The NAIOP CRE Sentiment Index | Fall 2022
NAIOP has published the Fall 2022 NAIOP CRE Sentiment Index Report.
Key Findings
- The NAIOP CRE Sentiment Index for September 2022 is 47, down from April’s reading of 53. It is at the lowest level since September 2020. This reading suggests that respondents expect conditions for commercial real estate to deteriorate over the next 12 months.
- Respondents expect higher interest rates, higher cap rates, and a decrease in the supply of equity and debt over the next year. Respondents predict a sharper increase in cap rates and greater contraction in the supply of equity and debt than in any previous survey
- Their outlook for occupancy rates, face rents and effective rents is also less optimistic, though they still expect rents to grow
- Respondents also expect a sharp deterioration in general industry conditions over the next 12 months (see Figure 2). The score for general industry conditions (39) is calculated separately from the CRE Sentiment Index and may reflect respondents’ outlook for other factors that affect the commercial real estate industry, such as macroeconomic conditions.
- The only positive development in the September survey is that respondents expect a slower pace of construction cost inflation over the next year. Rising interest rates appear to have dampened inflation expectations. Respondents predict that construction material and labor costs will continue to rise but at a slower rate than was projected in the April survey or in the two surveys from 2021.
Despite a more pessimistic outlook for development conditions, developers plan to maintain recent deal volume over the coming year. Developers and building owners plan to complete about the same dollar volume of new projects and transactions over the next year as in the past year (score of 51). This may reflect greater optimism for the sectors and markets they are active in than for the commercial real estate industry as a whole.
Most respondents (54.9%) expect to be most active in projects or transactions related to industrial properties over the next year. Multifamily properties attracted the next-largest share of interest (31.5%), followed by office properties (9.9%). Only 3.7% of respondents indicated that they expect to be most active in retail properties.