March Commercial Real Estate Newsletter
What's in this issue?
> 8 TIPS: WHAT TO EXPECT IN THIS YEAR'S CRE MARKET > HD: OPPORTUNITY? STUDENT HOUSING INVESTMENT IS BOOMING > POLL: GREATEST CHALLENGES IN CRE FOR 2023
8 Tips: What to expect in this year's CRE market Industrial real estate is expected to remain a top sales segment again this year, say analysts cited in Commercial Property Executive, though not as strong as last year due to boosted interest rates. Among other 2023 predictions from the news source:
Absorption, rent growth and sales activity will slow, and some lenders will reduce offers.
Thanks in part to the CHIPS & Science Act, more manufacturers will move production to U.S. soil.
E-commerce will continue to drive retail, boosting demand for distribution space and for less congested seaports in areas such as San Diego; San Antonio; Detroit; Philadelphia; Baltimore; Charleston, South Carolina, and Jacksonville, Florida.
High returns may come from investments in high-population areas (and submarkets) key to supply chain logistics.
In construction, labor shortages, rising materials costs and materials backlogs will pose challenges and motivate stronger partnerships with suppliers.
Labor-saving automation will become more important to manufacturers.
Nonresidential construction spending will moderately increase, thanks in part to healthy architect and contractor backlogs. Overall gains will be just under 6%. The commercial segment will rise 3%, industrial 15.1%, retail and other commercial properties 3%.
Editor Jessica Fiur points to investment opportunities in “15-minute cities” where residents can get anywhere they want to be via 15-minute bike rides. Growth in such spots is driven by remote workers who no longer commute to areas with a broader range of amenities.
HD: Opportunity? Student housing investment is booming
Clearly, U.S. student housing is having a moment in the CRE market. And investors may wish to take note. Last year, transaction volume in that segment hit an all-time high of $18.9 billion, blasting the 2021 record of $11.5 billion. “Many investors consider student housing recession proof, as every lease has a parental guarantee, and enrollment has historically increased during times of economic recession,” states investment management firm JLL. “Institutional investors are steadily increasing their total allocations, accelerating capital flows to the sector.” Significant investment interest is coming from the Middle East, Singapore and more recently Latin America, JLL reports. Between 2012 and 2016, cross-border capital held 6.7% of the market share; between 2017 and 2021 it held 20%, with nearly $10 billion invested in student housing assets. As such, average rents rose 8.8% to $847/bed between November 2021 and October 2022. Markets with the highest levels of new supply include Tallahassee and Gainesville, Florida; Knoxville, Tennessee; Clemson, South Carolina, and Austin, Texas. Research indicates the U.S. will realize 20.5 million higher-education student enrollments by 2027.
POLL: Greatest Challenges in CRE for 2023 In a recent poll, CRE execs named the biggest challenges their organizations will face this year.
Interest rates/capital availability (60%)
Potential economic slowdown (25%)
Inflationary pressures (5%)
Supply chain issues (5%)
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