“CBRE expects the slowdown in investment and lending activity in the primary half of the 12 months to scale back the full volume of investments in 2023 by roughly 15% in comparison with 2022,” the authors wrote. “However, as Federal Reserve policy and economic conditions change into more predictable mid-year, we expect investment and lending to choose up.”
When will inflation fall in 2023?
According to the study, the important thing aspects to think about when buying and borrowing expectations this 12 months are when inflation will peak and where rates of interest will end. Around 50% of investors consider inflation will peak in Q1 or Q2, and 35% consider it has already peaked. With high inflation, most investors expect higher borrowing costs. Over 70% of surveyed investors consider the 10-year Treasury rate will exceed 3.75% at the top of 2023.
Lenders shared the same outlook on inflation, with 48% of those polled believing it might peak in Q1 or Q2 and 33% believing it had already peaked. Lenders also expect higher borrowing costs, but to a lesser extent than many investors. Over 50% of lenders surveyed consider the 10-year Treasury rate will exceed 3.75% by the top of the 12 months and 43% consider it’s going to end the 12 months between 3.00% and three.75%.
Both investors and lenders cited rising rates of interest as a key challenge for the business real estate market in 2023. Uncertainty as to the direction of rates of interest will limit investment activity in real estate, especially in the primary half of the 12 months. Nevertheless, CBRE believes that inflation and borrowing costs won’t be as high as many investors and lenders expect. We forecast that the 10Y Treasury rate and inflation (CPI) will end the 12 months at 3.2% and 4.0%, respectively.
What is probably the most profitable real estate sector?
- According to the study, the multi-family real estate sector remained probably the most wanted real estate sector by investors and the second largest amongst lenders. The research showed that apartments were the most well-liked multi-family sub-sector, despite the weakening of the foundations in recent quarters. Half of the investors surveyed indicated that they expect price cuts of 10% to 30% on multi-family assets this 12 months, and 34% said they expect reductions of lower than 10%. Rental and reasonably priced housing were chosen as desirable alternatives within the sector.
- The industrial and logistics sector was probably the most often chosen sector by lenders and the second by investors. The industrial sub-sector preferred by investors were modern logistics facilities within the principal markets. With the continued strong foundations of the commercial real estate market, this sector had the very best percentage of investors (14%) who didn’t expect price reductions. Investors cited self-storage and data centers as preferred alternatives within the sector.
- Investors and lenders seemed pessimistic concerning the office sector. Only 10% of investors and no lenders selected “office” as their preferred property type. Lower occupancy of office space for the reason that COVID pandemic has resulted in higher emptiness rates and weakened the foundations of the true estate sector. More than half of investor respondents expect price reductions of 30% or more on value-added A-class office assets, and 25% expect reductions of greater than 30% on established A-class assets. While this can be a difficult time for the office market, high-end Class A office assets proceed to perform relatively well.
- The retail sector was probably the most preferred by just 9% of investors surveyed and 16% of lenders. Grocery-anchored malls remained probably the most preferred retail sub-sector, with 78% saying they expected price reductions in shopping malls.
Where is one of the best place to take a position in 2023?
Both investors and lenders have indicated a powerful preference for high-growth secondary markets, particularly within the Sun Belt, including Austin, Texas; Atlanta; Miami; Nashville, Tennessee; Charlotte, North Carolina; San Diego, CA; and Raleigh, North Carolina Many investors expect these markets to outperform in 2023. Other preferred markets include Los Angeles and Dallas/Fort Worth.
