the office index rose 0.7 points while
the industrial index gained 2. 3 points.
Geographically, all four regions recorded
growth, with the South leading the way.
SIOR Commercial Markets
September’s SIOR Index marks the
fourth consecutive quarterly gain, indicating that SIOR markets are beginning
a slow rise from the lows of the past two
years. In a telling sign, most market indicators for the quarter posted improved
Leasing activity continues to be
modest. Practitioners indicate that traffic from potential clients is improving
in certain areas. However, vacancies
remain elevated and tenants continue to
have the upper hand in negotiations.
The third quarter experienced
an uptick in investment activity.
Respondents continue to indicate that
prices are low and present opportunities for available buyers. Yet, with credit
conditions unchanged from the first
half of the year, many investors in need
of financing remain on the sidelines.
Meanwhile, new construction is still
With the national economy on a moderate growth path, SIOR members expect
markets to improve in the next quarter.
Regionally, the South and Northeast are
finding economic conditions improving at a faster pace, as mirrored by the
regions’ relatively stronger values.
The third quarter survey mirrors a weak-yet-hopeful commercial real estate
market. While the economy grows, high unemployment continues to figure
prominently in the minds of both consumers and businesses, driving spending
decisions. With the knowledge that the midterm elections brought changes in
Congress and major legislative issues are still pending, the fourth quarter will
likely give a clearer indication of what lies ahead, especially looking at 2011.
The SIOR Commercial Real Estate Index is constructed as a “diffusion index,” a very common and familiar indexing technique for economic mea-
sures. Other examples of diffusion indexes include the Index of Leading Economic Indicators, the Consumer Confidence Index, and the Institute of
Supply Management’s Purchasing Managers’ Index. In the SIOR Commercial Real Estate Index, a value of 100 represents a well-balanced market for
industrial and office property. Values significantly lower than 100 indicate weak market conditions; values significantly higher than 100 indicate strong
market conditions. The theoretical limits of this Index are a low of zero, and a high of 200, though it is unlikely that such limits would be approached as
long as the property markets are operating efficiently.
The Index is based on a survey questionnaire with ten topics. The topics covered are ( 1) recent leasing activity; ( 2) trends in asking rents; ( 3) trends
in vacancy rates; ( 4) subleasing conditions; ( 5) levels of concession packages in leases; ( 6) development activity; ( 7) site acquisition activity; ( 8) investment pricing levels; ( 9) the impact of the local economy on the property market; and, ( 10) the effect of the national economy on the property market.
Survey respondents are given five choices. For each topic, five choices are provided, corresponding to conditions that are very weak, moderately weak,
well-balanced, moderately strong, or very strong.
For each question, answers are tallied and the percentage of responses for each of the five choices is calculated. If survey panelists indicate “very
weak” conditions (the “a” choices in the questionnaire), the answer is assigned 0 (zero) points; “moderately weak” (“b” answers) earn 5 points; an
indication of “market balance” (“c”) receives 10 points; “moderately strong” indications (“d”) score 15 points; and “very strong” (“e”) responses receive
a maximum 20 points. Thus a score of 10 for a given question can be earned if responses are evenly distributed across all five choices, if all responses
were “c”, or if the answers form a “bell-shaped curve” centered around the “c” choice. The total index value is derived by summing the scores for all ten
questions. Index values for each of the two property types are similarly calculated.