Welcome to the topic “2023 Commercial Real Estate Outlook“
A lot happened in 2022, which is bound to show its impact on the 2023 commercial real estate outlook. The spiking interest rates, along with inflation, are predominantly to be blamed. One cannot forget about the Ukraine war, either. Of course, there are also the repercussions of the pandemic and subsequent lockdown that the world is still reeling from.
Commercial real estate took a hit not just in the US but worldwide. Hence, it’s vital to understand what this means for the Chicago real estate market outlook for 2023 and what one should expect from it.
2023 CRE Forecast: The Evolving Factors And Their Results
It’s pretty clear that the CRE industry, particularly the commercial office sector, has undergone a major overhaul in the past year. The pandemic lockdown made people realize that remote working, while playing quite a negative role in company culture and talent retention, has other desired benefits, which is why more and more companies are accepting of it.
With many companies implementing remote and hybrid work models, what can you expect for the 2023 commercial real estate outlook? Looking at the statistics over the past year reveals some startling secrets.
According to a study, merely 10% of respondents working in the commercial office sector witnessed a considerable decrease in their portfolio. Nearly 64% of property teams in commercial real estate show interest in increasing their investment in prop tech.
And more importantly, around 84% of tenants were inclined towards a hybrid work model. Naturally, the CRE team will have to evolve with these changing demands too. They will have to accommodate this flexible spacing in the coming years, and this definitely makes the 2023 CRE forecast volatile.
The Low Tenancy Rates
The commercial tenants will get an opportunity to sign their lease at much lower rates this coming year. How? The positioning of landlords is largely responsible for this. Landlords currently have nearly $26 billion in commercial loans that will be maturing in 2023. Combining this with the interest rate, it’s pretty clear that landlords are likely to have a tough time meeting deadlines.
Hence, we can expect banks to seize a lot more commercial properties in 2023. The result? The landlords will have to try harder to increase their profits and lure tenants. This won’t be possible until they are willing to be more flexible in their lease and related terms and conditions. So there’s one thing we can predict for the 2023 commercial real estate outlook.
The balance ill tilt more in favor of tenants in the coming year. Concessions such as free rent and tenant improvement dollars have already been generous as Landlords had to deal with high office vacancy rates over the past few years. In 2023, things are about to get even better for the tenant. Now is a great time to reach out to your tenant broker for help with relocating or renegotiating your lease with better terms and a lower rate.
It’s Time To Go Green
We cannot talk about the 2023 CRE forecast and fail to mention the importance of landlords meeting green goals. Do you know that nearly 40% of US greenhouse gas emissions come from building construction? Considering how conscious the world has become when it comes to sustainability, landlords and property owners will have to put in greater effort to ensure building efficiency and sustainability. If they fail to take the required measures, they will have a hard time finding tenants or financiers interested in their property.
Attracting Tenants With Credits And Incentives
Most companies are striving hard to stand back up after the disastrous effects of a pandemic. Every industry took a major hit during this time. So any leeway they can get will be embraced with enthusiasm. Tax credits and incentives are likely to be the key to attracting commercial residents in 2023. If CRE executives want to ensure that their profits are maximized, they will have to think more about low-income tax credits and qualified opportunity zones.
A More Balanced Equation
The Chicago Real Estate Market Outlook 2023 will likely see a more balanced market. In the past, the scales were always tilted, with either the tenants or landlords having the upper hand. But this year, we can expect to see market stabilization which will definitely enable the commercial real estate market to thrive.
Long-Term Leases
This year, commercial real estate owners will be more interested in luring tenants with long-term leases. The good thing is that this preference for long-term leases will give tenants more of an opportunity to establish themselves in their commercial spaces and lock in low rates for a longer term. In all likelihood, commercial landlords will not have a problem sacrificing rent if they can lock in tenants for a long term.
The Effect Of The Hybrid Work Model
The world has just opened up to the concept of remote working. So it will be some time before commercial office spaces are back in demand. Office tenants will now be re-evaluating their needs to cater to remote work. Things might get worse before getting better.
However, let’s face it. Office culture is key to so many aspects of a business. Companies will be more open to remote working options but also want their employees back in the office. So things will change but not immediately. In the meantime, landlords will not only have to consider what the tenants are looking for but also the rates they offer.
2023 Commercial Real Estate Outlook: The Properties High In Demand
The future of businesses and investors definitely seems a bit unpredictable as of now. A lot of people think a recession is just around the corner, while others are a tad bit more optimistic. While we don’t know if 2023 is going to witness a recession, measures have to be taken beforehand. So what type of tenants could be best for commercial property owners in Chicago in 2023?
Small Business-Focused Spaces
According to various reports, it’s expected that retail will make a comeback post-pandemic. Consumers want to be out and about again, and they want to support small business. Therefore, we will see a lot of consumers focusing on physical stores. Also with small businesses, the risk is less for commercial property owners. It’s because these businesses can adapt to change much more quickly in case of a problem. Commercial landlords catering to small businesses this year are more likely to thrive.
Self-Storage Spaces
The demand for self-storage spaces is likely to increase. These facilities are highly lucrative, especially in the wake of a recession. Most companies, instead of getting rid of all their equipment in case of a financial downturn, will want to store them away. Commercial landlords can also benefit from this situation.
Industrial And Warehouse
Yes, online shopping is in high demand these days. To meet this demand, retailers need warehouses where they can store the goods temporarily. Naturally, large businesses will need multiple warehouses at different locations so that speedy shipping can be ensured. So commercial landlords with such a property will have a chance to make handsome profits in 2023.
Understanding 2023 CRE Forecast: Prepare For What’s About To Come
With companies continuing to shift to remote work, there will be a surplus of office space. Commercial landlords will have to take note of this. Similarly, general retail space might also witness a continued downward trend due to the risk of recession.
Tenants must know how they can make the most out of this situation and negotiate their lease terms accordingly. If you’d like to find out more about Chicago Real Estate Market Outlook 2023, reach out to Tenant Advisory Group as they will be happy to help!
Tenant Advisory Group’s team of dedicated experts is always ready to have a conversation with you about your 2023 commercial real estate needs. Contact us today if you are considering investing in a commercial real estate property for your business.
If you have any questions about the “2023 Commercial Real Estate Outlook”, please leave a comment below.
Also read: Commercial Broker Challenge – Top Things To Look For In A Great CRE Broker
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