The announcement that August inflation accelerated to 3.7% is cause for further economic concern and a potential pre-curser to further interest rate increases when the Fed meets September 18-19. Further, according to the 2023 Chicago Mid-Year Sentiment Report, produced by The Real Estate Center at DePaul and the Urban Land Institute Chicago District Council, rising inflation is one of the greatest threats to commercial real estate.

In the 2023 Sentiment Report, Chicago real estate professionals ranked rising interest rates, a potential recession and inflation as three of the five greatest threats to the market. On a scale of 1 (lowest) to 5 (greatest), rising interest rates was ranked the No. 1 threat at 3.82 with a potential recession a close second at 3.68. Inflation ranked No. 5 at 3.35, but in a very tight cluster with additional bank failures (3.41) and return to office (3.36).
Mary Ludgin, senior managing director, global head investment research, Heitman, said, “We are wrestling with inflation. The Fed made some really remarkable moves over the past year. I fear the Fed likely overshot and that we are entering into a period of slow growth or recession.”
The way the Fed has approached inflation is truly a matter of opinion.
“Hindsight is always twenty-twenty. It’s easy to speculate or suggest that if the Fed had taken a more aggressive posture sooner to slow inflation everyone would be better off now,” said Steven Weinstock, senior vice president, regional manager, Marcus & Millichap. “It’s been a very difficult job that is open to a lot of second guessing.”
Greg Warsek, executive vice president | group leader, commercial real estate, offered, “We shocked the system with the intent of curbing inflation, and I am not certain that we’ve given it enough time to take hold.”
According to the findings in the mid-year report, there is little doubt that a recession is on the horizon, if not already here. The bigger question is whether we should expect a hard or a soft landing.
More than 75% think a recession will be upon us by year end. One third believe we are already there. Those not believing we’re in or heading to a recession this year are evenly split between avoiding a recession altogether and a recession in 2024. Although 45.3% believe the landing will be soft, 33.6% expect a hard landing. Just over 20% aren’t certain.

The confluence of factors has resulted in a significant decline in investment activity as well as values.
“What’s happening with interest rates, inflation and a lack of transaction activity is a cause for some concern,” Mike Kamienski, partner, Baker Tilly, said. “We all know that real estate investors like to do deals, so I don’t expect the lack of transactional activity to last too long.”
One industry professional said, metaphorically, that the economy is like a car that now has better brakes. The real challenge now is knowing how hard to hit the brakes to avoid hitting the wall.