Seyfarth’s 2023 Real Estate Market Sentiment Survey Examines the Industry’s Current Market Sentiment as it Navigates an Uncertain Economic Outlook

March 1, 2023 - Seyfarth Shaw LLP has released the findings of its 8th annual Real Estate Market Sentiment Survey unveiling what commercial real estate (CRE) executives see as their top concerns, investment priorities, and key catalysts for change. Seyfarth’s 2023 Survey examines the industry’s current market sentiment as it navigates economic challenges and a new workplace standard. A complete copy of the full survey can be downloaded here.

This year’s survey reveals that the CRE industry, similar to the country as a whole, is grappling with a vastly higher interest rate environment coupled with the possibility of additional rate increases, inflation, and a potential recession. However, those headwinds have appeared to be taken in stride by the CRE community that, by and large, is focused on fundamentals and holds an optimistic view on 2023.

“The Fed’s action on interest rates may not be sufficiently slowing the greater economy, but it is definitely chilling transactional activity,” said Paul Mattingly, chair of Seyfarth’s Real Estate department. “Our respondents are experienced and understand this part of the cycle, which explains their resilience and optimism.”

The survey reinforces that CRE performance is driven by and tied to fundamentals. Interest rates, a potential recession, and inflation remain the top concerns for CRE executives in 2023. While the survey consensus follows the Fed guidance on increasing interest rates, respondents are mixed on whether we are in a recession or headed for one — and, if so, for how long.

Among the many other key findings in Seyfarth’s 8th Annual Real Estate Market Sentiment Survey and observations from the Seyfarth Real Estate attorneys:

Persistent Positivity: Despite the highest interest rate environment since 2007 and a looming recession, more than two-thirds (69 percent) of the CRE industry have a positive outlook for 2023. Though down from 84 percent in 2022, this resilient optimism flows in part from better than expected economic growth during the fourth quarter of last year and a continued decline in the rate of inflation. It too may reflect a move to invest in distressed assets.

Partner Ron Gart: “The commercial real estate community is uniquely positioned to understand the immediate and long-term impacts of the current economy. That singular vantage point explains why on the one hand many, if not most, of the respondents consider the commercial real estate sector to be in a recession while being optimistic that the sector will experience a substantial turnaround by the end of the year.

Distressed Dynamics: Adversity can lead to prosperity for those poised and able to capitalize on the moment. 48 percent of all respondents plan to invest in distressed assets in 2023, while nearly 60 percent of those respondents who view 2023 as a year of opportunity also plan to invest in distressed assets. For those with money to spend, the decrease in debt availability and rise in financing costs may lead to falling asset values in the market and could explain why, despite these challenges, they see 2023 as a year of opportunity.

Partner James O’Brien: “The most surprising thing about the results is that nearly 70% of those responding believe that 2023 will be a year of opportunity, even though almost 90% of respondents indicate that we are either in a recession now or will be in one before 2023 is over. I think the answer to this seeming conundrum can be found in the appetite for distressed investments. 60% of those who view this as a year of opportunity say that they plan to invest in distressed assets.”

Workplace Woes: Work-from-home/hybrid models are now table stakes to remain competitive with top talent, though nearly two-thirds (62 percent) of CRE executives report a corresponding decline in company culture as a result. Perhaps in an effort to stem further declines, 85 percent of respondents, who are disproportionately owners and senior executives, plan to be in the office 2-5 days per week in 2023. It is unclear whether concerns over culture will trump retention and recruiting and drive the great return to work many CRE executives see as critical to stabilizing assets.

Partner Christine Kim: “The continuing tension between offering remote-work opportunities to attract top talent and encouraging in-office work to preserve company culture has interesting implications for the future of office assets.”

Pivotal Policies: Lowering interest rates reigns supreme in the eyes of respondents with more than 70 percent designating this as the most effective way the government can support CRE. While 60 percent of respondents identify low state taxes as the greatest driver of corporate relocations in 2023, social issues such as reproductive rights and ESG were immaterial when compared to economic concerns.

Kings of Capital: With the capital gap left by many lenders and institutional investors, CRE executives expect private equity to become the leading source of equity in 2023.

Urban Upheld: Nearly three-quarters of respondents anticipate a continued preference for urban market investments. These numbers are consistent with respondents’ views in 2022.

Preferred Properties: Traditional assets are the most attractive asset classes for investments in 2023. Multifamily and industrial are the preferred darlings among core property types, whereas senior housing and life sciences are the most alluring alternative assets. Single-family rentals, which were among the top two investment interests last year, fell to the bottom.

Seyfarth’s Real Estate department, recognized as one of the largest real estate practices in the US, surveyed commercial real estate executives in January 2023.

About Seyfarth

With more than 900 lawyers across 17 offices, Seyfarth Shaw LLP provides advisory, litigation, and transactional legal services to clients worldwide.

Contact: Tom Mariam, Director of Public Relations (tmariam@seyfarth.com or 212-218-3366)