{"id":1004639760,"date":"2023-01-17T04:42:23","date_gmt":"2023-01-17T12:42:23","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004639760"},"modified":"2023-01-31T01:41:03","modified_gmt":"2023-01-31T09:41:03","slug":"shallow-recession-or-global-financial-crisis","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/shallow-recession-or-global-financial-crisis\/","title":{"rendered":"Shallow Recession or Global Financial Crisis?"},"content":{"rendered":"
\"\"<\/a>

Image courtesy of Gerd Altmann via Pixabay.com<\/p><\/div>\n

As the new year begins, \u201cthere appears to be both guarded optimism and extreme pessimism\u2014not always in equal measure\u2014around the state of the real estate market,\u201d writes Integra Realty Resources<\/strong> CEO Anthony Graziano in the forward to Viewpoint 2023<\/a>, IRR\u2019s annual commercial real estate trends report and forecast.<\/p>\n

On one side are doomsayers focusing on the risk of another global financial crisis, the possibility that the Fed will be unable to control inflation, rising food and oil prices, the FTX crypto meltdown\u2014and the recent suspension by Blackstone<\/strong> and Starwood<\/strong> of redemptions in their real estate funds.<\/p>\n

On the other side are the (guarded) optimists, who expect only a shallow recession. As the Fed tries to cure inflation<\/a> by draining the market of capital, Graziano remarks, \u201cEquity positions in real estate that are forced to act, via refinancing or sale in the coming year, will be punished with fewer buyers and deeper discounts\u2026.\u201d<\/p>\n

\u201cThe true optimist,\u201d he continues, \u201crealizes that patient equity will be rewarded with price rebounds over a longer time horizon\u2026.\u201d<\/p>\n

The report itself predicts that the overall economy should expect a similar combination of headwinds and tailwinds as the U.S. experienced in 2022. For example, the current unemployment rate of just 3.7 percent has boosted both consumer spending and inflation. And meanwhile, COVID-19 continues to mutate.<\/p>\n

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READ ALSO<\/strong>: Where to Find Opportunities as Economy Slows<\/a><\/p>\n

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To simplify, the forecast states, in a world with sustainable inflation, Treasury notes should yield a premium of about one percentage point above consumer inflation, or roughly 3.0 to 3.5 percent. Private market rates should require a further premium of 250 to 400 basis points, depending on the assets\u2019 risk profile. That in turn implies cap rates of roughly 7 to 7.5 percent for commercial properties with reasonable leverage.<\/p>\n

The report concludes: \u201cIt is safe to say that such a cost of funds has not yet been fully translated into prices of \u2026 income-producing properties. But slowing transaction volumes<\/a> and the beginning of a price adjustment are being felt as 2022 winds down, and it would be surprising if pricing declines do not become commonplace in 2023.\u201d<\/p>\n

Office market performance<\/h2>\n

Regarding the office sector, IRR notes that the pace of hiring in the FIRE and Professional\/Business Services sectors, heavy users of office space, slowed in 2022.<\/p>\n

Moving beyond generalities around the return-to-the-office conflict, the report says that IRR found \u201csome important peculiarities\u201d inside overall vacancy data. These rates do not fall into the typical bell-curve \u201cnormal distribution,\u201d but instead (according to Moody\u2019s Analytics<\/strong>) vary widely around the nationwide average vacancy of 18.5 percent.<\/p>\n

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READ ALSO<\/strong>: Tech Slowdown Weighs on Office Sector<\/a><\/p>\n

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IRR therefore stresses that local real estate conditions in the office sector are \u201cvastly more important than national trends.\u201d<\/p>\n

And despite any controversies about how many office workers actually are showing up on any given day, \u201cWhile leases-in-place provide office owners with reasonably reliable levels of income, virtually no region of the country has seen office buildings appreciate in value to any significant degree in the 12 months ending September 2022.\u201d<\/p>\n

The forecast predicts that further softening of office values should be expected in 2023.<\/p>\n

Retail stagnation<\/h2>\n

Nearly two-thirds of U.S. metros are seeing retail sectors in recovery or expansion, but IRR also notes that \u201cthe pace of change since the end of 2021 is ploddingly slow.\u201d Cap rates, market rents and vacancy rates have typically moved less than 30 basis points, \u201csuggesting stagnation rather than advance.\u201d<\/p>\n

Part of the issue is that federal cash infusions during the pandemic seem to have largely stopped shoring up consumer spending as of late 2022, with personal savings now below pre-pandemic levels.<\/p>\n

\n

READ ALSO<\/strong>: What Will Retail Look Like in 2023?<\/a><\/p>\n

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A potentially positive sign is that malls appear to be bottoming out, a result in part of a \u201cdecades-long weeding out process of the weakest malls.\u201d The remaining regional and super-regional malls mostly have strong competitive positions and deep-pocketed ownership.<\/p>\n

Further, IRR opines, the sector is probably ahead of the others for repricing of assets.<\/p>\n

Industrial sector’s resilience<\/h2>\n

The industrial sector is, predictably, the relative bright spot<\/a>. Consider that appreciation in the third quarter of 2022 hit an amazing 30.6 percent according to NCREIF<\/strong> figures; vacancy fell below 4 percent, according to Moody\u2019s Analytics; and new construction hit a record of nearly 700 million square feet, according to Newmark<\/strong>.<\/p>\n

Regionally, IRR highlighted a dramatic shift since 2007 (based on a Newmark analysis) in import volume away from West Coast ports to East and Gulf Coasts ports.<\/p>\n

Increases in electric vehicle production, domestic computer chip manufacturing and the bio-tech sector have buoyed metros as diverse as Phoenix, Grand Rapids, Mich., and Syracuse, N.Y.<\/p>\n

IRR therefore sees no major likelihood of a substantial downturn in the industrial sector. \u201cit\u2019s improbable that this property type will see its wave cresting even far into the future.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Finding a balance among conflicting economic factors will be tricky in the year ahead, according to Integra Realty Resources\u2019 2023 forecast. <\/p>\n","protected":false},"author":882,"featured_media":1004594801,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21808,21748,21783,23891,21742,21747,21749],"tags":[38987,34748,34231,50999],"class_list":["post-1004639760","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-featured","category-industrial","category-investment","category-national","category-latest","category-office","category-retail","tag-anthony-graziano","tag-integra-realty-resources-inc","tag-moodys-analytics","tag-newmark"],"acf":[],"yoast_head":"\nShallow Recession or Global Financial Crisis? - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"Views range from doomsday scenarios to guarded optimism of a soft landing and mild recession, according to Integra Realty\u2019s 2023 forecast.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/shallow-recession-or-global-financial-crisis\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Shallow Recession or Global Financial Crisis?\" \/>\n<meta property=\"og:description\" content=\"Views range from doomsday scenarios to guarded optimism of a soft landing and mild recession, according to Integra Realty\u2019s 2023 forecast.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/shallow-recession-or-global-financial-crisis\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2023-01-17T12:42:23+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-01-31T09:41:03+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/08\/global-real-estate-2022.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"807\" \/>\n\t<meta property=\"og:image:height\" content=\"600\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Scott Baltic\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/shallow-recession-or-global-financial-crisis\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/shallow-recession-or-global-financial-crisis\/\",\"name\":\"Shallow Recession or Global Financial Crisis? 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