How a Recession Will Impact Commercial Real Estate in 2023

Hey fellow young professionals, it's Chad here and I'm here to talk to you about the impact of a recession on different commercial real estate asset types. I know that we're all thinking about the potential impact of a recession on our business. So let's break it down.

First off, it's important to note that a recession has the potential to reduce demand across all real estate asset classes. And with climbing interest rates, the cost of borrowing has increased, sharply decreasing activity in the large fixed-asset sectors. So it's not just the recession itself that we have to worry about, but also the ripple effects of climbing interest rates. Some will argue a recession, which will push the fed to cut rates is the only way to get this market going.

When it comes to different properties, each has its own considerations. For example, multifamily properties may see an increase in demand as more people opt to rent instead of buy, but weakness in the labor market will put pressure on rents. Industrial properties associated with elastic goods (driven by e-commerce) may feel the effects of reduced consumer spending. And when it comes to retail properties, a recessionary environment would likely slow retail's growth, but the bigger concern is the evolution of retail.

Office buildings are also evolving as employers try to find the best balance of in-person, hybrid and remote work. A short, mild recession may not have a huge impact, but it could hurt hiring and might cause some firms to delay plans to build or expand offices. Historically, in a recession, employers might look to B and C properties as an opportunity to save, but office investors have been focusing on the highest quality assets as these are the most likely to draw workers back. Everyone seems to be taking a wait-and-see approach when it comes to office.

Stay safe out there young professionals!