Optimism Reigns Despite Uncertainty, Seyfarth Survey Finds

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Despite concerns about high interest rates, inflation, a recession and a new workplace dynamic, most CRE executives are relatively optimistic about conditions and especially opportunities over the remainder of this year, law firm Seyfarth has reported, based on its eighth annual Real Estate Market Sentiment Survey.

In fact, the report says that 69 percent of survey respondents “see 2023 as a year of opportunity.”

While that might seem to be a case of bad arithmetic—like adding -2 and -2 and coming up with 5—the report explains why this makes sense.

To a significant degree, it’s the opportunities that respondents see in distressed assets. Overall, 48 percent of all respondents plan to invest in distressed assets this year, while nearly 60 percent of the respondents who view 2023 as a year of opportunity also plan to invest in distressed assets.

“For those with money to spend, the decrease in debt availability and rise in financing costs may lead to falling asset values in the market and could explain why, despite these challenges, they see 2023 as a year of opportunity,” the report explains.

According to a prepared statement, Paul Mattingly, chair of Seyfarth’s Real Estate department, the survey’s respondents are experienced and understand this part of the cycle, which explains their resilience and optimism.

Ron Gart, Partner, Seyfarth. Image courtesy of Seyfarth

Ron Gart, a partner with Seyfarth and chair of its Washington, D.C., real estate practice, added that the commercial real estate community’s understanding of the immediate and long-term impacts of the current economy explains why on the one hand many, if not most, of the respondents consider the commercial real estate sector to be in a recession while being optimistic that the sector will experience a substantial turnaround by the end of the year.

READ ALSO: Office Sector Faces Increased Risk of Distressed Activity

The respondents ranked rising interest rates, inflation and rising costs, and the economic recession (in that order) as their top three concerns.

A closer look

Looking more deeply into the survey findings, 82 percent of respondents expect further interest rate hikes by the Fed. And a 46 percent plurality anticipate a total Fed interest rate hike of 51 to 100 basis points in 2023.

Further, 71 percent think we’re already in a recession or that one will start before mid-year. Another 17 percent believe a recession will start in the second half of 2023.

Private equity is seen by 35 percent of respondents as the primary source of equity in 2023, followed by institutional investors, at 27 percent.

As to product types, 31 percent of respondents see the greatest investment opportunity in multifamily, and 24 percent favor industrial. Perhaps surprisingly, shopping centers are in the number-three slot, at 13 percent.

The report highlights that “single-family rentals, which were among the top two investment interests last year, fell to the bottom,” favored by just 2 percent of respondents.

Seyfarth’s Real Estate department surveyed commercial real estate executives in January 2023 and received responses from 145 professionals.