive quarters, the National Association of Realtors reported today, showing that continued growth can be expected in commercial real estate sectors.
In the third quarter, the indicator rose 0.4 percent to a reading of 120.1 from an index of 119.6 in the second quarter, and is 2.9 percent higher than the third quarter of 2005 when it stood at 116.7.
David Lereah, NAR’s chief economist, said the index is at the highest level in the series of the indicator, which goes back to 1990. “Although we have a strong uptrend in the commercial sectors, the rise in the index over the last two quarters shows a lower rate of expansion in comparison with late 2005 and early 2006,” Lereah said. “This means that commercial sectors will continue to grow, but at a more modest pace.”
Growth in the index means net absorption of space in the industrial and office sectors will continue to improve over the next six to nine months, with rising completions of overall retail, office, warehouse and lodging structures.
The commercial leading indicator 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.
Net absorption in the office and industrial sectors in the first quarter of 2007 is expected to be 70 million to 90 million square feet, with about $315 billion to $325 billion in new, completed commercial construction activity, compared with $309 billion of new construction recorded in the third quarter.
Commercial real estate practitioners can anticipate leasing and sales activity in the first quarter to be approximately 2.9 percent higher than the first quarter of 2006.
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.