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Recession or Recovery in 2023?

By Vickey Li | November 09, 2022

Recession or Recovery in 2023?

Some people may expect a downturn in office demand as lesser tenants are looking for long-term leases, hinting at a potential crash in the traditional commercial property market. While more people are adapting to the new mode of work and practice working from home, landlords of commercial properties might be strenuous to match tenants. There are no doubts that according to the figures, there will be about 700 office leases expiring in 2023 and another 600 are up in 2024 in the Financial District alone, said Avison Young’s insights and innovation head Dina Gouveia, for a total of about 10 million square feet of office space.


Nevertheless, although the market might not seem so optimistic due to expiring leases and uncertain market turmoil, the views toward the upcoming trend for 2023 are mixed. According to a survey from Deloitte, 40% of landlords expect their revenues to increase while 48% foresee their revenue decreasing. Another 12% think their income remains unchanged. Results from 2021 were much more positive, 80% of landlords expect an increase in income. This led to planning to cut costs compared to 2021, 33% of them plan to cut costs while only 6% planned about that last year. Many respondents (66%) also expect improving and stable conditions for the upcoming 2023 regarding the real estate fundamentals. It includes the cost of capital, capital availability, property prices, vacancy levels, leasing activity, transaction activity, and rental rates. However, they also point out that leasing activity, tightening vacancies, and rental growth are comparatively concerning and have more room for improvement. 


Whether it’s entering a recession or recovery, the frequent uncertainty visit probably would be more often. Commercial real estate (CRE) leaders need to be the pioneer to promote change in the era of uncertainty and emerge tougher together. There are evolving needs for innovation for investors, landlords, tenants, and regulators. Apart from the traditional strategic portfolio execution, they also have to focus on environmental, social, and governance (ESG) to meet the standard and the growing concerns of regulatory departments and stakeholders, the changes in tax structures, the talent acquisition approaches, and also the use of technologies to innovate and improve efficiency. Besides financial growth, tenants also pay attention to other elements that may affect the future performance of their companies.


Talents are one of the foundations of a company. The mode of how the employee work also creates an immense impact on the commercial property market. After the pandemic, it spurred shifts in the population. Many people choose to work remotely instead of going to the office daily. Even though the world is healing from the pandemic days and people have already started resuming office life, working from home is the norm, and most employees do not choose to work in the office every day. It also reflects on the commercial property market because even if we have noticed the rising demand for office use, the leasing market is still comparatively stagnant. It is due to the shift of need for leasing.


As most employees spend less than five days in a row in the office, efficiency use and a diverse office environment become new priorities to consider. Such leasing a long-term office with building everything from scratch is no longer optimal. What would be a new era of office practice is still an unsolved topic on the air. I believe that flexibility is not simply just rely on companies’ moves; rather, the office industries must change first and bring a new solution to build sustainability. This means growing and matching flexibility efficiently without expensive operation expenses.


Check out Veery and see how we can help you with your space. The least cost that you spend but return with a satisfying income growth.


Reference: 

https://www2.deloitte.com/us/en/insights/industry/financial-services/commercial-real-estate-outlook.html

https://www.mondaq.com/unitedstates/real-estate/1236786/10-commercial-real-estate-market-trends-predictions-to-watch-out-for-in-2023

https://therealdeal.com/sanfrancisco/2022/10/17/downtown-sf-faces-1300-expiring-office-leases-by-2024/



For more content about the future of work, check out some of our other articles on veeryoffices.com/blog or follow us on social media @veeryoffices.


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