Commercial Deals Forecasted To Drop in 2023; Industrial & Apartment Rents to increase, office rents falling.

admin  /   May 2023

Nationwide Real Estate

Commercial real estate transactions are expected to end 2023 at volumes 50% below those seen just two years ago, as high interest rates and persistent inflation curb investor and developer appetites, according to a new forecast report from the Urban Land Institute.

Based on surveys of real estate economists and analysts, the Washington, D.C.-based research organization predicted deal volume of $425 billion for full-year 2023, far below the $860 billion reached in 2021 and $730 billion in 2022. Transaction volume should rebound to $525 billion in 2024, rising to a predicted $695 billion in 2025 as investment conditions improve.

Commercial property prices are also expected to continue retreating this year, finishing with a projected annual decline of 8% for 2023, which would be the largest decline since the 2010 drop during the Great Recession. Researchers said pricing prospects are looking better in the coming two years, with growth of 2.6% expected for 2024 and 5% for 2025.

The upbeat forecast for the next two years is driven largely by further relief from high inflation, as the rate has generally been trending down over the past six months. “The inflation rate is forecast to decline significantly over the forecast period, to 4.1% in 2023, 2.8% in 2024, and ending the forecast period at the long-term average of 2.5%,” the ULI report said. 

The forecast predicts industrial rents will grow 6.2% this year before moderating to 4% growth over the next two years, with apartment rents averaging 2.8% annual growth for 2023 through 2025 and retail rents growing 2.1% annually. Rents in the beleaguered office category are expected to decline 2.8% this year and drop 2% in 2024, before registering no annual change in 2025.

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