By Jonathan Glick, Sheldon Gross Realty
Looking ahead into 2023, we at Sheldon Gross Realty are carefully tracking developments, doing our due diligence, and hoping for the best. With a few caveats, I suppose I’d define us as cautiously optimistic. We’re inclined to believe that 2023 will be a continuation of 2022, with similar demand for warehouse space and vacant industrial land.
Industrial
Given the current status of capital markets, investments in industrial real estate have paused. As a result, it’s logical to assume lease rates and sale prices will remain steady throughout the current year. That said, without capital markets competing to purchase properties and driving down the cap rate, we anticipate a leveling both of lease rates and purchase prices for existing warehouses. The number of companies looking to “right size” their inventories should ensure that demand remains strong, while at the same time creating sufficient supply to enable the majority of buyers and tenants to be successful. One exception is likely to be new construction in the most attractive, favorable locations, which we expect will benefit from record high lease rates.
Industrial Land
The demand for outdoor, industrial storage will remain high. In some geographic areas, including those close to New York City and East Coast ports, and those providing quick access to trucking routes, there will be modest valuation increases. All other areas should simply continue to get lease rates and purchase prices at record highs. Unfortunately, industrial land – either with or without approvals to build – won’t perform as well as during 2022, at least not until the industrial capital markets return to the mix. Industrial properties will continue to be built and put into service, but at rates more akin to what we saw before the recent industrial real estate boom. This means there won’t be as many transactions, and these won’t be at historical “value of land per buildable foot” levels.
Office
In my more than 35 years in this business, I’ve learned it’s quite daunting to make projections related to the corporate and neighborhood office sector. For 2023 – and leaning as I typically do toward the glass being half full – I’m inclined to envision positive results. My reasoning on this is based on a trio of factors, the first of which is many towns being in the process of re-zoning office sites to better address local needs, whether that means creating more warehouses, residential properties, or mixed-use sites. Next, even though there may be significant scheduling modifications, corporations remain committed to employees working in the office. And, finally, many owners are investing in their office properties to ensure they’ll continue to be up-to-date work environments.
At Sheldon Gross Realty, we’re anticipating that 2023 will present multiple opportunities – and we’re looking forward to our current and new clients reaping the rewards.
Jonathan Glick is executive vice president of Sheldon Gross Realty.