So, the real estate market is about to take a hit in 2023, but don’t panic just yet! According to CBRE’s newly released outlook report, while we can expect to see a moderate recession next year, well-capitalized investors will still be able to make deals.
And while the report predicts a slowdown in construction and declines in asset values, investment volume, and leasing activity across most sectors, each one is expected to have a unique outcome.
For example, the office sector may see a widening gap between top-tier and lower-tier assets, while the industrial & logistics and life sciences sectors may experience slower leasing momentum.
On the bright side, construction costs are expected to recede to 5.4% after two years of double-digit gains.
But it’s not all bad news. As CBRE’s Global Chief Economist, Richard Barkham, points out: “Most areas of the U.S. economy are not as overextended as in past downturns…
The economy will stabilize and start to improve in 2024. The recovery from there might surprise on the upside.” In other words, while 2023 might not be the most pleasant year, it’s not going to be a disaster like the Global Financial Crisis.
So, keep calm and carry on, my real estate-loving friends!
2023 Predictions for The Market
It’s important to note that the predictions made by CBRE in their outlook report are based on current trends and data, and it is always possible for circumstances to change.
Here are a few potential ideas that could alter the predictions made in the report:
- Government intervention: Policy changes or stimulus measures taken by the government could potentially impact the real estate market. For example, a new infrastructure investment program could boost construction activity and drive demand for commercial real estate.
- Changes in consumer behavior: The real estate market is heavily influenced by consumer demand, so shifts in consumer behavior could impact the forecasted trends. For example, if there is a sudden increase in the popularity of telecommuting, it could change the outlook for the office sector.
- Technological advancements: New technologies, such as the widespread adoption of virtual reality for real estate showings, could change the way that real estate is bought and sold and potentially impact the market.
- Interest rate changes: Fluctuations in interest rates can impact the cost of borrowing for real estate transactions, which could in turn affect investment activity.
Possible Solutions to Stop Recession
So, there is no need to panic just yet. A few things can be done to help mitigate the effects of the recession on commercial leasing and investment activity.
So, here are a few potential solutions that governments and policymakers could consider in order to try to prevent or mitigate a recession:
- Fiscal policy: Governments can use fiscal policy measures, such as tax cuts or increased government spending, to stimulate demand and boost economic activity.
- Monetary policy: Central banks can use monetary policy tools, such as lowering interest rates, to encourage borrowing and investment.
- Infrastructure investment: Governments can invest in infrastructure projects, such as building roads, bridges, and airports, to create jobs and stimulate demand.
- Trade policy: Governments can implement trade policies, such as reducing tariffs on imported goods, to increase international trade and boost economic growth.
- Labor market reform: Governments can implement labor market reforms, such as increasing the minimum wage or implementing job training programs, to improve worker productivity and support economic growth.
It’s worth noting that each of these solutions comes with its own set of pros and cons, and the effectiveness of each one will depend on the specific circumstances of the recession and the economy.
Conclusion
In conclusion, the real estate market is expected to experience a slowdown in 2023 due to a moderate recession, with declines in construction, asset values, investment volume, and leasing activity anticipated across most sectors.
However, it’s important to remember that these predictions are based on current trends and data, and there are potential solutions that governments and policymakers can consider in order to try to prevent or mitigate a recession.
While 2022 may not be the most pleasant year for the real estate market, it is not expected to be as severe as past downturns, and the economy is expected to stabilize and start improving in 2023.
