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2007-11-26 14:24:00

Commercial Real Estate Index Levels Out in Third Quarter

Commercial real estate market activity is expected to level out, suggesting stable business opportunities for commercial practitioners in the months ahead, according to a forward-looking index for the commercial real estate sectors published by the National Assn. of REALTORS®.

The Commercial Leading Indicator for Brokerage Activity* slipped 0.1% to an index of 120.6 in the third quarter from a record reading of 120.7 in the second quarter, but remains 0.7% higher than the third quarter of 2006 when it stood at 119.7.  The dip follows nine consecutive quarterly increases; NAR’s track of the index dates back to 1990.

Lawrence Yun, chief economist of the National Assn. of REALTORSLawrence Yun, (shown at right)  NAR chief economist, said momentum in the commercial market appears to be leveling at a high plateau.  “Commercial real estate has been performing quite well over the past few years and the flattening index means net absorption of space in the industrial and office sectors is likely to contract modestly or hold even over the next six to nine months,” he said.  “This trend is consistent with anticipated slower economic expansion in upcoming quarters.”

There should be no measurable change in net absorption in the office and industrial sectors in the first quarter of 2008, and no measurable change in newly completed commercial construction activity.

The level of the commercial leading indicator also implies that commercial real estate practitioners could expect leasing and sales activity in the first quarter of next year to be about 0.7% higher than the first quarter of 2007.

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 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.

The 13 series in the index are:

  1. industrial production,
  2. the NAREIT (National Assn. of Real Estate Investment Trust) price index,
  3. NCREIF (National Council of Real Estate Investment Fiduciaries) total return,
  4. personal income minus transfer payments,
  5. jobs in financial activities,
  6. jobs in professional business service,
  7. jobs in temporary help,
  8. jobs in retail trade,
  9. jobs in wholesale trade,
  10. initial claims for unemployment insurance,
  11. manufacturers’ durable goods shipment,
  12. wholesale merchant sales,
  13. and retail sales and food service.

Nearly 140,000 NAR members offer commercial services, and 73,000 of those are currently members of the REALTORS® Commercial Alliance, NAR’s commercial division.

The National Assn. of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.


*NAR reviewed a wide variety of indicators, examined the relationships of indicators that demonstrated a historical impact on commercial real estate, and modeled a forward-looking index based on historic trends.  Although individual indicators sometimes move in opposite directions, together they offer a better indication of future market activity.

Quarterly data for 13 selected series were reviewed back through the first quarter of 1990. The modeling demonstrated a change in commercial brokerage activity that could be seen two quarters later as measured by net absorption in the industrial and office sectors, and the completion of new commercial buildings as measured by the value of building construction put-in-place of office, warehouse, retail and lodging structures.  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.

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