U.S. Real Estate Market 2023
The year ahead will pose challenges for commercial real estate due to high-interest rates and an impending recession. Despite inflation easing in late 2022, it remained above 7%, prompting the Fed to continue raising rates until inflation approaches its 2% target. This, coupled with weakening fundamentals and higher cost of capital, will likely lower asset values.
However, the recession is not expected to be severe. Corporate finances are stable, and employers are unlikely to lay off excessive numbers of employees due to the tight market for skilled labor. While consumer confidence remains subdued, household debt is comparatively low, suggesting a moderate downturn with unemployment not expected to exceed 6%. Inflation is expected to significantly decrease by the latter half of 2023, leading to falling interest rates and the start of a new cycle that could last until the 2030s.
Despite economic headwinds, the real estate market will continue to experience change driven by ESG considerations and the growth of the digital economy. Hybrid working arrangements offer benefits but require companies and the office sector to adapt. Cities will also need to adjust to new commuting patterns and reduced office demand. The retail sector is experiencing renewed growth and investor interest, while data centers and industrial real estate are expected to be the most resilient sectors. The multifamily sector is set to benefit from the ongoing housing shortage. The hotel sector will continue its recovery from pandemic restrictions, while life sciences activity will likely slow down as venture capital becomes scarce. Decarbonization efforts will be necessary for all sectors in all locations, as required by governments, occupiers, and investors.
The 2023 outlook provides detailed information on the major trends expected to dominate the year. For inquiries about how these trends may affect specific real estate strategies, please do not hesitate to contact us.
