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| Christine Kim |
NEW YORK, NY -- Seyfarth Shaw LLP has
released the findings of its 8th annual Real Estate Market Sentiment Survey
unveiling what commercial real estate (CRE) executives see as their top
concerns, investment priorities, and key catalysts for change.
Seyfarth’s 2023 Survey examines the
industry’s current market sentiment as it navigates economic challenges and a
new workplace standard. A copy of the full survey can be downloaded here.
This year’s survey reveals that the CRE
industry, similar to the country as a whole, is grappling with a vastly higher
interest rate environment coupled with the possibility of additional rate
increases, inflation, and a potential recession.
However, those headwinds have appeared to
be taken in stride by the CRE community that, by and large, is focused on
fundamentals and holds an optimistic view on 2023.
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Paul Mattingly
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“The Fed’s action on interest rates may
not be sufficiently slowing the greater economy, but it is definitely chilling
transactional activity,” said Paul Mattingly, chair of
Seyfarth’s Real Estate department. “Our respondents are experienced and
understand this part of the cycle, which explains their resilience and
optimism.”The survey reinforces that CRE
performance is driven by and tied to fundamentals. Interest rates, a potential
recession, and inflation remain the top concerns for CRE executives in 2023.
While the survey consensus follows the
Fed guidance on increasing interest rates, respondents are mixed on whether we
are in a recession or headed for one — and, if so, for how long.
Among the many other key findings in Seyfarth’s
8th Annual Real Estate Market Sentiment Survey and observations from the
Seyfarth Real Estate attorneys:
Persistent Positivity:
Despite the highest interest rate environment since 2007 and a looming
recession, more than two-thirds (69 percent) of the CRE industry have a
positive outlook for 2023. Though down from 84 percent in 2022, this resilient
optimism flows in part from better than expected economic growth during the
fourth quarter of last year and a continued decline in the rate of inflation.
It too may reflect a move to invest in distressed assets.
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Ronald S. (Ron) Gart
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Partner Ron Gart:
“The commercial real estate community is uniquely positioned to understand the
immediate and long-term impacts of the current economy. That singular vantage
point explains why on the one hand many, if not most, of the respondents
consider the commercial real estate sector to be in a recession while being
optimistic that the sector will experience a substantial turnaround by the end
of the year.
Distressed Dynamics:
Adversity can lead to prosperity for those poised and able to capitalize on the
moment. 48 percent of all respondents plan to invest in distressed assets in
2023, while nearly 60 percent of those respondents who view 2023 as a year of
opportunity also plan to invest in distressed assets. For those with money to
spend, the decrease in debt availability and rise in financing costs may lead
to falling asset values in the market and could explain why, despite these
challenges, they see 2023 as a year of opportunity.
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James O’Brien
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Partner: James O’Brien:
“The most surprising thing about the results is that nearly 70% of those
responding believe that 2023 will be a year of opportunity, even though almost
90% of respondents indicate that we are either in a recession now or will be in
one before 2023 is over. I think the answer to this seeming conundrum can be
found in the appetite for distressed investments. 60% of those who view this as
a year of opportunity say that they plan to invest in distressed assets.”
Workplace Woes:
Work-from-home/hybrid models are now table stakes to remain competitive with
top talent, though nearly two-thirds (62 percent) of CRE executives report a
corresponding decline in company culture as a result. Perhaps in an effort to
stem further declines, 85 percent of respondents, who are disproportionately
owners and senior executives, plan to be in the office 2-5 days per week in
2023. It is unclear whether concerns over culture will trump retention and
recruiting and drive the great return to work many CRE executives see as
critical to stabilizing assets.
Partner Christine Kim:
“The continuing tension between offering remote-work opportunities to attract
top talent and encouraging in-office work to preserve company culture has
interesting implications for the future of office assets.”
Pivotal Policies:
Lowering interest rates reigns supreme in the eyes of respondents with more
than 70 percent designating this as the most effective way the government can
support CRE. While 60 percent of respondents identify low state taxes as the
greatest driver of corporate relocations in 2023, social issues such as
reproductive rights and ESG were immaterial when compared to economic concerns.
Kings of Capital:
With the capital gap left by many lenders and institutional investors, CRE executives
expect private equity to become the leading source of equity in 2023.
Urban Upheld:
Nearly three-quarters of respondents anticipate a continued preference for
urban market investments. These numbers are consistent with respondents’ views
in 2022.
Preferred Properties:
Traditional assets are the most attractive asset classes for investments in
2023. Multifamily and industrial are the preferred darlings among core property
types, whereas senior housing and life sciences are the most alluring
alternative assets. Single-family rentals, which were among the top two
investment interests last year, fell to the bottom.
CONTACTS:
Tom Mariam
Director of Public Relations tmariam@seyfarth.com
212-218-3366
John Garger
917-572-4820
jgarger@rippmedia.com
Allan Ripp
646-285-1779
arippnyc@aol.com.
