Commercial real estate experts recently discussed the market during NAR’s The Year Ahead Real Estate Forecast Summit, with Nadia Evangelou, NAR senior economist and director of forecasting, hosting the discussion.
CBRE Research Director Jessica Morin noted the office sector is seeing changes. “A lot of companies are going into cost containment mode with layoffs and underutilized office space. Many organizations are reviewing their real estate portfolios and trying to align them with future work patterns and their future needs. As a result, we could see occupiers cut more space than is necessary.”
She said there’s been a slower than anticipated return to the office and levels are still at 50% of pre-pandemic levels. “Hybrid work is here to stay. Employees want the flexibility, although employers want to see people back to the office for collaboration. As a result, we’re seeing smaller leases. We’re seeing more deals, but the average lease is about 18% smaller. Companies are downsizing the amount of space but upgrading the type of space.”
“Companies are right sizing and looking at an efficiency factor,” she said. “When office workers do come into the office, they need more collaborative space. Commute times are extremely important. Employees want a less than 30-minute commute.”
Igor Popov, chief economist at Apartment List, said the balance in the rental market has shifted. “We had record high rental growth and demand, but we’ve seen rent declines in the last two to three months. Midwest cities are driving rent growth,” he added.
RealPage Senior Vice President and Chief Economist Jay Parsons said there’s a lot of misunderstanding about the relationship between the rental market and homebuying market.
“The lack of household formation is related to low consumer confidence. When you’re nervous about the economy, the inclination is to stay in place,” he said.
He said there’s a record number of multifamily homes being constructed and a rising vacancy with a 40-year high market supply. He predicts seeing more turnover next year.
CCIM Institute Chief Economist KC Conway said the industrial commercial market is remaking the supply chain to address the supply disruption and warehouses continue to be built. “For the first time, New York has surpassed Los Angeles as the busiest port in the country,” he noted.
He predicted malls are going to be an issue in the future. “People think that retail shopping is coming back, but that’s not happening, although the suburbs are seeing strong retail.”