Logistics real estate investment and leasing activity could see declines in 2023 as a “moderate recession” begins to bite, but inflation will likely recede by year end and well-capitalized investors still will be able to make deals, according to a forecast from the real estate firm CBRE.
Across the broader economy, recession-related trends in 2023 could include declining home prices and retail sales as well as rising unemployment. Yet that recession likely will be moderate, given that corporate balance sheets are relatively strong, household debt is relatively low, and inflation is expected to ease, CBRE said in its “2023 U.S. Real Estate Outlook.”
The firm’s report forecasts that in the coming year, rising vacancies will benefit occupiers, inflation will recede, construction-cost increases will moderate, and office users will favor higher-quality space. Taking a more specific look at commercial real estate, CBRE predicted a widening of the gap between top-tier and lower-tier assets in the office sector, slower leasing momentum in the once-surging industrial & logistics and life sciences sectors, and a continued resurgence of retail properties.
“Most areas of the U.S. economy are not as overextended as in past downturns,” Richard Barkham, CBRE’s Global Chief Economist and Global Head of Research, said in a release. “Next year won’t be pleasant, but neither will it be a disaster like the Global Financial Crisis. The economy will stabilize and start to improve in 2024. The recovery from there might surprise on the upside.”
CBRE also forecasted 2023 conditions for the industrial and logistics sector in particular, saying that U.S. industrial leasing activity is expected to moderate as occupiers delay expansion plans and the post-pandemic need to hold additional inventory dissipates. But despite the slowdown, demand will keep up with supply in 2023, with a 13th consecutive year of positive net absorption, a near record-low vacancy rate, and solid rent growth.
The forces supporting demand for industrial space in 2023 will include e-commerce growth, supply chain transformation, and location optimization, CBRE said. Leading occupiers are expected to focus on markets with strong population growth and modern distribution space to ensure quick delivery of online orders.
Demand will also be led by third party logistics providers (3PLs), as companies outsource at a greater clip to avoid a lack of inventory, labor shortages, rising transportation costs, and other supply chain challenges, CBRE said.