Welcome to the Alabama Commercial Real Estate Index™ (AL CREI). The AL CREI measures commercial real estate expectations for the upcoming quarter gathered from a broad group of professionals working in commercial real estate and related fields. Eight key indicators create a composite index of overall market conditions and an outlook for specific property types. Through the survey, panelists can take the pulse of the state’s commercial real estate market as well as compare their own forecasts to those of their peers.
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The Alabama Commercial Real Estate Index (AL CREI™) registered a moderately negative score of 42.2 in the Q3 2023 survey. Being under 50, this index indicates overall expectations of slowing commercial real estate market activity. Industry leaders are forecasting a weakening of the national CRE market with strong confidence while expectations for a slower Alabama CRE market are much milder. Additionally, interest rates and construction costs are forecast to continue rising in Q3 with mild confidence. All four components of the AL CREI™ registered negative scores (below 50) for the third quarter.
• Alabama Market Outlook: Commercial real estate market conditions in the state are expected to worsen this quarter with a mildly negative outlook of 47.2.
• US Market Outlook: Commercial real estate market conditions nationwide are expected to worsen this quarter with a strongly negative outlook of 38.3.
• Interest Rates: Interest rates are expected to rise this quarter with a strongly negative outlook of 36.3.
• Construction Costs: Survey respondents expect construction costs to rise as the index score of 47.2 is slightly below 50.
Confidence in commercial real estate market conditions varied by metro area in the Q3 2023 survey. Although all metro areas recorded scores below 50, the Birmingham-Hoover metro area had the highest index score at 44.9, indicating a moderately negative outlook. This was the only metro area to have a higher index score than the statewide index score of 42.2. Survey participants from the Birmingham metro area expect construction costs to remain unchanged (index score of 50.0) from the second quarter. However, survey participants in the Birmingham metro area expect rising interest rates with strong confidence (37.5).
The Huntsville metro area had the second highest CREI™ score of 42.0. Survey participants from the Huntsville metro area have a strongly negative US market outlook with a score of 35.7 but a mildly negative forecast for the Alabama market outlook (46.4). Survey participants from the metro area expect construction costs to remain unchanged (index score of 50.0) from the second quarter. Respondents from the Huntsville metro area also expect rising interest rates with strong confidence (35.7).
The Tuscaloosa metro area was third with a CREI™ score of 41.5. Survey participants from the Tuscaloosa metro area also have a strongly negative forecast for the US market outlook (38.6) and a mildly negative forecast for the Alabama market outlook (45.5). Survey participants from the metro area have a mildly negative forecast for construction costs (45.5), expecting them to increase in the third quarter. Respondents from the Tuscaloosa metro area also anticipate rising interest rates with strong confidence (36.4).
The Montgomery metro area had the lowest CREI™ of the participating metros with an index of 37.5. Survey participants from the Montgomery metro area have a very strongly negative forecast for the US market outlook (28.1) but only a moderately negative forecast for the Alabama market outlook (40.6). Survey participants from the metro area have a moderately negative forecast for construction costs (43.8), expecting them to increase in the third quarter. Respondents from the Montgomery metro area also anticipate rising interest rates with strong confidence (35.7).
Third quarter data is not available for Auburn-Opelika, Daphne- Fairhope-Foley, Mobile, and other metro areas as there were not enough survey participants from these areas to calculate a statistically significant index score. However, ACRE projects that participation will increase for the fourth quarter survey.
This quarter, all 4 commercial property types recorded index scores below 50. Surprisingly, the outlook for office property types was higher than the others, but nevertheless it was slightly negative at 47.9. The outlook for special purpose (41.1), retail (40.2), and multifamily properties (40.2) also forecast worsening conditions during the third quarter, mainly due to slowing market activity as interest rates are expected to remain elevated in the third quarter. Data was not available for industrial properties because there were not enough responses to calculate a statistically significant index score.
The AL CREI™ also calculates scores by industry to see how the outlook varies by profession. Commercial real estate brokers have a slightly negative outlook for the third quarter with an index score of 45.2, however it was higher than all other industries. Investors and owners of commercial real estate had the most negative outlook with an index of 33.9. Property managers have a moderately negative outlook for the third quarter with a score of 41.2, just below the statewide index score of 42.2. Data was not available for other industries (consulting, appraisal, professional services, corporate real estate, development, construction, and lending) as there were not enough responses to calculate a statistically significant index score. ACRE forecasts that increased participation in the fourth quarter will produce index scores for these industries.
An additional component of the AL CREI™ is the Owners, Brokers, and Developers Index (OBDI). Survey participants who own or invest in commercial real estate, broker commercial transactions, or develop commercial real estate responded to four additional questions about occupancy rates, new developments under construction, market rents per square foot, and capitalization rates (cap rates) in their specific property type.
The Owners, Brokers, and Developers IndexTM registered a slightly negative score of 46.9 in the Q3 2023 survey. Being under 50, this index indicates overall expectations of slowing commercial real estate market activity.
