CORFAC International’s year-end 2023 survey of members in its global network revealed mixed feelings about the state of commercial real estate in local markets. Despite economic uncertainty and inflation causing 67% of respondents to report lower transaction volume than earlier this year, local market business sentiment remains positive for over half of respondents.
Several markets, representing more than 40% of those surveyed, are benefiting from inbound business and population migration. For example, New Jersey has been a big beneficiary of job growth in the greater New York area.
The sectors fueling business activity for many CORFAC members shifted slightly in the latter half of the year. The warehouse/distribution sector fueled the transaction pipeline for over 67% of respondents, bumping industrial/manufacturing into second place. Retail, office and investment sales rounded out the top five sectors contributing to members’ deal stacks.
Recession Concerns Decrease, but Other Worries Persist
Recession worries eased among respondents with about half expressing concern, down from 70% who expressed concern earlier this year. When making real estate decisions, members say their clients also cite interest rates and lack of available financing as roadblocks. “Inflation and rising interest rates have significantly impacted our small business owner clients’ ability to tap into lower interest financing,” one respondent said.
Yet inflated costs for construction materials and workers’ reluctance to return to the office continue to hamper activity overall. “New construction developments are under pressure or being cancelled due to high construction and material costs,” explained one member.
“Companies and individuals are still resistant to returning to the office,” another respondent added. “The return-to-work pace has been much slower than expected.”
Looking Ahead to 2024
Survey respondents said the office sector is poised for the most change in 2024. Return-to-work mandates will continue to have an effect, but as leases come due many office clients are still looking to sublease excess space. “We also expect creative repurposing of aging office space in our market,” a respondent noted.
The investment sector is likely to be active in the new year as well. “There is a potential levelling of significant capital value declines over the last 18 months providing good value for money,” said a respondent. Stabilizing interest rates should also ease the worries of some buyers, fueling more investment activity in the coming months.
Referrals Highlight Network Benefits Sources of new business remained steady from early in the year, including clients downsizing, clients expanding, new companies locating to the market and business won from competitors. In addition, 26% of respondents received an inbound referral from another CORFAC member since mid-year, a positive indicator of the network’s value for business development in challenging conditions.
Amid continued market uncertainty, those looking to invest in or divest of commercial real estate need advisers with on-the-ground intelligence as well as understanding of macroeconomic trends. It’s especially imperative to time decisions to the inflation and interest rate curve. With local market presence bolstered by an international network of information sharing, CORFAC brokers are poised to help their clients make the most of opportunities as they become available.