2023 OUTLOOK: Opportunities Exist, Just Need to Find Them

POPULATION GROWTH IS KEY TO INVESTMENT ACTIVITY IN 2023

While we are not officially in a recession, inflation is surging and real wage growth is negative. Despite two open jobs for every one unemployed person, a shortage of labor is weighing down the U.S. economy today; labor is the critical issue above all else because you can’t grow despite demand if you can’t find workers to run the shop. This has culminated in slowing down CRE activity and uneven consumer spending across most of the U.S. during 3Q 2022. And now bank lending has paused as the Fed’s steep and frequent rate hike changes have made it very difficult to price a loan.

2022 MID-YEAR UPDATE: Appetite Still Strong

Ample capital and need for yield to continue driving investment activity in 2022

Following record-highs from 2021, commercial real estate activity has remained elevated in 2022 – led by multifamily, industrial and a strong rebound in retail. Despite widespread supply chain disruptions, inflation and political uncertainty around the war in Ukraine, investors were eager to unlock cash flow and pushed cap rates to record-lows in 4Q21 and 1Q22 across most sectors. Demand for real estate will continue to be strong for high-growth markets.

2022 OUTLOOK: Expect Another Strong Year

Strong fundamentals fueled by stable cash flows and pent-up demand

While rents were pressured early in the COVID-19 pandemic as tenants returned space to the market and delayed new leases, the economy came roaring back in 2021 with 18.5M jobs (out of 22.4M lost during the pandemic according to the Bureau of Labor Statistics) - contributing to confidence in the property market and helping to push commercial property values to a 15-year high in the third quarter. 2021 transaction volumes rose 55% over 2020 and were 15% above 2019, led by multifamily, life-science, warehouse and distribution properties.

To understand how relocations are influencing commercial development, we compared Q1 sales activity before the impact of the outbreak with the average of the remaining three quarters in 2020. We found that investors are following the migration patterns.