CRE Sentiment Drops As Inflation Fears Persist
Respondents are also increasingly optimistic about rents and employment.
Sentiment across the commercial real estate industry is down slightly over fall 2021, according to the latest NAIOP survey, but feedback suggests conditions will improve for the industry over the next year.
The NAIOP CRE Sentiment Index stands at 53, a slight decrease from 56 in fall 2021 and near the same level it was a year ago, at 54. Just prior to the pandemic, the index was 57. It sank to a low of 45 in March 2020.
NAIOP says the index is designed to predict general conditions over the next 12 months by surveying industry professionals on the future conditions of their projects and markets. It includes questions about jobs, space markets, construction costs, capital markets and other real estate development fundamentals.
The most recent survey reveals that respondents are concerned about interest rates and expect the cost of labor and materials to continue rising at a record pace. However, respondents are increasingly optimistic about rents and employment within their own firms. They expect a “slight deterioration” in general industry conditions 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.”
Nearly 60% of respondents say they expect to be most active in projects or transactions related to industrial properties over the next year. But that optimism is in contrast to a recent Society of Industrial and Office Realtors sentiment survey, which shows that brokers are losing confidence and seeing strain in the industrial sector.
“The red-hot industrial market is starting to see the effects of high demand and lack of space catching up with each other,” the report stated. “This strain caused by limited supply caused confidence in the industrial sector to drop for the first time in sentiment reporting.”