3Q commercial real estate index rises

NAR’s expectations are based on the commercial leading indicator, which has increased for six consecutive quarters, with the latest being the third quarter of this year.

During the third quarter, the indicator rose 0.4 percent to 120, up from 119.6 in the second quarter.

“Although we have a strong uptrend in the commercial sectors, the rise in the index over the last two quarters shows a lower rate of expansion in comparison with late 2005 and early 2006,” said NAR Chief Economist David Lereah in a news release. “This means that commercial sectors will continue to grow, but at a more modest pace.”

Lereah noted that the commercial leading indicator is at its highest since 1990.

Growth in the index means net absorption of space in the industrial and office sectors will continue to improve in the next six to nine months, with rising completions of overall retail, office, warehouse and lodging structures.

The indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables, including industrial production, the real estate investment trust price index, and jobs in several sectors such as retail and finance, that reflect future commercial real estate activity, weighted appropriately to produce a single indicator of future market performance, and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.

Looking ahead

Net absorption in the office and industrial sectors in the first quarter of 2007 is expected to be 70 million to 90 million square feet, with about $315 billion to $325 billion in new, completed commercial construction activity. By comparison, the office and industrial sectors showed $309 billion of new construction recorded in the third quarter.

Commercial real estate practitioners can anticipate leasing and sales activity in the first quarter to be approximately 2.9 percent higher than the first quarter of 2006.[[In-content Ad]]