Past Indexes and Understanding the Index
Understanding the Index
The survey’s final question about overall sentiment regarding future conditions is designed to serve as a verification of the Sentiment Index and is not included in the calculation of the Index. The score for the final question is 0.65, whereas the Index is slightly lower at 0.56. Said differently, when responses to the first nine questions — which relate to real estate fundamentals — are combined into the composite Index, the result is only slightly less positive than when respondents were asked a single, subjective question regarding overall sentiment toward the CRE marketplace.
The NAIOP Sentiment Survey is conducted biannually, in March and September. The survey is sent to roughly 5,000 NAIOP principal members in the U.S. who are developers, investors and operators in the office, industrial, retail and multifamily sectors. It asks 10 questions about jobs, the space markets, construction costs and the capital markets. Respondents indicate whether their 12-month outlook for each category is positive, negative or neutral. The responses are not equally weighted. Instead, weighting varies based on whether the responses to a question are tightly packed or dispersed. Questions with tightly packed responses (meaning there is more consistency among the answers to that question) are more heavily weighted than those with more dispersed responses (which indicate less consistency).
If every participant in the survey selected the most optimistic answer to each and every question, the Index would be positive 5. Conversely, if all of the participants chose the most pessimistic response to each and every question, the Index would be negative 5. The Index is on a 10-point scale, meaning that changes to the composite scores — and the Index itself — will range between zero and 10. A one-point change in the Index equates to a 10 percent change (on an absolute basis).
Changes in the scores of the individual survey questions between the September 2016 and March 2017 surveys ranged between 1.2 and 5.3 percent. This is a much wider range than that recorded in the previous survey (September 2016), but a narrower range than what was posted between the September 2015 and March 2016 surveys (0.2 and 9.5 percent). The overall composite Index for March 2017 increased by 0.90 percent since September 2016 (from 0.47 to 0.56), whereas between March 2016 and September 2016, the composite Index declined by 1.3 percent (from 0.60 to 0.47 points). For comparison, there was a 3.3 percent decline between the September 2015 and March 2016 surveys. This latest survey indicates that there is more optimism now in the CRE market than in the prior 12 months.
To obtain more data from market participants, this survey’s data was compiled over a longer period of time than prior surveys (12 days compared to 2 days) and that, coupled with e-mail outreach to eligible survey participants from members of NAIOP’s Corporate Board of Directors, resulted in a 21 percent increase in responses received (increasing from 359 to 433). More than 300 distinct companies were represented in the survey. Product types developed, financed and operated by respondents broke out to roughly 40 percent office, 40 percent industrial, 10 percent retail and 10 percent multifamily; East and West regions were slightly more represented in the sample than the South and Midwest.
The response rate for this survey was 8.4 percent and the margin of error for the Index was 4.72 percent — both of which represent improvements over the September 2016 survey. Survey participants are sent a three-page summary of results showing the percentage breakdown of responses to each question just three days after the survey closes. This report is released to all NAIOP members and the public roughly three weeks later. Survey responses for this Index were gathered March 9-20, 2017. The first two readings in this survey were beta tests sent to approximately 600 NAIOP members in February and September 2015, generating response rates of around 17 percent. Comparing this survey to the previous beta tests, respondents’ consistency across questions was nearly the same, with face rents being the most consistently answered question and construction materials cost, construction labor costs and adding employment being the least consistently answered questions. As such, the March and September 2016 and the March 2017 results do not vary significantly from those in the beta tests.