The semiannual survey was conducted just after the 2012 presidential election, and the continued decline of the overall index reflects continued uncertainty about the U S economy, employment growth, and consumer confidence.
The Minnesota Commercial Real Estate Survey continues to show a less optimistic outlook for commercial real estate. This is a continuation of a downward trend that started with the fall 2011 survey. As was done with all five of the previous surveys, the same group of 50 commercial real estate industry leaders representing development, finance and investment were polled. The survey measures their expectations for the future of the market in seven different categories including vacancy rates, rental rate growth, land prices, building material prices, new project financing criteria, and rates of return. These are the people who are making decisions today that will affect future commercial real estate conditions.
The survey indicates panel participants are becoming slightly more pessimistic about the prospects for the commercial real estate market in 2014. They continue to be confident that rents and occupancy will continue to grow in the next two years, although they are indicating that the rate of growth will be slower than previously expected. The expected increase in land prices and building materials will continue to have a negative impact on development activities. They expect that financing terms are going to continue to remain stable and there should be moderately increasing amounts of equity capital available. That being said, lenders and investors are going to continue to be very selective in their underwriting criteria and evaluation of potential deals. The bottom line for the fall 2012 survey finds our panel showing increased concern about uncertain economic conditions and their hindering effect on the commercial real estate market. The shift in the composite index from mildly optimistic to slightly pessimistic reflects the panels’ increasing uncertainty about general economic conditions in the next two years.