THE ECONOMIC AND COMMERCIAL REAL
NAR’s growth forecast for 2015 is for a 2. 3
percent increase in real GDP—substantially
different from the first quarter decline.
Interest rates are projected to remain low, and
additional job gains appear likely. Given that
the commercial sector moved sideways during
the difficult times in the first quarter, it appears
likely that we will see a pickup in commercial
real estate as the year progresses.
The SIOR index appears likely to report
upward progress for the rest of the year
given an improving economy and favorable
and improving underlying fundamentals for
commercial space. Trophy properties appear
likely to continue to attract attention in
major markets, while secondary and tertiary
markets should see some significant upscale
potential. Space absorption should exceed
new construction coming onto the market,
and modest and continued increases in rents
are projected. Although conditions can vary
from market to market, the overall outlook
Given an improving economy and a continuation
of underlying commercial trends, we should
expect continued expansion of the SIOR index.
Commercial Real Estate Index Methodology
The SIOR Commercial Real Estate Index is constructed as a “diffusion index,” a very common and familiar indexing technique for economic
measures. 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.
The survey was developed by Hugh F. Kelly, CRE, clinical professor at New York University, who worked with SIOR on research projects
540 Officenter Place, Ste. 260
Columbus, OH 43230
Completed some of the largest
transactions in Columbus, Ohio
We’re On It.
Bradford L. Kitchen, SIOR, President
of Alterra Real Estate Advisors, will
make your transaction a success.
Alterra provides a premier level of
commercial real estate brokerage