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US Commercial Real Estate Index

The US Commercial Real Estate Index ("CREI") was created in 2014 by CRE Demographics, LLC and is designed to demonstrate the relative strength of the US Commercial Real Estate market. The index is comprised of eight economic drivers and is calculated weekly. Updated values of the index are available at CRE Demographics, LLC.

The economic drivers behind the CREI are isolated into sub-indices that include the Employment Index, Commercial Real Estate Price Index, Credit Index, Consumer Confidence Index, Housing Index, Inflation Index, Income Index and the Retail Index.

In total, there are over 60 inputs in the US Commercial Real Estate Index all of which come from publicly released data. Most of these come from public sources that are listed below.

ADP
Bureau of Economic Analysis (BEA)
The Conference Board
Federal Housing Finance Authority (FHFA)
Federal Reserve
Mortgage Bankers Association
Mortgage Market Survey
National Association of Real Estate Investment Trusts (NAREIT)
National Association of Realtors (NAR)
New York Stock Exchange
University of Michigan
United States Census Bureau
United States Department of Labor
United States Treasury

The Index Concept

An Index is a useful tool for synthesizing a large amount of data inputs into a single number that can be included in a time series for analysis. The US Commercial Real Estate Index synthesizes over 50 data points from publicly released data and has an inception data of December 31, 2000.

An index can have an arbitrary starting point and an arbitrary starting value. The CREI has a starting value of 100 and is expressed in values rounded to two decimal points. The starting date was strategically selected as of the end of 2000 due to the timing of economic cycles. In the graph below from the Federal Reserve Bank of St. Louis, the start and end of the two most recent economic cycles can be seen in a graph of US Unemployment Rate data. Note that the starting and ending dates were determined by the Bureau of Economic Analysis (BEA).

By choosing to start the index at the end of 2000, because it is very close to the peak of an economic cycle before the recession that occurred during the eight month period spanning March of 2001 through November of 2001. Also, due to the length of the datasets supporting the CREI, the effect of two full economic cycles can be observed.

The CREI is designed to reflect change in the inputs since the inception of the index. Inputs can be negatively or positively correlated to the index. For example if the US Unemployment Rate rises, this would be considered to negatively impact the commercial real estate market. Conversely, if the US Unemployment Rate were to fall this would have a positive impact on the index. On the other hand the level of Incomes in the US would be positively correlated to the index.

The computation of the index is done on a "latest available" basis. With over 60 inputs and eight sub-indices, the data inputs are updated at different intervals. For example, there are daily changes to US Treasury rates, REIT (Real Estate Investment Trust) prices and Retail ETF (Exchange Traded Fund) prices and some of the US housing indices are updated quarterly. Due to these varying rates of updates of the inputs, the data is updated as it is released and carried forward until a new update occurs. This will create a constant revision process to the CREI. As data becomes available each input that comprises the current value is "latest available".

Index History

A graph of historical index values spanning the period covering December of 2000 through June 2015 is displayed below.

In a historical analysis, the U.S. Commercial Real Estate Index reached a major peak in January of 2007 followed by a two year downward trend that bottomed out in February of 2009. The peak to trough drop in the index was over 26%. As economic conditions improved, the loss in the index was fully recouped by February of 2012 and has been on a relatively strong upward trend ever since.

Overall, the CREI is a useful tool in determining the overall health of the US commercial real estate market. As “big picture” changes occur to important components of the index, these changes will be reflected in the relative changes to the index levels.