WASHINGTON, DC – Commercial real estate professionals say conditions in the industry have returned to roughly where they were before the COVID-19 pandemic began, according to the Business Sentiment Index. Commercial Real Estate of the Fall 2021 from the National Association of Industrial and Office Parks (NAIOP).
The September 2021 index came in at 56 out of 100, up slightly from 54 in April 2021 and the same as March 2019, a year before the start of the pandemic. At the worst time of the pandemic – from March to September 2020 – the index fell to 45.
The NAIOP Sentiment Index was created to predict general conditions in the commercial real estate industry over the next 12 months by asking industry professionals to predict conditions for their own projects and markets. The Fall 2021 report surveyed a total of 357 respondents from 263 separate companies from September 7-14. The index asks respondents questions about jobs, space markets, construction costs, capital markets and other real estate development conditions.
A sentiment index below 50 means that many believe commercial real estate conditions will be unfavorable over the next 12 months; 50 means little or no change in commercial real estate conditions is expected; and above 50 means that favorable commercial real estate conditions are expected.
“Sentiment for commercial real estate is the most positive it has been since the start of the pandemic,” said Thomas Bisacquino, president and CEO of NAIOP. “Our industry plays an important role in the US economy, and we remain cautiously optimistic about the continued expansion of commercial real estate and the national economy.”
The NAIOP report also found that while construction costs are expected to continue to rise, many commercial real estate professionals say they see the rate of material price inflation slowing. There was a score of 31 for building material costs, which was similar to the average score from 2016 to 2019 of 29. In other words, inflation is less of a concern than it was in the US. April 2021 survey, which had a score of 24 for building material costs.
The largest number of respondents (62.7%) believe they will be most active in industrial projects or transactions over the next 12 months. Around 22.6% believe they will be most active in multi-family properties. Additionally, 11.9% of respondents believe they will be most active in office buildings, and only 2.8% expect to be most active in retail buildings.
Currently, 71.5% of respondents indicated that they work on industrial properties, 65% on office buildings, 39.8% on commercial buildings and 38.4% on multi-family buildings.
Additionally, survey respondents are more positive about headline rents, effective rents, occupancy rates and employment at their own businesses than they were in April 2021. In September 2021, Occupancy had a score of 60, which was higher than the April 2021 score of 58. Last month, headline rents had a score of 69, effective rents had a score of 65 and employment had a score of 67. , while headline rents were 63, effective rents 58 and employment 62 in April this year.
However, respondents predict that cap rates will decline, despite past expectations that cap rates would increase or remain stable. NAIOP, a provider of research on commercial real estate industry trends and innovations, began in 1967 and currently has over 19,000 members.
To view the full sentiment report, Click here.