CRE Sentiment Index: Growing Concern over Market Conditions

The NAIOP CRE Sentiment Index for September 2023 is 46, slightly down from the April 2023 reading, and indicating that respondents expect conditions for commercial real estate to worsen over the next 12 months. 

Key Findings:

• Respondents have a negative outlook for every component that comprises the Index except for asking rents, which they expect to be slightly higher next year. However, they now expect effective rents to fall slightly more than they had predicted in April, and their outlook for occupancy rates remains negative, suggesting higher asking rents will provide little relief.
   
• Respondents now expect capital market conditions to deteriorate less rapidly than they had predicted in April. They expect future equity availability will be almost as high as it is now, suggesting that equity flows may be close to bottoming out. Nonetheless, they still expect debt to be less available than it is now, and for cap rates to increase. In response to a question that is not used to calculate the Index, developers and building owners indicated they expect interest rates to be slightly higher than they had predicted in April.
   
• Developers and building owners expect their own deal volume to shrink but at a slower rate than in April. Their outlook for a reduction in the dollar volume of new projects and acquisitions echoes respondents’ expectations for a slowing decline in capital availability.
   
• Respondents still expect general industry conditions to worsen, but less than they previously expected. The score for general industry conditions (45) is calculated separately from the CRE Sentiment Index. Its continued rebound is most likely due to a less pessimistic outlook for the economy overall. Asked separately from the questions that comprise the Index, developers and building owners indicated they expect no change in local economic conditions over the next 12 months, an improvement from April.
    
• Respondents now expect employment in their own firms to decline slightly over the next year, suggesting that deteriorating market conditions are now being felt more directly by commercial real estate firms.

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