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WASHINGTON, DC-There is good news and bad news in the National Association of Realtors’ latest Commercial Leading Indicator for Brokerage Activity, released today. The good news is that the commercial real estate activity continues to expand. The bad news is that its rate of expansion has declined by half since last quarter.

“This quarter’s results are a little less positive, compared to our previous reports,” Lawrence Yun, senior economist at NAR tells GlobeSt.com. In Q2, the Commercial Leading Indicator for Brokerage Activity was at an index of 119.4, up 0.4% from a reading of 118.9 in the first quarter. However, Yun points out, Q1′s increase was 0.8%. “Last quarter there was deceleration, but this quarter we see that the deceleration is faster,” he says. Whether CRE activity actually contracts, Yun says, will depend on the overall direction of the economy. The current slowdown in CRE activity, he notes, is in large part due a response to higher interest rates and high oil prices. “The economy’s growth is not exactly robust but it is still respectable,” he says. “Should there be an actual contraction in economic activity that will naturally affect commercial real estate activity.”

That said, there is still much to be positive about in the commercial real estate markets, according to NAR’s findings. The second quarter index suggests net absorption of space in the industrial and office sectors will improve over the next six to nine months, with overall completion of retail, office, warehouse and lodging structures expected to grow, albeit at a slower pace. Net absorption in the office and industrial sectors in the fourth quarter is projected to be 70 to 90 million sf, with an estimated $300 to $310 billion in new commercial construction activity, compared to $296 billion of new construction recorded in the second quarter. The indicator also suggests a 2.5% increase in leasing and sales activity for commercial real estate practitioners in Q4, compared to the same period in 2005.

The index is designed to provide early signals of turning points between expansions and slowdowns in commercial real estate. It incorporates 13 variables that reflect future commercial real estate activity, including industrial production, the REIT price index, NCREIF (National Council of Real Estate Investment Fiduciaries) total return, personal income minus transfer payments, jobs in financial activities, jobs in professional business service, jobs in temporary help, jobs in retail trade, jobs in wholesale trade, initial claims for unemployment insurance, manufacturers’ durable goods shipment, wholesale merchant sales, and retail sales and food service.

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