Commercial Real Estate Update May 2008

Commercial real estate markets expected to ease in coming months
May 26, 2008—Although fundamentals are sound, activity in commercial real estate markets is expected to ease in the months ahead, according to a forward-looking index for the commercial real estate sectors published by the National Association of Realtors (NAR).
The Commercial Leading Indicator for Brokerage Activity edged down 0.7 percent to an index of 119.0 in the first quarter from a downwardly revised reading of 119.9 in the fourth quarter, and is 0.8 percent below the first quarter of 2007 when it stood at 120.0.
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This is the third consecutive quarterly dip since reaching a record of 120.5 in the second quarter of 2007. Before that, the index showed generally positive expansion from the middle of 2003; NARs track of the index dates back to 1990.
Lawrence Yun, NAR chief economist, expects somewhat diminished business opportunities for commercial real estate practitioners in the months ahead. The moderate erosion in the index suggests that commercial activity, as measured by net absorption and the completion of new commercial buildings, will be positive but somewhat weaker over the next six to nine months. Private nonresidential investment in structures is likely to subtract one-third to one-half percentage point off GDP growth, he said. Along with the impact of the credit crunch, a weakening in leasing and building sales activity should come as no surprise because commercial real estate follows changes in overall economic activity.
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.
For more information, see the NAR Web site.