An index maintained by the National Association of Realtors points to a softening in commercial real estate markets in the coming months. The Washington-based trade group reports that its leading indicator for brokerage activity was down 0.9% to a reading of 117.9 in the second quarter.
In the first quarter, the index stood at 119, or 2.1% lower than a record reading of 120.5 for the second quarter of 2007. This index softening means that commercial real estate activity, in terms of net absorption and completions of new commercial buildings, is likely to weaken over the next six to nine months, according to the NAR.
“The pace of decline has intensified due to job cuts and very sluggish economic activity since the beginning of the year, particularly in those industries requiring commercial building spaces,” says Lawrence Yun, chief economist of the NAR. “We anticipate the weakest commercial brokerage activity in nearly three years as a result.”
The NAR index is weighted and uses 13 different variables that are expected to reflect commercial real estate activity. The index was launched in 1990.
The NAR also cites a separate index survey from the Society of Industrial and Office Realtors (SIOR) to support the NAR’s view of a coming slowdown. In the SIOR survey, nearly 600 local market experts say that they expect a lower level of business activity in the coming quarters.
And analysis of the index maintained by the SIOR implies that office and industrial market conditions are excellent for tenants and purchasers, but are “significantly less favorable” for landlords and sellers.