Spring finds industry insiders feeling more optimistic about prospects for commercial real estate in the United States. NAIOP’s newly released sentiment index reveals modest expectations for improvement over the coming 12 months, contrasting with last fall’s majority assessment that both real estate market and general economic conditions were worsening.

On the index scale, 50 indicates the status quo with scores above or below reflecting expectations for positive or negative change. This spring’s reading, drawn from the insights of 456 professionals working in development, management, brokerage, financing and investment functions, is pegged at 52 — up from 46 in September 2023.

Survey respondents expressed more confidence in capital market conditions, anticipating debt and equity will become more available and first-year cap rates will improve. That’s the first time capital markets sentiment has been positive since 2021.

They expect vacancy rates to tighten and net effective rents to move upward in most property categories except office. Favoured assets are not necessarily a surprise, as 40 per cent of respondents expect to be active in industrial and 24 per cent in the multifamily sector during the next 12 months. Data centres rank third and are on the agenda for 7 per cent of respondents, while just 5 per cent are contemplating office properties.

Within their own companies, non-developer respondents expect to see more hiring over the coming year. Developers are less upbeat about staffing, and also expect that construction labour and material costs will become more expensive.

“High interest rates and construction costs continue to put a damper on new development and acquisitions,” the accompanying analysis states. “Economic growth may be more supportive of other types of commercial real estate activity that are less significantly affected by higher rates (e.g. leasing, tenant improvements).”