CRE survey shows angst over cost of land and materials.

Byline: Brian Johnson

Developers don't expect the bottom to fall out of the local commercial real estate market within the next two years, but they have lingering concerns about the cost of land and building materials, according to a new survey.

The University of St. Thomas survey of 50 commercial real estate professionals also indicates local developers are optimistic that the economy will continue to grow and create more demand for commercial space in the near term.

At the same time, commercial real estate leaders are increasingly worried that occupancy levels may taper off in the next two years as more new space comes online.

"There is still some concern that we are near the top of the cycle and that overbuilding and increased vacancies may occur in some product types and submarkets," said Herb Tousley, director of real estate programs at the University of St. Thomas.

Those are among the key takeaways from the latest University of St. Thomas/Minnesota Commercial Real Estate Survey. Released late Wednesday, the biannual survey aims to shed light on what the local CRE market may look like in two years.

The survey touches on future market conditions related to rents, occupancy, land prices, building material prices, rate of return and loan-to-value requirements. Any index over 50 indicates a more optimistic view of the market.

One of the biggest changes from last fall's survey is the level of anxiety over interest rates, Tousley said.

"Six months ago everyone thought they would keep bumping interest rates up. As it turns out interest rates have settled down and are back at a pretty low rate. Expectations are for the...

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