Commercial activity rose in 1Q, but year-over-year pace slows.

Commercial real estate activity rose slightly in the first quarter of 2007 to its highest level on record, but the overall rate of growth has decelerated over the past year, according to the National Association of Realtors[R] (NAR), Chicago.

In a press release, NAR said its study, Commercial Leading Indicator for Brokerage Activity, showed commercial real estate activity "increased 0.2 percent to an index level of 120.3 in the first quarter from a reading of 120.1 in the fourth quarter of 2006, and [was] 0.8 percent higher than in the first quarter of 2006 when it stood at 119.3."

Growth in the commercial real estate sectors seems to be leveling off as the NAR index has risen for eight consecutive quarters, but factors in its components are mixed, according to NAR Senior Economist Lawrence Yun.

"Rising industrial production, a rise in the REIT [real estate investment trust] price index, growth in commercial jobs, rising income and gains in wholesale sales contributed to the rise in our leading indicator," said Yun. "On the other hand, deteriorating economic conditions have been a drag--specifically, a marked decline in durable-goods shipments, a decline in return on commercial investment and an increase in the number of people filing for unemployment insurance," he added.

The small net rise in NAR's index means net absorption of space in the industrial and office sectors should be fairly steady over the next six to nine months, with slightly higher completions of overall office, warehouse, retail and lodging structures, explained Yun.

Expect net absorption in the office and industrial sectors in the third quarter of 2007 to be 10 million to 20 million square feet, predicted NAR, with about $335 billion to $345 billion in new completed commercial construction activity, compared with $323 billion of new construction recorded in first-quarter 2007.

"Deceleration in the growth of our leading index means we're entering a more stable period for commercial real estate sectors," Yun said.

Commercial real estate practitioners can anticipate leasing and sales activity in the third quarter of this year to be approximately 0.8 percent higher than in the third quarter of 2006, added Yun.