Commercial Real Estate News / Insight / Is the US in a Recession? Over Half of Small Businesses Believe So

Is the US in a Recession? Over Half of Small Businesses Believe So

Published: 08-28-23 Category: Insight

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

In a recent NFIB survey, over half of small businesses in the US expressed their belief that the country is already in the throes of a recession.

Such beliefs, whether rooted in grounded realities or perception, can have cascading consequences on various economic sectors, especially on already-beleaguered office properties.

Here, we look at what this could mean for commercial real estate and endeavor to understand the potential opportunities that may arise amidst the perceived downturn.

Recession Belief and Its Impact on Office Properties

Over the last couple of years, office properties have experienced several challenges. With the increase in remote working patterns and businesses downsizing their physical operations in response, office property vacancies have multiplied, resulting in lower building values.

The idea that the US is now in a recession, as believed by a significant number of small businesses, only adds metaphorical salt to the wound.

What Is a Recession?

From a technical perspective, a recession occurs when the economy experiences back-to-back quarters of negative GDP growth; however, this definition leaves much to be desired, as businesses and people can feel recession-like effects despite positive quarterly GDP growth.

Could the US Actually Be in Recession?

The COVID-19 pandemic distorted and accelerated various economic and social phenomena, causing certain sectors of the economy, such as commercial office properties, to experience the effects of economic recession despite the economy's positive overall growth.

In fact, from a technical point of view, it would be impossible for the US economy to be in recession at the present time.

Can the US Economy Grow Even As Its Components Recede?

US Q2 2023 GDP growth (unrevised) actually accelerated to 2.4% from 2.0% in Q1 2023, thus preventing the technical recession trigger from occurring. Due to certain acute dislocations, however, some sectors might as well be in a technical recession, given their debt levels and shrinking coverage abilities.

The belief a recession is ongoing has the potential to alter investor and consumer behavior. If businesses are under the impression that the economy is shrinking, they're less likely to invest in new assets, fearing decreased revenues and uncertain future prospects.

This could lead to a further slowdown in the office property market, leading to further distressed sales, more discounted loans, and the potential for cascading credit events and financial contagion.

Bright Spots in Commercial Real Estate Amidst Recession Fears

While the above paints a somber picture for office properties, it doesn't mean all is gloomy in the commercial real estate sector. Even in a recession, or at least in the perception of one, certain segments of the CRE market can shine:

Industrial and Warehousing Spaces: As online retail and e-commerce continue to grow, there's an increased demand for warehousing and distribution centers. With more consumers shopping online, businesses might pivot to boosting their logistics and delivery capabilities.
Data Centers: In today's digital age, data is king. The demand for data storage and management solutions is rising, and as such, data centers are experiencing growth. As businesses continue to embrace digital transformation, they'll need more data infrastructure, irrespective of the broader economic outlook.
Mixed-Use Properties: These are properties that combine retail, office, and residential spaces. They offer a diversified risk, as even if the office segment suffers, the residential or retail component can balance it out.

Self-storage, in particular, is another segment of the commercial real estate market that often proves to be relatively recession-resistant.

Emerging Opportunities in a Perceived Recession

Despite the prevalent belief of a recession, several emerging opportunities can be leveraged in commercial real estate:

Investment in Distressed Assets: With some properties facing the brunt of the perceived downturn, investors with a long-term view can acquire assets at a lower value and wait for the market to rebound.
Redefining Office Spaces: There could be a shift toward creating more flexible, hybrid office spaces that cater to a blend of remote and in-person work.
Green and Sustainable Buildings: As environmental concerns become more pressing, there's a growing demand for sustainable commercial properties. Investing in green infrastructure might offer a competitive edge, however, the ultimate sustainability remains profitability.

While over half of small businesses believe that the US is in a recession, it's essential to understand the nuanced impacts this belief can have on commercial real estate.

The challenges faced by office properties are evident, but there are also potential bright spots and emerging opportunities in the sector. Investors and businesses must stay agile, informed, and open to adaptability in these uncertain times.

Crisis and opportunity are often two sides of the same coin. The real challenge lies in discernment between the two and harnessing the potential for future growth.

Find & Connect With Commercial Agents & Brokers Near You for Free on MyEListing.com

MyEListing.com maintains one of the largest national databases of commercial agents and brokers in the country. Use it for free to find an agent or broker near you!