Commercial Real Estate Leaders Become Slightly Pessimistic

Fifty local commercial real estate leaders-asked about their expectations for future vacancy rates, rental rate growth, development costs, and financing for new projects-have changed their two-year outlook from slightly optimistic to slightly pessimistic.

A semi-annual forecasting tool recently revealed that commercial real estate leaders have a slightly more negative outlook of the market than they did last fall.

Fifty commercial real estate leaders surveyed by the University of St. Thomas Opus College of Business have changed their two-year outlook from slightly optimistic to slightly pessimistic.

The fifth semi-annual Minnesota Commercial Real Estate Survey asked local real estate experts about their expectations for future vacancy rates, rental rate growth, development costs, and financing for new projects.

The composite index for the spring 2012 survey was 49-down from 51.2 in fall 2011 and the first reading to fall below 50. Index values greater than 50 represent a more optimistic view of the market over the next two years-and values below 50 represent a more pessimistic view.

Since May 2011, when the index was 56, it has been on a downward decline.

The same 50 commercial real estate leaders have been polled since the survey was first administered. The group of leaders includes individuals involved in development, finance, and investment.

According to the University of St. Thomas, the survey participants remain confident that rents and occupancy will show solid growth between now and 2014 due to improving economic conditions. However, they expect land prices and building material costs to increase and thus hinder commercial development.

The leaders also anticipate that financing terms will remain stable and that moderately increasing amounts of equity capital will be available. But they indicated that lenders and investors will continue to be selective in their underwriting criteria and evaluation of potential deals.

The Minnesota Commercial Real Estate Survey was developed by the University of St. Thomas' Shenehon Center for Real Estate.

To read the full report about the survey results, click here.

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