Commercial real estate outlook 2023

Commercial Real Estate

The global commercial real estate (CRE) industry faces uncertainty. Ongoing uncertainty in the world economy could impact the industry even more, according to the Deloitte Center for Financial Services’ 2023 Commercial Real Estate Outlook.

The global survey that was conducted among 450 chief financial officers (CFOs) of major CRE owners and investment companies, got their opinions about organizational growth and their plans for workforce, regulatory compliance, and technology. They were also asked about their investment priorities and anticipated structural changes in 2023.

Respondents were equally distributed among North America (the United States and Canada), Europe (the United Kingdom, France, Germany, and Switzerland), and Asia/Pacific (Australia, China Mainland, Japan, and Singapore).

Forty eight percent of the CRE CFO respondents said they expect revenue to decline in 2023 due to economic slowdown and climate regulatory action, leading executives to cut costs.

“Regardless of which scenario comes to fruition, the 2023 Deloitte real estate outlook survey reveals that concerns about the economy are top of mind for most global real estate leaders as they prepare for the remainder of 2022 and 2023,” the report said.

“Revenue expectations for 2023 are mixed among those surveyed—40% say revenues should increase, 48% see revenues decreasing, and 12% expect no change. Last year’s results were much more optimistic: 80% expected revenues to increase in 2022.”

Compared to 2022 outlook results, more respondents plan to cut or cap technology spending as firms curb expenses with tempered revenue expectations.

Other key findings from Deloitte’s report are that  sustained high inflation, workforce management, cyber risk, and climate-regulated regulatory action are issues that will have the most impact on revenues over the next 12 to 18 months, according to respondents. Unfortunately, most respondents do not think the industry is fully prepared to respond to some uncertainties.

(Source: Deloitte Center for Financial Services’ 2023 Commercial Real Estate Outlook)

Despite near-term performance reservations, most respondents (66%) remain optimistic about real estate fundamentals-—cost of capital, capital availability, property prices, vacancy levels, leasing activity, transaction activity, and rental rates.

Overall, downtown offices and suburban offices are seen as the most attractive risk-adjusted opportunities among property types over the next 12 to 18 months. There was significant variation among regions, though: European respondents identify suburban offices as their top growth opportunity (35%), Asia-Pacific respondents highly favor digital economy properties (43%), and North American respondents choose logistics and warehousing spaces (43%) as their top bet.

Respondents were also closely following trends in tax regulation. With tax policies around the globe in flux, top concerns for the industry were increased tax rates, changes to transfer pricing/profit-sharing, and the automation of enforcements.

Deloitte says leaders can navigate the future of real estate in 2023 and beyond by focusing on strategic execution, talent, and innovation.

The survey was conducted in June 2022 and included real estate companies with assets under management of at least $100 million.