Commercial Market Shows Signs of Leveling Off

Commercial real estate market activity is expected to level out, suggesting stable business opportunities for commercial practitioners in the months ahead, according to a NATIONAL ASSOCIATION OF REALTORS® forward-looking index for the commercial real estate sectors.

The Commercial Leading Indicator for Brokerage Activity slipped 0.1 percent to an index of 120.6 in the third quarter from a record reading of 120.7 in the second quarter. It remains 0.7 percent higher than the third quarter of 2006 when it stood at 119.7. The dip follows nine consecutive quarterly increases. The NAR index dates back to 1990.

Lawrence Yun, NAR chief economist, says momentum in the commercial market appears to be leveling at a high plateau.

“Commercial real estate has been performing quite well over the past few years and the flattening index means net absorption of space in the industrial and office sectors is likely to contract modestly or hold even over the next six to nine months,” he says. “This trend is consistent with anticipated slower economic expansion in upcoming quarters.”

There should be no measurable change in net absorption in the office and industrial sectors in the first quarter of 2008, and no measurable change in newly completed commercial construction activity.

The level of the commercial index also implies that commercial real estate practitioners could expect leasing and sales activity in the first quarter of next year to be about 0.7 percent higher than the first quarter of 2007.

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 and is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate.

— REALTOR® Magazine Online