Barkham Predicts Mild Recession, Rapid Recovery

Richard Barkham, Global Chief Economist & Head of Americas Research, CBRE. Image courtesy of NAREE

CBRE Global Chief Economist & Global Head of Research Richard Barkham painted a relatively favorable outlook for the economy’s impact on commercial real estate. Speaking at the National Association of Real Estate Editors annual conference in Las Vegas, he predicted a mild recession in late 2023 and a relatively rapid recovery.

Key drivers, he said, include a continued surge in the digital economy and ongoing U.S. population growth, along with controlled new supply that has maintained a balance with demand.

Overall, all the major property types have seen a drop in value, as follows:

• Industrial: a 16 percent drop, and a likelihood that recovery may take two years;
• Apartments: a 22 percent drop, and three-year likely recovery period;
• Retail: a 17 percent drop, with a four-year recovery period;
• Office: a 34 percent drop, with as much as a nine-year recovery period.

While office is unquestionably enduring the greatest challenges, Barkham has found that 80 percent of the rise in vacancy is actually impacting just 10 percent of buildings. And notwithstanding some recent high-profile foreclosures, his research showed that the majority are more commoditized properties, characteristically smaller, largely in weaker submarkets that may feature higher crime or reduced amenities and built in the 1980-2009 time period—for the most part glass-and-steel properties with large floorplates.

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Barkham further found that while corporate occupants have reduced their space usage, it’s not just due to employee reluctance to return to office post-COVID. He believes companies may also be taking advantage of conditions to reduce expenses until the cost of capital goes back down. In fact, he said, 77 percent of companies remain committed to having office space, with 37 percent having a goal of having employees in the office the majority of the time, 33 percent aiming for an equal split between in office and remote, and 19 percent mostly remote.

Barkham was also optimistic about the lending market, predicting that 311 banks will fail out of a total of 4,800. With commercial real estate comprising just $21 trillion of the total $43 trillion U.S. real estate pool, and office comprising $7 trillion, he does not anticipate another Great Financial Crisis. “It’s not to say it isn’t a problem; it’s just a question of getting a balance,” he emphasized.

Furthermore, there’s “still a surplus of capital in the world economy” waiting to spend, he affirmed.