A forward looking index for the commercial real estate market, the Commercial Leading Indicator for Brokerage Activity,* has increased for seven consecutive quarters and is holding at the highest level on record, according to the National Association of Realtors®.

The Commercial Leading Indicator for Brokerage Activity rose 0.1 percent in the fourth quarter to a level of 120.1 from an index of 120.0 in the third quarter, and is 1.8 percent above the fourth quarter of 2005 when it stood at 118.1.  NAR’s track of the index dates back to 1990.

David Lereah, NAR’s chief economist, said growth in the commercial real estate sectors appears to be reaching a plateau.  “Our commercial leading indicator is at a record high, but it is now leveling out,” Lereah said.  “The rate of expansion has been fairly tame over the last three quarters, which means that growth in commercial real estate sectors is likely to be modest.”

After respectable growth in 2005 and 2006, the slight rise in the index means net absorption of space in the industrial and office sectors should be fairly steady over the next six to nine months, with modestly higher completions of overall office, warehouse, retail and lodging structures.

Net absorption in the office and industrial sectors in the second quarter of 2007 is expected to be 5 million to 15 million square feet, with about $315 billion to $320 billion in new, completed commercial construction activity, compared with $311 billion of new construction recorded in the fourth quarter of last year.
 
Commercial real estate practitioners can anticipate leasing and sales activity in the second quarter of this year to be approximately 1.8 percent higher than the second quarter of 2006.

“Industrial production and durable goods shipments both fell in the fourth quarter, offset by higher returns and continuing growth in jobs, income and retail-wholesales sales,” Lereah said.

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 include industrial production, the REIT (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.

More than 100,000 NAR members offer some level of commercial service, with 66,000 specializing primarily in the commercial real estate market.

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.