Semiannual Survey Shows Pessimism in Twin Cities Commercial Real Estate Market

Wednesday, May 16, 2012

Increasing home prices indicate improvements in the residential real estate market, but the Twin Cities commercial real estate market has taken a dip according to the May 2012 edition (PDF link) of Shenehon Center for Real Estate's semiannual Minnesota Commercial Real Estate Survey. Now in its third year, the survey polls 50 commercial real estate industry leaders representing development, finance and investment, and gathers forecasts on seven different categories including vacancy rates, rental rate growth, development costs, new project financing and rates of return.

"Those surveyed continue to be confident that rent and occupancy will show solid growth over the next two years," said Herb Tousley, director of real estate programs at the University of St. Thomas Opus College of Business, who conducted the survey along with his colleague Dr. Thomas Hamilton, associate professor of real estate. "However, expected increases in land prices and building materials may drag down commercial development activities somewhat."

Based on a 0-100 index, the spring 2012 survey recorded its first composite score below 50 since the inception of the survey in 2010, indicating a more pessimistic view of the future commercial real estate market. Compared to the fall 2011 survey, the panel is more certain that land values will continue to increase, making it more difficult to obtain financing and adequate returns for investors. There is also a strong indication that the price of building materials will continue to increase over the next two years, shifting from a strongly negative 27.9 to an even more negative reading of 26.

Investor's return expectations remain unchanged at 49, which is essentially neutral. “This serves as an indication that investors are still trying to figure out the ‘new normal’ in the commercial real estate space,” noted Tousley.

About the UST Opus College of Business
With a vision to educate highly principled global business leaders, the University of St. Thomas Opus College of Business offers undergraduate concentrations in 13 fields and master’s degrees in seven programs, including day and evening MBA programs. The school enrolls another 4,300 participants annually in executive-education classes. Its Shenehon Center for Real Estate, one of 12 centers and institutes, provides research and develops programs impacting the real estate industry, and has been the academic voice involved in several local and national real estate industry organizations.

University of St. Thomas Press Release, 05/16/2012