CRE pros are slightly pessimistic about future

  • May 22, 2012 - 11:40 AM

Is the future of the local commercial real estate market half full, or half empty?

According to the fifth semiannual Commercial Real Estate Survey from the University of St. Thomas, the future looks half empty. And that's after real estate professionals said it was half full last fall.

An explanation: The survey released this week from St. Thomas' Shenehon Center for Real Estate at the Opus College of Business polls 50 commercial real estate industry leaders -- from developers to financiers -- to gauge their expectations in six categories, including vacancy and rental rates, land prices, building material prices, new project financing and rates of return.

The spring survey's composite index score was 49, down from 51.2 last fall. (Each question has a value from zero to 100).

"We went from being slightly optimistic to slightly pessimistic," said Herb Tousley, director of the Shenehon Center.

This is significant, he said, because it's the first time in five surveys that the score has dropped below the halfway mark.

One sentiment that stuck out was the view that the cost of building materials -- including lumber, cement and steel -- will continue to rise over the next two years. Tousley says the demand for these materials is growing, especially as construction booms in places like India and China. In addition, the cost of land is expected to increase, too.

"The more you have to pay for land, the harder it is to make your deal work," Tousley said.

On the positive side, the survey indicated financing is available for the right projects. "Although investors and financiers are being selective about the deals that they do, that means they're not financing the shaky deals they might have looked at five years ago," Tousley said.

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