On December 13, 2022, CBRE released its economic outlook report for 2023. High interest rates, coupled with an anticipated recession will make 2023 a challenging year for commercial real estate. Though inflation eased in late 2022, it was still running at more than 7%. CBRE Economists add that the Fed will continue raising rates until it sees a marked reduction in inflation nearer to its 2% target. Weakening fundamentals and higher cost of capital will generally lower asset values.
The report notes that a recession will not be particularly deep. Corporate finances are in good shape and employers will shun excessive layoffs to avoid losing employees in a tight market for skilled labor. While consumer confidence is highly subdued, average household debt is low compared with the onset of previous recessions. These factors again reinforce a moderate downturn, with unemployment unlikely to breach the 6% level. Inflation will be significantly lower by the second half of 2023, setting the stage for falling interest rates and the beginning of a new cycle that will last well into the next decade.
Despite these positive signs, the report notes the pace of change will not ease. The growth of the digital economy will continue to affect real estate demand. Hybrid working offers many benefits for businesses and employees, but companies and the office sector will have to evolve. Cities too will need to adjust to new commuting patterns and reduced office demand. The resurgent retail sector is just now reaping the benefits of a long period of change, which is attracting keen investor interest. Data centers and industrial real estate will probably be the most resilient sectors and the housing shortage will benefit the multifamily sector. The hotel sector’s recovery from pandemic restrictions will continue but life sciences activity, which was turbocharged by COVID, will ease for a while as venture capital becomes scarcer. All sectors in all places will be required by governments, occupiers and investors to make significant decarbonization efforts.
The report details the major trends that will dominate the major market sectors within the next 12 months. The entire report can be found by accessing the following link: 2023 U.S. Real Estate Market Outlook. As is the case, there are always two sides to any story; opportunities do exist amid this slowing economy. This review will highlight the trends affecting existing and prospective tenants along with properties/buildings within the CAM, Inc. real estate portfolio
Trends to Watch
Portfolio Optimization Based on Space Utilization
As employers embrace hybrid work, corporate real estate leaders will focus more on utilization data to gauge their portfolio performance and guide future space decisions. Utilization data will give decision-makers insight into how their space is and isn’t being used so that they can adjust their space planning, design and allocation to achieve efficiency and enhance the workplace experience for their employees. Reducing underutilized space and costs per seat will rise in 2023 as companies navigate an economic downturn.
Shorter Commutes and Quality Location Will Become More Critical: Quality office locations that reduce employee commute times will outperform in 2023. Space that helps attract workers back to the office will become a priority in site selection. Workers strongly prefer shorter commute times, an increasingly important factor in whether they accept job offers. Within a tight labor market and as employers seek to encourage a return to the office, occupiers will seek locations closer to their workforce and have walkable amenities that provide a superior employee experience.
See complete office Chapter @ https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/office-occupier
Trends to Watch
More Redevelopment Projects: With new construction remaining cost-prohibitive, retail developers and investors will focus on redesigning and redeveloping existing space to attract more shoppers. This will be especially true in prime trade areas, which are experiencing record-high occupancy levels and asking rents due to strong demand. Some of this redevelopment activity will involve conversions to other uses, such as office, industrial and residential.
Rise of Grocery Stores: The role of grocery stores will continue to evolve. Although food & beverage digital sales are rapidly growing, most of these orders are fulfilled at the store level through curbside pickup or third-party delivery. Grocers will transform their footprints to better suit multi-channel retailing.
See Complete Retail Chapter @ https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/retail
Industrial & Logistics
Trends to Watch
Solid Fundamentals Despite Slowing Activity: U.S. industrial leasing activity is expected to decline in 2023 as occupiers delay expansion plans and the post-pandemic need to hold additional inventory dissipates. Despite the slowdown, vacancy rates will remain well below the 10-year average. Low available supply will create another year of double-digit rent growth.
Record Breaking Completions and Plummeting Construction Starts: Groundbreakings will fall by more than half in early 2023 due to construction financing challenges and economic uncertainty. The reduction in construction starts will lead to completions dropping to around 250 million sq. ft. in 2024, leading to a shortage of first-generation space and a return to record-low vacancy rates at a time when many companies will reenter the market.
See Complete Industrial/Logistics Chapter @ https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/industrial
Trends to Watch
Improving Talent Pipeline: The construction labor force faces several ongoing structural challenges, such as an aging workforce (about 1 in 5 are aged 55+, nearly double the share 15 years ago) and an insufficient pipeline of new specialty tradespeople. While an increasing number of baby boom construction workers will retire in coming years, there are some indications that more young people will enter the industry. After many years of low enrollment for construction trade schools, the number of certificates awarded rebounded during the pandemic and should remain high in 2023.
Slowing Single-family Construction Will Help Commercial Development: Single-family home building, which surged during the pandemic, is slowing due to the recent steep rise in mortgage rates. Because single-family homes make up the largest share of total construction spending, even moderate cooling in this sector will reduce competition for labor and materials by the non-residential sector. This may encourage some developers of commercial projects to move forward with plans that had been put on hold and allow for faster completion of projects currently underway.
See Complete Construction Costs Chapter @ https://www.cbre.com/insights/books/us-real-estate-market-outlook-2023/construction-costs
CAM, Inc. Insights
CAM, Inc. is cautiously optimistic that economic conditions will improve by the second half of 2023 and is looking to add additional single & tenant spec space within its Akron/Canton Business Center VI & VII. The development will consist of two building totaling approximately 108,000 sq. ft. For more information, click on the attached link @ https://camincorp.com/wp-content/uploads/2020/02/AkronCanton-Business-Center-6_v02-480×318.jpg
For more information on CAM, Inc. Properties/Buildings/Services go to: www.camincorp.com
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Uniontown, Ohio 44685
P.O. Box 3515
Akron, Ohio 44309