WASHINGTON, D.C. — Commercial real estate professionals indicate conditions in the industry have returned to approximately where they were before the onset of the COVID-19 pandemic, according to The National Association of Industrial and Office Parks (NAIOP) Fall 2021 Commercial Real Estate Sentiment Index.
The index for September 2021 came in at 56 out of 100, up slightly from 54 in April 2021 and identical to March 2019, a year before the pandemic began. At the pandemic’s worst point — March through September 2020 — the index sank to 45.
The NAIOP Sentiment Index was created to predict general conditions in the commercial real estate industry over the following 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 distinct companies from Sept. 7 to 14. The index asks respondents questions about jobs, space markets, construction costs, capital markets and other conditions for real estate development.
A sentiment index below 50 means many believe there will be unfavorable commercial real estate conditions over the next 12 months; 50 means little to no change in commercial real estate conditions are expected; and greater than 50 means favorable commercial real estate conditions are expected.
“The sentiment for commercial real estate is the most positive it has been since the pandemic began,” says Thomas Bisacquino, president and CEO of NAIOP. “Our industry plays a significant role in the U.S economy, and we remain cautiously optimistic that commercial real estate and the nation’s economy will continue to expand.”
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 down. There was a score of 31 for construction material costs, which was similar to the 2016 to 2019 average score of 29. In other words, inflation is less of a concern than it was in the April 2021 survey, which had a score of 24 for construction material costs.
The greatest number of respondents (62.7 percent) believe they will be the most active in industrial projects or transactions over the next 12 months. About 22.6 percent believe they will be the most active in multifamily properties. Additionally, 11.9 percent of respondents believe they will be the most active with office properties, and only 2.8 percent expect to be most active in retail properties.
Currently, 71.5 percent of respondents indicated they work on industrial properties, 65 percent work on office properties, 39.8 percent work on retail properties and 38.4 percent work on multifamily properties.
Additionally, survey respondents are more positive about face rents, effective rents, occupancy rates and employment in their own firms than they were in April 2021. In September 2021, occupancy rates had a score of 60, which was higher than the score of 58 in April 2021. Last month, face rents had a score of 69, effective rents had a score of 65 and employment had a score of 67, while face rents were 63, effective rents were 58 and employment was 62 in April of this year.
However, the respondents predict cap rates to decrease, despite past expectations that cap rates would increase or remain flat. NAIOP, a commercial real estate industry provider of research on trends and innovations, started in 1967, and currently has over 19,000 members.
To view the full sentiment report, click here.
— Julia Sanders