The two-year outlook for commercial real-estate development in the Twin Cities has turned less optimistic, mostly due to economic and political uncertainty developers are feeling from events outside of the Minneapolis-St. Paul market.
The semiannual Minnesota Commercial Real Estate Survey of 50 real-estate industry developers, investors and financiers released yesterday, was conducted by the Shenehon Center for Real Estate at the University of St. Thomas Opus College of Business.
“People are just stepping back, saying, ‘We really don’t know what to do,’” said Herb Tousley, director of the Shenehon Center and one of the survey authors. Commercial real-estate insiders are concerned about “all the things that went on last summer affecting the whole country,” he said, including the political impasse in Washington over debt deliberations and the ratings downgrade of U.S. debt.
Tousley said the subdued survey result “doesn’t mean activity will stop” but developers will “think a lot harder before committing to major projects.”
The more cautious outlook is not only a reversal of an increasingly optimistic trend that started with the first survey in May of 2010, but is also the single largest swing in sentiment observed in the local commercial real estate market since the survey’s launch two years ago.
The composite index registered it first decrease, falling from 55.6 last spring to 51.2 for the November 2011 survey. A score of 50 or above is considered optimistic, but Tousley described the current results as “essentially neutral.”
Tousley and co-author Tom Hamilton, an associate professor of real estate at St. Thomas, found positive but declining sentiment looking two years out across four of six separate factors they measured: rents, occupancy levels, expected rates of return and required levels of equity investment. The two other factors, prices for land and materials, while registering negative sentiment, actually improved slightly from the spring survey.
The survey results gives little hope to Minnesota’s beleaguered construction sector, which last month reported its first slight year-over-year job growth in five and a half years. Total construction employment is down 40 percent, or 50,000 jobs from 2006, according to the Minnesota Department of Employment and Economic Development (DEED).
While there are pockets of strength and weakness within the metro region, Tousley said, “it’s hard to generalize” about the health of commercial real-estate activity in the core city versus the suburbs. He observed that downtown Minneapolis is “doing very well” while some other areas are struggling. In general, the western and southern suburbs are doing better than the north and east metro region, he said.
New space for Himle firm
Coincidentally, the same day the St. Thomas survey came out, public relations and public affairs consultant John Himle was settling in to new office space under a new name in downtown Minneapolis after 29 years as a suburban-office dweller.
“Obviously it’s a good time to be in the market, negotiating a long term lease,” he said. Himle, Rappp – the firm’s new name – moved into 8,000 square feet on the 24th floor of the Accenture Tower at a lower cost per square foot while increasing the firm’s overall office-space footprint.
But economics was not the driving reason behind the move, he said. “There’s a lot of client activity and potential client activity…downtown. That seemed a good option for us…. On a practical level, I was driving five to eight thousand miles a year,” traveling to meetings from his office in Bloomington south of downtown Minneapolis. “It was not only mileage but the time drain. It just seemed to make more sense,” Himle added.
Himle founded Himle & Associates, Inc. in 1982, which became Himle Horner. Former partner Tom Horner left the firm to pursue an unsuccessful run for Minnesota governor in 2010. Himle and partner Todd Rapp moved the 15-person firm over the long Thanksgiving weekend.
As far as employees are concerned, the move downtown “cuts both ways.” Himle said. “Obviously, there’s energy to being downtown. That’s attractive. But parking costs are a downside, especially when you have employees that had free covered parking all these years. You had to make some adjustments for that.”
Himle’s firm was previously located at the 8500 Tower in Normandale Lake Office Park. While glad to be in the center city, he admitted to one regret: “I will miss watching the eagles as they’re fishing on Normandale Lake.”