The National Association of Realtors has introduced a quarterly Commercial Real Estate Demand Index covering 306 U.S. metropolitan areas. The index measures local employment, population and migration factors tied to office, industrial, retail and multifamily demand, giving real estate professionals a standardized way to compare demand drivers across markets.
Key Takeaways
- NAR’s index covers 306 U.S. metropolitan areas and will be updated quarterly.
- Office and retail each represent 22% of the overall index, while industrial and multifamily each represent 28%.
- Employment data drive the office, industrial and retail components, while population growth and net migration drive the multifamily component.
- A score of 100 represents the average metro relative to the other markets in the dataset.
- The index does not measure vacancy, rents, absorption or national-level commercial real estate demand.
NAR Introduces Commercial Real Estate Demand Index
The National Association of Realtors has launched a quarterly index designed to measure local economic factors associated with commercial real estate demand across the United States.
The Commercial Real Estate Demand Index covers 306 metropolitan areas and evaluates four property sectors: office, industrial, retail and multifamily.
NAR said the index is intended to identify changes in local demand drivers before they appear in traditional commercial real estate measures such as vacancy, rents and completed leasing activity.
The index relies on publicly available government data and is updated each quarter. Its historical data series extends from 2022 through the latest reported quarter.
Rather than measuring the performance of individual properties, the index compares economic conditions across metropolitan areas. Each market receives a relative score based on the conditions captured by the index.
The approach gives commercial real estate professionals a standardized measure for comparing local markets across multiple property sectors. Readers looking at broader commercial property conditions can also review existing coverage of commercial property investment activity.
Index Covers 306 U.S. Metropolitan Areas
The index evaluates each of the 306 metropolitan areas against the other 305 markets in the dataset. The comparison is designed to show the relative strength of local economic conditions associated with commercial space demand.
A score of 100 represents the average metro in the index. Markets with scores above 100 have stronger relative demand drivers, while markets below 100 have weaker relative demand drivers compared with the other metros.
The scoring system does not mean that a metro below 100 is experiencing declining commercial real estate demand. A market can continue to add jobs or residents while recording a score below 100 if its rate of growth is slower than the average across the markets included in the index.
The index also does not provide direct measurements of vacancy, rents or absorption. Those indicators describe actual property-market conditions, while the NAR measure focuses on economic factors that can support demand for commercial space.
The distinction allows the index to function as a measure of local demand drivers rather than a replacement for conventional commercial real estate market statistics.
The 306-metro coverage also allows the same methodology to be applied across markets with different economic and demographic profiles.
Employment and Population Data Drive Sector Scores
The NAR commercial real estate demand index combines separate measures for office, industrial, retail and multifamily properties. Each component uses economic or demographic data associated with the type of space it represents.
Office and Industrial Demand Measures
The office component accounts for 22% of the overall index and uses growth in professional and business services employment as its primary measure.
The industrial component carries a 28% weighting and uses employment growth in manufacturing, transportation and warehousing. These sectors are directly connected to industrial space requirements represented by facilities such as warehouses and distribution properties.
The different weightings mean industrial conditions have a larger influence on a metro’s overall score than office conditions.
Employment information for these components comes from the Bureau of Labor Statistics.
The relationship between employment and industrial property is also relevant to existing coverage of Southeast logistics real estate, which examines industrial facilities serving transportation, warehousing and distribution operations.
Retail and Multifamily Demand Measures
Retail also represents 22% of the overall index. Its measure incorporates employment growth in retail trade as well as leisure and hospitality.
Multifamily represents 28% of the total score. Its component uses population growth and net migration, including domestic and international migration.
Population and migration data come from the U.S. Census Bureau’s Population Estimates Program.
The four components therefore use different indicators rather than applying a single economic measurement to every property type. Employment measures are used for office, industrial and retail, while population and migration measures are used for multifamily.
Together, the components produce the overall metropolitan-area score.
Metro Scores Compare Relative Commercial Demand Drivers
Photo Credit: Unsplash.com
The index uses a relative scoring system in which 100 represents the average metro. The score is intended to show how the economic conditions supporting commercial property demand in one market compare with those in the other markets covered by the index.
A score above 100 indicates stronger relative demand drivers. A score below 100 indicates weaker relative demand drivers.
The distinction between demand drivers and actual property performance is central to interpreting the index. The measure does not report whether rents are increasing, vacancies are declining or leasing activity is accelerating in a particular metro.
For example, a market with a score below 100 can still record employment growth or population gains. Its score indicates that those gains are weaker relative to the other metropolitan areas included in the quarterly comparison.
The index also does not produce a national commercial real estate demand figure. Its purpose is to compare local conditions across individual metropolitan markets.
The sector-level measurements provide additional detail beyond the overall score. A metro can have different relative conditions across office, industrial, retail and multifamily markets because each sector is based on different underlying data.
That structure allows users to examine the economic factors associated with individual property types rather than relying solely on an overall metropolitan score.
Quarterly Updates Add Historical Market Comparisons
NAR plans to update the index quarterly, creating a continuing series of metropolitan-area comparisons. Historical data are available quarterly from 2022 through the latest reported quarter.
The historical series provides a consistent basis for examining changes in the underlying employment, population and migration measures used by the index.
NAR also plans to publish an accompanying analysis with each quarterly release. The analysis will cover current rankings, changes among markets and developments by property type.
The quarterly format means the index can be compared across successive reporting periods using the same basic methodology.
The data sources remain tied to government statistics. The Bureau of Labor Statistics supplies the employment information used in the office, industrial and retail components, while the U.S. Census Bureau’s Population Estimates Program supplies population and migration information used for multifamily.
The index’s overall weighting assigns 22% to office, 28% to industrial, 22% to retail and 28% to multifamily. Industrial and multifamily therefore have the largest individual shares of the combined measure.
The resulting scores provide a common framework for comparing the 306 metropolitan areas, while the underlying sector measures identify the specific economic and demographic factors used in each property category.
Frequently Asked Questions
What is the NAR Commercial Real Estate Demand Index?
It is a quarterly measure developed by the National Association of Realtors that compares local economic drivers associated with commercial real estate demand. It covers office, industrial, retail and multifamily property sectors across 306 U.S. metropolitan areas.
How many U.S. metros are included in the NAR index?
The index covers 306 U.S. metropolitan areas. Each metro is compared with the other 305 markets in the dataset.
Which commercial real estate sectors does the index track?
The index tracks office, industrial, retail and multifamily properties. Each sector uses different employment or demographic indicators to measure its demand drivers.
What does a score of 100 mean in the NAR index?
A score of 100 represents the average metropolitan area in the index. Scores above 100 indicate stronger relative demand drivers, while scores below 100 indicate weaker relative demand drivers.
Does the NAR index measure commercial property rents and vacancies?
No. The index does not measure rents, vacancy or absorption. It measures local employment, population and migration factors associated with future commercial space demand.
