The spring edition of the NAIOP CRE Sentiment Index reveals that sentiment is down slightly from fall 2021, but still suggests improving conditions for the industry over the next 12 months.

The NAIOP CRE Sentiment Index is designed to predict general conditions in the commercial real estate industry over the next 12 months by surveying industry professionals on the future conditions of their projects and markets. The survey includes questions about jobs, space markets, construction costs, capital markets and other real estate development fundamentals. If every participant in the survey selected the most optimistic answer to every question, the index would be 100. Conversely, if all the participants chose the most pessimistic response to every question, the index would be 0.  

The current index is 53, down slightly from 56 in fall 2021 and very close to the level one year ago (54). Just prior to the pandemic, the index was 57, before sinking to a low of 45 in March 2020.

Among the key findings:

• Respondents are concerned about the effect of rising interest rates on capital markets and real estate valuations.
• They also expect the cost of construction labor and materials to continue to rise at a record pace.
• Increased respondent optimism about rents and employment within their own firms has kept the index in positive territory.
• Respondents now expect a slight deterioration in general industry conditions over the next 12 months, in contrast to their general optimism in September 2021.
• A large majority (59.5%) of respondents expect to be most active in projects or transactions related to industrial properties over the next year.

“The most significant factor since our last survey has been the rapid pace of inflation and rising interest rates,” said Thomas J. Bisacquino, president and CEO of NAIOP. “Rising costs are affecting every economic sector, and in addition to the increases for labor and construction materials, respondents are now concerned about capitalization rates and the financial markets. However, overall optimism remains strong, particularly in the industrial sector, in which supply is still trying to catch up to demand.”