Predictions for the Rest of 2023 in Commercial Real Estate!

–Howard Freedland

Ladies and Gentlemen, I come to you today, accused of being a complete sour-puss in reporting the goings on in Commercial Real Estate this year. Those that read my first-half of 2023 report or saw my video complained that they found too many frowny-faced moments, and they really hoped to have been inspired.  All the talk of bank failures and credit tightening, sales volume decreases with no relief on pricing and upcoming refinancing woes made some people want to run for the hills. So, today, I bring you my second half of 2023 predictions for CRE, and I promise that I will do everything in my power to either give you a smile or help you keep from crying. Here is what I expect in the upcoming months of 2023

First, let’s talk about the evolution of Retail. Even amidst the bankruptcy of Bed Bath and Beyond, big-box retail is changing the way that they do business for the better. Since many companies are tied to their real estate holdings for many more years, the product that they want to offer is one of distribution. Physical stores are being turned into distribution centers, pick-up locations, and showrooms.  This allows their on-line business to continue to evolve, utilizes their space as an asset and keeps in touch with their local audiences, all while growing brand loyalty. It does limit what you can “grab and go,” but that is a better proposition than not being there at all.  This will continue well beyond 2023.

Next, shopping malls are being looked at for repurposing in many geographic areas. As the demand for multi-family housing continues to grow, we will see malls changed into residential developments with specialized, convenient shopping and restaurants within their ecosystem. By targeting the quality land that malls sit on, it keeps the stress from having to develop greenfield sites.

The industrial and warehouse sectors will continue to be in high demand. As mentioned in the retail comments earlier, distribution centers are coveted. Furthermore, the lack of developable land is helping fuel the pricing that we are seeing in the market. Rents and purchase prices continue to rise, but help may be on the horizon. As mentioned in my first half report, there is a large amount of refinancing that will have to take place at the end of 2023 and the beginning of 2024, which could increase the supply of sought-after locations. After all, many of those deals were written when interest rates were bordering 2%!  Now, staring at 5-7%, many may choose to liquidate rather than take the profitability hit.

The demand for senior living facilities and self-storage properties continues to climb. Green Street’s US Sector Outlook Report tells us that from 2020-2021, investment in these categories doubled to an impressive 12.3% of total CRE, and that we can see increases in occupancy for senior living steady around 6.5% for the next five years. Self-storage construction has grown by a whopping 926% in the past 10 years. If George Carlin were only alive to see us finding interesting places to put our stuff.

Last, there is a growing demand for spaces called ghost kitchens. No, this is not a space for you to have a séance so that your Nana can make her famous Sunday gravy once more. These spots are designed to exclusively offer prep, execution, and delivery services of food. There is no need for decoration, as people do not congregate there to break bread. They are, oftentimes, a co-op platform, allowing a few chefs to share the costs which can make everyone more profitable while streamlining processes. With no seating need, these facilities can be lean and productive.

These are just a few of the things that I believe the back half of 2023 will begin to provide us in commercial real estate. Whether or not you feel happy or sad about the near future of commercial real estate, I hope that you can take solace that there is some positive guidance out there. Here’s to hoping that quality fundamentals return to the sectors mentioned, and that we can have a prosperous remainder of this year and beyond. I am Howard with Echo Commercial Properties, and this was your last half of 2023 outlook.

Howard Freedland is our Echo Commercial Properties Real Estate Specialist. As an independent wine broker, Howard has executed international deals with corporations and conglomerates. While working with Echo Fine Properties, Howard is a part of a team currently managing the interests of national and international companies wanting to secure land and property in South Florida. All of his prior business experience has brought him to this point as a professional, effective real estate leader. You can contact him on 561.889.2735 or [email protected].

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