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Fourth Quarter Commercial Real Estate Index Eases

WASHINGTON, February 20, 2008 – The Commercial Leading Indicator for Brokerage Activity(1) slipped 0.4 percent to an index of 120.1 in the fourth quarter from a reading of 120.6 in the third quarter, but remains 0.1 above the fourth quarter of 2006 when it stood at 119.9. 

This is the second straight quarterly dip after reaching a record of 120.7 in the second quarter of 2007. The index showed nine consecutive quarterly gains prior to these declines; NAR’s track of the index dates back to 1990.

Lawrence Yun, NAR chief economist, said the latest index suggests reduced business opportunities for commercial real estate practitioners in the months ahead. “The decline in the index implies that commercial activity, as measured by net absorption and the completion of new commercial buildings, is likely to contract moderately over the next six to nine months, which is consistent with an expectation for slower overall economic expansion in upcoming quarters,” Yun said.

Rising unemployment insurance claims and falling durable goods shipments were the key factors in lowering the CLI, but a weaker rate of return on investment as measured by the NAREIT Price Index was also a factor. The only positive contributors to the index were growth in wholesale and retail trade, and rising personal income.

“The latest data imply that investment in private nonresidential structures, which rose a solid 13.2 percent in 2007 according to a preliminary GDP estimate, could show only minimal growth or even decline in 2008,” Yun said. “Realtor® members who specialize in office and industrial properties indicate in a separate survey(2) that they anticipate a measurably lower level of business activity in the upcoming quarters.”

The Commercial Leading Indicator implies weakening activity for commercial leasing and building sales activity. “Commercial practitioners can anticipate a weaker, though positive, net absorption in the office and industrial sectors later in the year with fewer new commercial buildings reaching the market,” Yun added.

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.

The 13 series in the index are industrial production, the NAREIT (National Association of Real Estate Investment Trust) price index, NCREIF (National Council of Real Estate Investment Fiduciaries) total return, personal income minus transfer payments, jobs in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial claims for unemployment insurance, manufacturers’ durable goods shipment, wholesale merchant sales, and retail sales and food service.

Nearly 140,000 NAR members offer commercial services, and 73,000 of those are currently members of the Realtors® Commercial Alliance, NAR’s commercial division.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.3 million members involved in all aspects of the residential and commercial real estate industries.

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(1) NAR reviewed a wide variety of indicators, examined the relationships of indicators that demonstrated a historical impact on commercial real estate, and modeled a forward-looking index based on historic trends. Although individual indicators sometimes move in opposite directions, together they offer a better indication of future market activity.

Quarterly data for 13 selected series were reviewed back through the first quarter of 1990 (table attached). The modeling demonstrated a change in commercial brokerage activity that could be seen two quarters later as measured by net absorption in the industrial and office sectors, and the completion of new commercial buildings as measured by the value of building construction put-in-place of office, warehouse, retail and lodging structures. An index of 100 is defined as the level of commercial real estate market activity during the first quarter of 1990, the first period to be analyzed.

(2) The SIOR Commercial Real Estate Index is a diffusion index based on a survey of approximately 600 members of the Society of Industrial and Office Realtors® conducted by NAR Research. For more information, contact Richard Hollander, SIOR, at 202/449-8200.

The next commercial real estate market report and forecast is scheduled for release on March 12, and the next commercial leading indicator index will be released May 21.

Information about NAR is available at This and other news releases are posted in the News Media section. Statistical data, tables and surveys also may be found by clicking on Research.