Commercial Real Estate News / Insight / 2022 Investment Insights Recap and 2023 Outlook

2022 Investment Insights Recap and 2023 Outlook

Published: 01-05-23 Category: Insight

MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.

Over the last few months and beginning in Q3 2022, we’ve endeavored to put forth occasional commentary and an iteratively-communicated investment thesis that draws on the global macro picture to inform present investment activities. Now that 2023 is upon us, I wanted to organize some of these ideas more formally here and take stock of the playing field as it lies before us today.

Themes we’ve pointed up include the following:

Remote work is here to stay, thus many office properties will be forced into repurposing or replacement, and one key to this metabolization will be city zoning departments and how well they’re able to streamline processes for avid developers.
Industrial properties should maintain their bid and strengthen as an asset class, driven by the repatriation of manufacturing to the US from Asia, primarily, and this anomaly (versus other CRE classifications) ought to persist and grow in 2023.
The money and bond markets are the primary drivers of CRE valuation, and as such must be respected and utilized for their own purposes, as much as the properties they finance.
Geopolitical events and processes matter for investment and must be understood in their proper context to inform today’s capital deployments.
The inordinate rise of multifamily property and its vulnerability in the current rate environment.
Foreign inbound capital flows to the US should buffer the downside, and these will likely come from Asia, predominately.

2023 promises to be an exciting year even if nothing else develops and we could watch these play themselves out, but we have other issues arising whose weights in the global arena are yet to be determined. The following are key developments we’ll be watching in Q1:

The best tells for interest rates and the money market environment globally have been the Federal Reserve itself and geopolitics, respectively. I’ll be watching for further indications of Russian strategic collapse (or reversal, as they’ve been known to pull off) as well as Chinese weakness, both of which drive capital flows, which influence CRE.
Domestically, markets seem primed for disappointment, with many trying to probe for a bottom in equity markets and a top in rates; markets tend to take the path of maximum frustration, sadly. Too many with capital in search of a bottom. Bottoms typically form when market psychology is overwhelmingly negative, not when everyone is in search of ‘the’ bottom with their capital ready to deploy.
Having said that, the US market is much more sound than any other in the OECD, and this combined with foreign capital flows that only want to increase could present a surprisingly resilient US economy in 2H 23.
This trend should be exacerbated by poor demographics elsewhere in the world (the EU, China, Japan), possibly making inbound capital flight a big story in 2023.
Office property portfolios feel like they’re one big REIT portfolio dump from finally being able to consolidate in the new rate environment. Watching closely for this and other announcements, if and when.
REITs heading for some turbulence in Q1, watching Blackrock and others for tells.
Cryptocurrencies at a point that is systemically important, but still early in adoption, and with use cases seemingly myopic. This should begin to shift markedly in 2023.
Multifamily as an asset class should continue to weaken vs other classes (esp industrial) given the rate environment, although underlying rental demand should continue to be strong.

I will make semi-regular updates to these theses as we go through Q1, as well as address any new developments in as close to real-time as feasible.

Here’s to a happy and healthy 2023!

Cheers