CRE 2023: The Midyear Outlook Roundup

There’s no denying that, from an economic perspective, 2023 got off to a rough start. Constant rate hikes, and the ever-present possibility of recession have loomed large on the horizon, and many industries have been impacted by the resulting uncertainty.

For us in commercial real estate (CRE), the number of factors we need to juggle have multiplied. Despite that, the outlook for CRE has been optimistic overall, with some sectors showing remarkable adaptability in the face of challenges.

Now, as we hit the midyear mark of this unusual year, the questions that are top of mind for most CRE professionals are: Has the outlook shifted? And where are we headed next?

CRE ‘remains resilient’

According to a recent report by JPMorgan Chase & Co., many CRE sectors have continued to show resilience in the first half of the year.

While they note that the outlook for office is still unclear, other sectors “continue to perform well.” Some highlights from the report include that:

As of April, median vacancy rates for multifamily in the US were 3.9%, though the situation varies on a metro-by-metro basis.
Industrial is softening, but still strong. Vacancy rates for logistics properties saw a moderate uptick to 4.2% in Q1 2023 (from 4.1% in H2 2022), and
Retail continues to show strong performance, spurred by the need for in-person services that can’t be fulfilled through online channels.

Steady, but slower

That pattern of ‘holding steady’ is a trend we see reflected in Crexi’s “National Commercial Real Estate Report” for May 2023 as well. On the rental side, the report notes: “While May didn’t reveal much rent growth on Crexi, it maintained the significant climb in rates posted in April while landlords added fewer assets to the site, indicating continued, high demand for leasing space.”

Some interesting points from the leasing data include that:

Office rents climbed slightly in May (2.6%): “heading off two consecutive months of falling asking rates,” and
Retail asking rates held steady at an amount that is: “the highest leasing rates for retail have been since October 2022.”

On the sale side, however, Crexi does note a softening market. Industrial assets showed a nearly 8% drop in asking price per square foot month-to-month, while multifamily and office dropped 1.41% and 2.22% respectively.

Interestingly, the retail sector is once again an outlier, gaining 2.8% in asking price per square foot according to Crexi’s data.

Year-on-year concerns

Also worth noting is that, according to MSCI’s year-on-year data, commercial property prices dropped for all asset classes in April, marking “the first time since September 2010 that prices fell across the board.”

MSCI notes that multifamily (“apartments” in their analysis) saw the largest decline among property types, “with the index falling 12.1% from a year prior.”

The year ahead

As these data sets show, in the second half of 2023 we still face a CRE landscape unsettled by broader market uncertainty – and this is especially true when it comes to raising capital.

In that environment, the job of CRE professionals becomes trickier, but underlying fundamentals, such as asset class and location, still play a vital role in answering the question of what’s possible when it comes to getting a deal to pencil out.

So while brokers are going to need to ‘think on their feet’ more than usual, what’s certain is that there are still solid deals to be made. And solid opportunities to build the kind of business value that will carry brokerages forward in the year to come.