June 17, 2013 at 09:00 AM EDT
Survey of Leading Experts Reveals Lingering Concern About the Future of Twin Cities Commercial Real Estate
The University of St. Thomas Opus College of Business released its seventh Minnesota Commercial Real Estate Survey today, and results of the forecast indicate lingering concern about commercial real estate conditions two years from now. Data for the semiannual survey was gathered from a group of 50 commercial real estate industry experts who work in development, finance and investment in the Twin Cities.
The survey polled their expectations regarding vacancy rates, rental rate growth, land prices, building material prices, new project financing criteria and rates of return. The survey revealed a composite score of 47 based on a 0-100 index. An index score higher than 50 represents a more optimistic view of the market over the next two years, while a score lower than 50 indicates a more pessimistic view. This is the second time the score has measured below 50, indicating a less than neutral expectation regarding the future market forecast.
“We’re continuing to see the same trend that emerged last year,” said Herb Tousley, University of St. Thomas director of real estate programs and conductor of the survey along with Associate Professor Tom Hamilton. “However, there are some key differences in the survey this year, including a higher level of confidence among leaders that rental rates and occupancy will continue to grow into 2015.”
Panelists believe those are the two areas most primed for growth. The index for rental rates increased from 67 to 69 in this latest survey, reflecting a growing confidence in the market. A separate index for occupancy levels decreased by a point this year, though experts remain optimistic that those levels will turn around as the economy continues to recover and the demand for space increases.
A downside to the market forecast continues to be high land prices and the rising cost of building materials. The land price index dropped to its lowest level since the survey began in 2010, revealing panelists’ concern about how increased land prices will affect new development. Also, panelists expect the high cost of building materials, which scored a 22 in the index this year, may negatively impact the rate of new development.
The Minnesota Commercial Real Estate Survey originated in Spring 2010. Now in its third year, researchers have year over year data and can make valuable predictions and comparisons regarding the real estate market. So far, the panelists have been prescient about forecasting market conditions. For example, the two-year forecast from June 2011 accurately cited optimistic commercial real estate outlooks for rents, occupancy and new project financing and pessimism surrounding land and building material prices. These accurate predictions have reinforced the quality of the survey and its value as an industry tool.
The full Minnesota Commercial Real Estate Survey is available at: http://www.stthomas.edu/business/centers/shenehon/pdf/MNCRE_Spring2013_Web.pdf
About the UST Opus College of Business
Herb Tousley, 651-962-4263
Tom Hamilton, 651-962-4152
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