Steady as she goes.
That's one way of describing Minnesota's commercial real estate market for the next two years. Slow growth with gradually improving conditions, according to the Minnesota Commercial Real Estate Survey, a semi-annual poll of 50 commercial real estate leaders in Minnesota conducted by the Shenehon Center for Real Estate at the University of St. Thomas.
Responses from those queried are used to create index scores -- higher than 50 represents a more-optimistic view of the market over the next two years; scores less than 50 represent a more-pessimistic view.
The November 2013 composite score came in at 47 or “slightly less than optimistic” for the third consecutive year.
“This is similar to the pattern that was observed last spring. However, the degree of optimism and pessimism has become slightly more moderate," said Herb Tousley, director of real estate programs at the university.
The index score for rental rates dropped slightly, from 69 to 66, as well as the index for occupancy levels, which moved from 66 to 62. “Despite the decrease, the panelists remain optimistic that rents and occupancy levels will continue to improve, albeit at slower rates,” Tousley said in a statement.
Meanwhile, the land-price index dropped to 31 this fall, compared with 33 from last spring. It was the third-consecutive decrease revealing "a strong expectation that land prices will continue to increase," Tousley said. “Increasing land prices increase total project costs and are a hindrance to new development, making it more difficult to obtain financing and adequate returns for investors.”
The building-materials index moved from a strongly negative 22 to 24. This means experts expect that prices for building materials to level off.
The index for investors’ returns has remained at 48 for the past four surveys.
Finally, the index for the amount of equity required by lenders dropped significantly, from 64 to 57. Tousley said "this indicates the panel’s belief that credit will be available for good projects but lenders will increase their equity requirements in the coming two years,” he said.