Still, he doesn’t forecast a deep recession this year: “The recession won’t be particularly deep. Corporate finances are in good shape and employers will avoid excessive layoffs to avoid losing employees in a tight market for skilled labor. Although consumer confidence is very weak, average household debt is low compared to the start of previous recessions. These factors suggest a moderate slowdown, with unemployment unlikely to break above the 6% level. Inflation will be significantly lower for the second half of 2023, setting the stage for falling interest rates and the start of a new cycle that will last until the 2030s.”
The pace of change will not slow
“Despite the economic hurdles, the pace of change will not slow,” Barkham said. IS G [environmental, social, and corporate governance] considerations and the growth of the digital economy will continue to affect the demand for real estate,” he said. “Hybrid work offers many benefits for businesses and employees, but businesses and the office sector will have to evolve. Cities will also need to adapt to new commuting patterns and reduced demand for offices. The revival of the retail sector is only now reaping the benefits of a long period of change, which is attracting great interest from investors. Data centers and industrial real estate will likely be the most resilient sectors, and the housing shortage will benefit the multi-family sector. The hospitality sector’s recovery from pandemic restrictions will continue, but life sciences activity, which has been boosted by COVID, will slow for a while as venture capital becomes more scarce. Governments, occupiers and investors will require all sectors everywhere to make significant decarbonization efforts.”
Optimism remains despite likely recession
“Markly higher interest rates will weigh on the US economy in 2023,” Barkham said. “Housing prices and retail sales will decline and unemployment will rise. The continued strength of the US dollar against other global currencies will further reduce corporate profits and export sales, limiting business investment. As a result, CBRE expects a recession in 2023, which will result in lower real estate investment and leasing activity. Adding to the contractive effects of tighter monetary policy is a weaker global economy. High energy prices, the war in Ukraine and weaker housing demand will inhibit growth in 2023.
“Although we expect a recession, we are not too pessimistic. The US consumer has low leverage and a relatively strong balance sheet. The digital economy and the relocation of manufacturing, particularly semiconductor production, are two important drivers of growth.”
Slowdown in consumer demand observed
“The decline in inflation in 2023 will provide a tailwind for the economy towards the end of the year,” Barkham said. “While the decline will be gradual and bumpy, CBRE forecasts that a slowdown in consumer demand, easing of bottlenecks in the global supply chain, and a weaker housing market will drive inflation down to around 3 % by the end of the year. We expect the Federal Reserve to ease its rate hikes after interest rates peak at 5.2%. The economy should stabilize by early 2024, but the impact of the recession on the real estate sector will persist until job growth resumes. For the first time in a decade, there is the possibility of a buyer’s market in real estate. The decline in inflation in 2023 will provide a tailwind for the economy towards the end of the year. While the decline will be gradual and bumpy, CBRE forecasts that a slowdown in consumer demand, easing of bottlenecks in the global supply chain, and a weaker housing market will drive inflation down to around 3%. by the end of the year. We expect the Federal Reserve to ease its rate hikes after interest rates peak at 5.2%. The economy should stabilize by early 2024, but the impact of the recession on the real estate sector will persist until job growth resumes. For the first time in a decade, there is the possibility of a buyer’s market in real estate.”