Lawrence Yun, NAR senior economist, said the commercial sectors are benefiting most from rises in industrial production, shipments of durable goods and wholesale trade. "Despite some signs of slower overall economic expansion, the rise in the index means net absorption of space in the industrial and office sectors is likely to expand over the next six to nine months," he said. "In addition, an improvement in returns on investment implies healthy rent increases for commercial property owners."
Positive movements in the index components more than offset a fall in the National Association of Real Estate Investment Trusts price index. The net gain in NAR's index also indicates modestly higher completions of overall office, warehouse, retail and lodging structures.
"In short, the latest data suggests improved business opportunities for commercial real estate practitioners in the months ahead," Yun said.
Net absorption in the office and industrial sectors in the fourth quarter of 2007 is expected to be 30 million to 40 million square feet, with about $365 billion to $375 billion in new completed commercial construction activity, compared with $343 billion of new construction reported in the second quarter of this year.(2)
The rise in the commercial leading indicator also implies that commercial real estate practitioners could expect leasing and sales activity in the fourth quarter of this year to be about 1.1 percent higher than the fourth quarter of 2006.
The commercial leading indicator is a tool to assess market behavior in the major commercial real estate sectors. The index incorporates 13 variables 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.
