Century 21 Commercial eNewsletter January 2023

by Bob Patel

What’s in this issue?

> Warehouse check-in: Are the goodtimes here to stay?

> Looking ahead at 2023: How will a recession impact CRE?

> Top 10 Life Sciences Clusters in the U.S.

Warehouse check-in: Are the good times here to stay?

Warehouses and other industrial spaces wrapped up yet another impressive year of leasing and construction. With so much going right in this segment of the CRE space, will a possible recession undo the gains from these past few years? While the segment has seen its share of challenges, experts are optimistic about a steady 2023.

A strong close to 2022, despite challenges

The industrial sector was forecast to close 2022 with its second strongest year on leasing activity, with 18% year-over-year growth and vacancies still hovering around the 3-4% range. At year end, 713.6 million square feet of industrial space was still under construction, with port locations fueling much of the growth, according to Commercial Observer.

The industrial sector did begin seeing headwinds in mid-2022, as Amazon canceled or postponed dozens of distribution centers around the U.S., and some 49,000 jobs were lost.

Expansion and high inventories backing off

If predictions for a 2023 recession come to fruition, experts expect developers and brands to pump the brakes on expansion. They should also be calling off the high inventory levels they implemented to meet elevated demands during the pandemic.

2023: Low vacancies should hold

Looking ahead to 2023, warehouse vacancies should continue to remain low. Though retail spending will likely decrease, the appetite for consumer goods products — coupled with customers’ desire for quick delivery and stocked shelves — will keep shipments moving across the country.

Looking ahead at 2023: How will a recession impact CRE?

A strong majority of economic experts predict a recession in 2023. Fannie Mae, along with most economists polled by Bloomberg, affirm a downward shift in economic conditions in the coming year, thanks to inflation, higher interest rates and lackluster economic growth.

The real estate market will feel the effects, as Fitch Ratings predicts a spike in delinquencies on commercial mortgage-backed securities. Here’s a look at how a possible recession would impact the segments of CRE.

Retail: As an outcome of suppressed consumer spending, Fitch predicts a spike on defaults for class B and C mall loans.

Hotel: The good news is a robust leisure travel forecast will temper delinquencies, but a recession would certainly delay a full recovery from the pandemic.

Office: Class B and C properties are at the highest risk of default, as long-term contracts wind down and the higher-end properties scoop up new contracts.

Multifamily: Elevated home prices and mortgage rates will continue to stall home purchases, with a slowdown on new projects thanks to higher building costs.

Industrial: Of all commercial sectors, the economic downturn will have the softest touch on industrial properties. Still, changing economic conditions will prompt brands to rein in new projects and expansions.

Top 10 Life Sciences Clusters in the U.S.

Which metros are emerging as research hubs?

Boston
San Francisco Bay Area
San Diego
Washington, D.C., Area
Philadelphia
Raleigh-Durham, North Carolina
New Jersey
New York City
Seattle
Salt Lake City

Source: JLL