negative impact upon their markets
from national economic conditions (the
remainder was neutral).
Regionally, all four main regions had index values above 100. The West region
recorded the highest index value—127.5.
The South region—which has been the
strongest—took second place with an
index value of 126.6. The Midwest index
came in third, with a value of 122.3. The
Northeast region recorded the highest
increase, with a 7. 9 point jump from the
prior quarter, reaching an index value of
116.1.
Looking ahead at the third quarter of
2016, SIOR members expect the outlook to moderate further— 44 percent
of respondents indicated growth in the
1-15 percent range, while 42 percent
felt the market will maintain current
levels. Expressing concern, 14 percent
of SIOR members expected conditions
to decline.
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 since 1989.
PAYROLL EMPLOYMENT
Source: BEA, BLS
Payroll Employment KE Y Real GDP
6
4
2
0
- 2
- 4
- 6
- 8
- 10
1500
1000
500
0
-500
-1000
-1500
-2000