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2023 Commercial Real Estate Outlook (CRE)

Accepting and mastering new challenges

The global CRE industry faces uncertainty. Leaders can navigate the future of real estate in 2023 and beyond by focusing on strategic execution, talent, and innovation.

Following a pandemic-fueled course correction, the global real estate industry faces transformational shifts in how buildings will be used, valued, and transacted in 2023 and beyond. Ongoing uncertainty in the global economy could impact the industry even more. In the near term, the potential for regional or global recession or stagnation looms – and these impacts would be felt across financial services sectors.

Deloitte surveyed 450 chief financial officers of major commercial real estate owners and investors to get their opinions about organizational growth and their plans for workforce, regulatory compliance, and technology. We also asked about their investment priorities and anticipated structural changes in 2023.

Here are the key findings from Deloitte’s 2023 commercial real estate outlook:

New concerns about revenue are prompting real estate leaders to reassess firm strategies. Revenue expectations for 2023 are mixed among those surveyed – 40% say revenues should increase, 48% see revenues decreasing, and 12% expect no change. Last year’s results were much more optimistic: 80% expected revenues to increase in 2022. As a result, more respondents (33%) are planning to cut costs compared to last year, when only 6% planned to make cuts.

Despite near-term performance reservations, respondents remain optimistic about real estate fundamentals. When it comes to real estate fundamentals – cost of capital, capital availability, property prices, vacancy levels, leasing activity, transaction activity, and rental rates – most respondents (66%) expect improving or stable conditions for next year. There was significant variation among regions, though: European respondents identify suburban offices as their top growth opportunity (35%), Asia-Pacific respondents highly favor digital economy properties (43%), and North American respondents choose logistics and warehousing spaces (43%) as their top bet.

As the regulatory environment heats up globally, CRE firms will need to focus more on ESG disclosure requirements and addressing trends in tax regulation. Only 12% of respondents say they’re prepared to immediately implement changes to meet new regulatory requirements, and only 7% use ESG data and analytics in their investment strategy decision making. More than 45% of survey respondents say they are awaiting guidance or an industry-driven response.

Employee expectations have shifted and grown since the pandemic. More than 40% of respondents plan to bolster diversity, equity, and inclusion (DE&I) initiatives, add additional health and wellness benefits, and offer regular remote-working options. But only about a third (or fewer) say their firms are prioritizing measures such as workplace redesigns, implementing flexible schedules, and offering more career growth and skill development opportunities.

Companies planning to curtail technology spending could miss out on opportunities to innovate and improve efficiency. Emerging technologies, such as smart contracts, tokenization, and the metaverse – currently being explored by 80% of respondent firms – could be leveraged to further complement and enhance existing services.

Real Estate Outlook 2023

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