CORFAC’s final quarterly survey of 2022 revealed that brokers from its independently owned commercial real estate member firms are bracing for further impacts of inflation and rising interest rates.
CORFAC members said business sentiment was neutralizing in their market after a positive upswing earlier last year. However, even amid concerning economic trends, more than 62% of respondents experienced more transaction volume compared to last year, with 17% enjoying significantly increased deal volume.
“In a sluggish economy, the intra-network connections and on-the-ground knowledge CORFAC members bring to their clients is paramount,” said Mason L. Capitani, SIOR, Principal of L. Mason Capitani/CORFAC International in Detroit. “Our survey shows that our brokers have a deep understanding of their local market dynamics and are focused on continuing to deliver deals.”
Where deal activity is coming from
Many CORFAC members –76% – are seeing new business from existing clients who are expanding, showing continued growth from 70% of members surveyed earlier this year and 63% during last year’s survey. In addition, 59% are getting new business from clients relocating to the market, also growing from nearly 50% in the first half of the year.
Higher deal volume in 2022 was a positive sign for member firms, especially since brokers were battling a difficult environment. They had to help clients navigate a real estate market with capital sitting on the sidelines, waiting for interest rates to stabilize or prices to match the market. According to the CoStar Commercial Repeat Sale Indices, prices fell in December 2022 in every sector except land due to waning investor interest. Transaction volume fell for the sixth consecutive month.
What’s worrying CORFAC brokers as the start of 2023
CORFAC brokers were asked what their greatest concerns are looking at current events and macroeconomic trends. Inflation and rising interest rates were by far the most worrisome, with 60% of CORFAC members saying they will have the most negative effect on CRE transactions in the coming months.
One responding member said that interest rate increases have “created short-term need and long-term confusion and degradation of deals under consideration.” They have also contributed to lower valuations and higher cap rates. As another member explained, “Sellers are seeking prices that do not reflect the higher cost of financing and thus what buyers can finance.”
About 44% of CORFAC members said business sentiment in their local market was somewhat positive, but 30% would describe it as “neutral” and only 3% said it was “very positive.” That’s a downward trend compared to earlier this year, when half of CORFAC members described overall business sentiment in their market as “somewhat positive” and another third said it was “very positive.”
What would improve these numbers again? A quarter of respondents want to see GDP or economic growth. Improved delivery of construction materials would also help, said 14% of those surveyed. Some cite a challenging political environment for businesses contributing to decreased CRE deals, too.
Brokers are bracing for a tough year ahead. “The impacts of interest rate increases will be felt next year. Cap rates will have to rise or sellers will have to hold. Many projects will end up ‘on hold’ due to the new challenging lending environment,” said one respondent.
To persevere in an economic environment like we are facing, the need for experienced and local market-savvy advice is crucial. Buyers and sellers alike will need to time their moves to the inflation and interest rate curve, and CORFAC brokers can provide the necessary insights for optimal timing.