With the end of the year fast approaching, this is a good time to discuss the outlook for commercial real estate in 2023. Here we offer a summary of some insights and ideas that will equip you to make informed decisions over the next few months.
2023 Commercial Real Estate Outlook
Below is a summary of forecasts and key observations by key players in the commercial real estate industry, with a special emphasis placed on industrial properties.
2022 in a Nutshell
In order to understand the immediate future of commercial real estate, it is necessary to have a clear picture of the trends that shaped the industry during 2022. In short, an expansion in demand fueled by the pandemic (and in particular by e-commerce) brought leasing activity to historic highs. Similarly, construction pipelines reached record levels during the last 12 months.
CRE in 2023: Continued Expansion But at a Slower Pace
The outlook for industrial real estate remains positive, with what would be a 13th consecutive year of positive net absorption. However, experts forecast a slight drop in demand. The factors cited include a lessening of the need to hold additional inventory as well as growing inflation and hikes in interest rates which in turn create upward pressure on the costs of land and construction. Some experts also expect zoning limitations for centrally located facilities.
E-Commerce: a Long-Term Upward Trend
While the constraints created by the pandemic slowly dissipate, e-commerce will remain one of the forces propelling industrial real estate. According to CBRE, the percentage of e-commerce as a total of retail sales will climb from the current 19.5% to 32.1% by the second quarter of 2032. In the words of an expert quoted by JP Morgan, “E-commerce will likely serve as a tailwind for the logistics industry—and industrial warehouse and distribution properties—for at least 10 years,”
Record-breaking construction completions but decreasing starts
As a logical consequence of the landscape outlined above, 2023 will see a record number of construction completions paired with a noticeable dip in starts. Spaces still under construction in 2022 will be finished over the next few months, while a combination of economic uncertainty and financing challenges is expected to cause a 50% drop in groundbreakings in early 2023.
To learn more about the future of industrial real estate, be sure to read our previous blogs, “L.A.’s “Mansion Tax” and Its Impact on Commercial Real Estate,” and “Survey: “Demand for Logistics Space Still Strong Despite Economic Headwinds”
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At SoCal CRE Team, we specialize in industrial real estate solutions in the most sought-after Southern California markets such as Los Angeles, Orange County, Riverside, Anaheim, and more.
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