Inflation and rising interest rates continue to weigh on the minds of commercial real estate professionals, according to CORFAC’s mid-2023 Business Impact Survey.
The survey of CORFAC’s independent real estate firms around the globe also revealed that the industrial/manufacturing sector continued to fuel the pipeline for more than three-quarters of the respondents, while the office sector fueled transactions for over half.
When digging into market dynamics, CORFAC members expressed a leveling of business activity compared to the latter half of 2022. Overall transaction volume increased for about one quarter of respondents, remained about the same for 35% of respondents and decreased slightly for 35% of respondents.
Members expressed concerns about inflation, remote work trends, bank failures and high construction material costs. But the primary worry was the potential for a recession – with more than 70% of respondents expressing greater worry about the effects of an impending recession than at the end of last year.
A recent survey of manufacturing professionals in nine mid-American states conducted by Creighton University concurred with those worries, finding that “45% of supply managers expected a recession in the second half of 2023.”
“Due to higher interest rates and concerns about a recession, investors are waiting on the sidelines for better times,” said one respondent. “Hybrid and remote work trends continue to shrink users’ space requirements and the impact of this will become more visible in the coming months.”
Reasons for optimism
Brokers are seeing some bright spots amid the uncertainty that’s clouding their outlook. A strong job market and favorable hiring trends, return-to-work mandates by employers and improved delivery times for construction materials lead the list of positive dynamics affecting commercial real estate in the first half of the year.
One respondent added, “Interest rates have stabilized, tourism has returned and many workers have returned to their offices, though hybrid work policies appear to be the new norm.”
Sources of new business included clients expanding, clients downsizing, new companies moving to the market and members receiving referrals from other CORFAC members. More than 35% of respondents received an inbound referral from another member, a strong indicator of the network’s value for business development in challenging conditions.
Investors are waiting and watching
Across the CORFAC network, members are seeing investors wait to place capital as the cost of financing goes up. A staggering 81% of survey respondents said availability of capital and interest rates are major factors affecting transaction activity. Other drivers of client decisions include availability of inventory, pricing and incentives.
To find opportunities and time deals in this challenging environment, the need for experienced local market expertise is more important than ever.
“As interest rates stabilize, and owners have more time to accept new pricing based on the higher cost of, or lack of, debt, the gap between seller and buyer expectations will close,” a respondent commented.
National economic trends such as inflation are having an impact at the regional level, but localized factors such as workforce trends, inward and outward business and population migration, pro-business legislation and investors’ interest in specific markets are also at play. To help steer their clients, CORFAC brokers can tap into shared intelligence from the global network to complement their deep local expertise.
