Summary of NAIOP's Biannual Sentiment Index

by Capstak

NAIOP's September Sentiment Index appears to show commercial real estate market cooling


NAIOP September Sentiment IndexThis week, NAIOP released its biannual Sentiment Index, a quantifiable outlook of conditions for the commercial real estate industry for the next 12 months. Determined on a scale from +5 to -5, the Fall 2016 index came in at a .47 rating. While remaining positive, the index shows an ongoing decline in overall sentiment.  Since the first index in Spring 2015, NAIOP has seen a 6.3 percent drop.


Here are the factors contributing to the rating:


  • Employment - ↓2.00%

  • Occupancy Rates - ↓1.00%

  • Face Rents - ↓1.20%

  • Effective Rents - ↓2.00%

  • Construction Material Costs - ↓1.30%

  • Construction Labor Costs - ↑0.20%

  • Available Equity - ↓2.00%

  • Available Debt - ↓3.50%

  • First-year Capitalization Rates - ↑1.20%


Two Main Positive Changes:

  • Cost of construction labor - Respondents had a 0.2 percent more positive outlook, expecting labor costs to rise, but not by as much as six months ago

  • Capitalization rates - The 1.2 percent increase in positive sentiment, signals cap rates are expected to slightly increase in the next year, but at a slower rate than survey respondents expected six months ago.


Two Main Negative Changes:

  • Capital availability - Respondents sentiment for availability of equity and debt over the next 12 months dropped by 2 percent and 3.5 percent respectively.

  • Effective rents - Sentiment declined by 2 percent over six months - “Respondents expect effective rents to continue to grow at a slightly lower rate than face rents.”


According to the NAIOP report, “Despite this downward trend, the readings are still positive, meaning respondents expect capital to remain available and effective rents to rise.”

NAIOP September General Sentiment

Another impactful result of the sentiment index came when respondents were directly asked what their general sentiment regarding conditions in the commercial real estate industry were for the next 12 months. Responses were an average of 2.5% more negative compared to six months prior, and 10.65% lower than the first index from Spring 2015.


A favorable sentiment rating forecasts a positive 12 months for the CRE industry, but politics and a possible repeat of capricious job growth will affect the trajectory of this prediction.


Respondents varying between positive, neutral and negative cited different factors influencing their sentiment.


One of those surveyed broke their sentiment down by asset type saying, “CRE today is [an asset-driven investment type]. For office, we are bullish and see improvement in all areas; industrial, we continue to be optimistic; retail, [we are] very selective at the opportunities that we are willing to look at. With multifamily, [we are] concerned about overbuilding in some urban core markets while suburban markets with high barriers [to entry] and low rental rates look very attractive.”


Another respondent, with a negative outlook, pointed out, “[The] low [interest] rate environment is going to bite us again. People are making foolish decisions based on cheap money. The Fed needs to raise rates.”


One respondent qualified their use of neutral responses saying, “I used ‘The Same’ many times due to the uncertainties brought about by the upcoming election, which I feel is the most stratified in terms of future business environment policies in my lifetime.”


To view the full NAIOP Sentiment Index, visit:

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