Professional Report

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.