The effect of the pandemic on the commercial real estate sector and the resulting upheavals have contributed to a seismic shift in how buildings will be used, valued, bought and sold in 2023. And the relative uncertainty surrounding the possibility of a global recession could further impact an already volatile industry.

Two new reports, one from consulting firm Deloitte and the other from the annual Allen Matkins View From the Top, outline an uncertain future for commercial real estate (CRE) owners and investors as they approach of 2023.

Deloitte interviewed 450 CFOs from leading commercial real estate owners and investors around the world to gather their views on commercial real estate organizational growth and their plans for workforce, regulatory compliance and of technology, as well as investment priorities and changes planned for 2023.

For the 15th year, Allen Matkins View From the Top has brought together the West Region’s top commercial real estate surveyors, owners, investors, developers and brokers. The goal is to remain an essential source of commercial real estate market trends and forecasts.

A Deloitte study reveals moderate optimism from CRE

Deloitte’s research found a less than optimistic response to questions about revenue expectations for 2023. Results were mixed at best among respondents, with 40% saying revenue is expected to increase and slightly less of half predicting that income will decline. A total of 12% expected no change from 2022. Last year, the survey found that 80% expected an increase in revenue.

Respondents to the consultancy’s survey indicated that sustained high inflation, workforce management, cyber risk and climate regulatory measures were the issues that will have the most impact. impact on revenues over the next 12 to 18 months. As a result, most do not believe the CRE industry is fully prepared to respond to certain uncertainties.

Speaking at View From the Top, Michael Van Konynenburg, Chairman of Eastdil Secured, said that although capital markets “have been choppy, the positives outweigh the negatives in the current environment. With rising replacement costs, rising rents, a robust labor market, strong balance sheets, limited over-indebtedness and high liquidity ($4.1 trillion on deposit at the Fed), commercial real estate is well positioned for strong momentum in the second half (2023). »

He also reminded those present that CRE behaves well in an environment of rising interest rates.

At the same event, Robert Paratte, Executive Vice President of Leasing and Business Development at Kilroy Realty Corp. in Los Angeles, said companies no longer base rental decisions solely on rental costs. Upgrades and Concessions now play a crucial role.

“Tenants have more questions beyond rental rates, like ‘What’s my workforce like? Where do I want to be located? Is my accommodation ready? “There will likely be more aggressive pricing on a lease-by-lease basis rather than sweeping rate cuts,” he said.

Rising interest rates are forcing investors and owners to wait and see

With high interest rates likely to stay with us well into next year, experts on View From the Top’s Major Western Region Leasing Markets panel said they expect more clarity in the six to nine coming months. But until employees are steadily returning to the workforce, companies aren’t making decisions.

The Deloitte study pointed out that cost of capital, availability of capital, real estate prices, vacancy levels, rental activity, transaction activity and rental rates always lead to a positive outlook for most respondents (66%). They said rental activity, tighter vacancy rates and rental growth will have the greatest potential for improvement next year.

But the Allen Matkins conference showed very little enthusiasm around older, obsolete, technology-lacking buildings, believing there are significant buying opportunities available primarily for newer buildings.

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