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• Vacancies continued on a downward
trend, with 76 percent reporting lower
availability rates. As subleasing availability
has become negligible, only one-in-three
SIORs felt that tenants were benefiting
from concessions. New construction of
office and industrial spaces improved, with
27 percent of markets showing activity
above historical averages in the third
quarter. Development conditions shifted
in favor of sellers during the period, with
38 percent of SIORs rating it a seller’s
market. Investment prices stayed level,
with 49 percent of markets being below
Local economies helped the real estate
markets. Only 17 percent of SIORs felt
that their local economy was slowing or
contracting, while 50 percent considered
their economy to be strong and improving.
Meanwhile, improvements in the national
economy were felt at the local level, as 34
percent of SIOR markets found the national
economy positively impacting the local
conditions, and only 23 percent of markets
experienced negative impacts (the remainder
Regionally, all four main regions posted
gains, with index values above 100, signifying
market expansion. The South remained the
healthiest region, as the index increased to a
value of 116.6 — the highest of all regions.
The Midwest had the second highest index
value — 112.9. The West region experienced
the fastest growth during the quarter, with a
5. 5 point advance. The Northeast closed the
quarter with an index value of 103.9.
Looking ahead at the fourth quarter of
2014, SIOR members expect the outlook to
remain moderately positive — 78 percent
of respondents indicated growth in the 1-15
percent range, while 21 percent felt the
market will maintain current levels. Only
1 percent of SIORs expected conditions
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.