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2023 Commercial Real Estate Outlook!

Today, I'd like to discuss the findings of a recent survey conducted among the top finance professionals at the top commercial real estate brokerages in the United States. This survey is a vital component of understanding the evolving commercial real estate market in 2023.

2023 Commercial Real Estate Outlook!

2023 Commercial Real Estate Outlook!

As they plan for the remainder of 2022 and 2023, the majority of global real estate leaders are preoccupied with economic concerns.

The worldwide Commercial Real Estate industry is plagued by uncertainty. Leaders in the real estate industry can navigate the future by concentrating on strategic execution, talent, and innovation.

After a course correction fueled by a pandemic, the global real estate industry will alter the use, valuation, and transaction of high-rises in 2023 and beyond. The industry may be impacted further by global economic insecurity. In the near future, financial services sectors could be impacted by regional or global recession or stagnation.

A survey was conducted of major commercial real estate owners and investors regarding their organization's plans for workforce, regulatory compliance, and technology, as well as their growth projections. In this question, structural changes and investment priorities for 2023 were inquired about.

The research reveals the priorities of commercial real estate (CRE) leaders to help their firms survive and grow during this period of uncertainty. To meet investors', tenants', and regulators' ever-changing needs, real estate firms must devise innovative, well-informed strategies.

Strategic portfolio execution, prioritizing environmental, social, and governance (ESG) to meet regulatory and stakeholder demands, understanding recent and impending tax structure changes, rethinking talent approaches, and leveraging technology to innovate and improve efficiency were top priorities when planning for an unpredictable year.

Real estate industry leaders are reconsidering their business strategies in light of recent revenue concerns.

Throughout the remainder of 2022 and into 2023, the majority of global real estate executives are concerned about the economy. It was found that respondents expected a range of outcomes regarding revenue in 2023 (40% expected an increase, 48% predicted a decrease, and 12% saw no change). The numbers from last year were much more optimistic: 80% predicted revenue increases in 2022. 

As a result, 33% of respondents anticipate spending cuts, up from 6% the previous year.

In the next 12 to 18 months, respondents anticipate that issues associated with sustained high inflation, workforce management, cyber risk, and climate-regulated regulatory action will have the greatest impact on revenue. The majority of respondents were pessimistic regarding the industry's capacity to withstand a range of potential disruptions. Concerns varied considerably between regions.

Respondents are optimistic about real estate fundamentals despite near-term performance concerns. 66% of respondents anticipate that real estate fundamentals—cost of capital, capital availability, property prices, vacancy levels, leasing activity, transaction activity, and rental rates will improve or remain stable in the coming year. According to respondents, leasing activity, vacancy reduction, and rental growth have the most room for improvement.

In the next twelve to eighteen months, the best risk-adjusted returns will be found in downtown and suburban office spaces. In contrast, European respondents preferred suburban offices (35%), Asia-Pacific respondents favored digital economy properties (43%), and North American respondents favored logistics and warehousing spaces (43%).

In the coming years, irregular projections may change the direction of the industry. In the face of substantial unpredictability, CRE owners and investors will need to make strategic investment decisions. As global regulation intensifies, CRE firms will have to place a greater emphasis on ESG disclosure and tax regulation trends.

According to the survey, real estate companies are still managing ESG compliance requirements. Only 13% of respondents are prepared to implement changes immediately to meet new regulatory requirements, and only 7% use ESG data and analytics to determine investment strategy.  Within the next two years, the majority will incorporate ESG data.

Companies in the real estate industry must monitor regulatory changes and adhere to reporting requirements. Over 45% of survey respondents who are awaiting guidance or an industry-driven response can be provided with observations, information, and suggestions by industry associations. CRE leaders should also give importance to social and governance issues.

Trends in tax regulation were also closely monitored. Due to global tax policies, the industry was concerned about increased tax rates, transfer pricing/profit-sharing changes, and automated enforcement. 

Transparency of automated reporting and data requirements for regulatory enforcement in certain jurisdictions. ESG tax implications, real estate organizations may be eligible for tax credits for activities that qualify.

Many regions have competitive labor markets. Employees are taking advantage of low unemployment, rising wages, and remote working. Many people moved when work-from-home became the norm during the pandemic. Remote work is a talent trend CRE firms should consider.

Because of lower revenue expectations, a greater proportion of respondents intend to reduce or cap their technology spending in 2023 than in 2022. Fewer than half of companies anticipate an increase in technology expenditures, especially in Europe, where the majority anticipates a decrease. Last year, only 7% anticipated spending cuts, while two-thirds anticipated spending increases.

Insufficient investment in technology may be shortsighted. Real estate companies with adaptability and a willingness to take risks can capitalize on the long-term potential of technology.

Companies in the real estate industry should consider how proptech and external service providers can improve operations. By outsourcing back-office functions, CRE firms could spend more time enhancing core services. Innovative technology partners can also distinguish leading-edge products from rivals. Eighty percent of responding companies are investigating smart contracts, blockchain based, and the metaverse, which could improve existing services.

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