New NAR Index Offers an Early Look at Commercial Real Estate Demand
Where is commercial real estate demand building next? A new tool from the National Association of REALTORS® (NAR) is designed to help commercial practitioners spot the economic signals before they begin showing up in traditional market data.
NAR has launched the Commercial Real Estate (CRE) Demand Index, a quarterly resource measuring the economic drivers behind demand for office, industrial, retail and multifamily real estate across more than 300 U.S. metropolitan areas.
Rather than looking at what has already happened with vacancy rates, rents or leasing activity, the index focuses on the jobs, population shifts and other local economic factors that can create demand for commercial space.
“Commercial real estate demand begins with what’s happening in the local economy,” said Nadia Evangelou, Principal Economist & Director of Real Estate Research at NAR. “Demand starts before a lease is signed. It starts with jobs and people. The CRE Demand Index helps identify those trends earlier, before they’re reflected in traditional market indicators.”
Four Sectors. One View of Demand.
The CRE Demand Index tracks economic indicators tied to four major commercial sectors:
- Office: Growth in professional and business services employment
- Industrial: Growth in manufacturing, transportation and warehousing employment
- Retail: Growth in retail trade, leisure and hospitality employment
- Multifamily: Population growth and domestic and international net migration
Those measures are combined to produce individual sector scores as well as an overall demand score for each metro.
How to Read the Index
The index covers 306 metropolitan areas and compares their demand drivers each quarter.
A score of 100 represents the average U.S. metro. Markets scoring above 100 have stronger demand drivers relative to other metros, while scores below 100 indicate weaker relative momentum.
Importantly, a score below 100 does not necessarily mean a market is shrinking. It means its economic drivers are growing more slowly relative to other metros.
Historical data dating back to 2022 also makes it possible to see how a market’s position and economic momentum have changed over time.
Why It Matters for Commercial Real Estate
Commercial real estate activity often follows broader changes happening in the local economy.
Job growth can create demand for offices, warehouses and retail space. Population and migration trends can influence the need for apartments and services. By tracking those underlying factors, the CRE Demand Index gives commercial practitioners another way to identify where potential demand may be developing.
For REALTORS® working with investors, property owners, tenants and developers, the index can add another layer of market intelligence when researching opportunities, comparing metros or discussing longer-term trends with clients.
What the First Index Shows
The inaugural index shows that many of the markets with the strongest momentum aren’t relying on a single sector.
St. George, Utah, ranks No. 1 overall with a score of 128, followed by Fayetteville-Springdale-Rogers, Arkansas, and Huntsville, Alabama, both with scores of 125.
Texas also makes an appearance near the top. Sherman-Denison ranks among the nation’s strongest overall markets with a score of 121. Several Texas metros, including Sherman-Denison, Waco and Wichita Falls, also rank among the strongest markets for office-demand drivers.
Among the nation’s 50 largest metropolitan areas, Raleigh, North Carolina, ranks highest with a score of 121, while South Carolina ranks as the strongest state overall.
The results also show how commercial momentum has shifted since 2022. Some markets that surged during the pandemic era have cooled, while smaller metros have moved higher in the rankings.
As Evangelou explains, the strongest markets tend to have something in common: their momentum extends across more than one part of commercial real estate.
Explore the CRE Demand Index
The CRE Demand Index will be updated quarterly, with historical data available back to 2022.
Commercial practitioners can explore metro-level rankings, individual sector scores and historical trends to see how markets compare and where the economic drivers behind commercial real estate demand may be gaining momentum.