• Rent growth moved sideways for office and industrial
properties—96 percent of respondents reported that
rents were in line with or above long-term averages;
only 4 percent of SIOR respondents considered that
asking rents were below those of one year ago.
• Vacancies were reported as steady, with 76 percent of
respondents reporting lower availability rates.
• Tenant concessions continued declining, with 22 percent of SIOR respondents reporting moderate to deep
discounts to rents.
• New construction of office and industrial spaces
improved, with 35 percent of SIORs reporting new
construction during the quarter.
• Development conditions continued shifting in favor
of sellers during the period, with 50 percent of SIOR
members rating it a seller’s market.
• Investment prices stayed level, with 43 percent of respondents reporting them below construction costs.
As the national economy picked up momentum, local economies continued improving, boosting real estate markets. According to questionnaire responses, 55 percent of markets
experienced a strong and improving local economy. Only 13
percent of SIORs felt that their local economy was slowing
or contracting. In comparison, 41 percent of SIOR members
considered the national economy to have had positive impact
upon their markets.
Regionally, market performance proved mixed, as all regions
rose, except the West. The South posted the highest SIOR index value across all regions—125.4. Positively, all four main
regions recorded SIOR index values above 100, signifying
market expansion. Even with a quarterly decline, the West
had the second highest SIOR index value—124.7.
Looking ahead at the third quarter of 2015, SIOR members
remained upbeat, with 66 percent of respondents pointing to
growth in the 1-15 percent range. Only 6 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