Confidence in Commercial Real Estate Continues to Drop

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Now might be the time to check in on your friends in commercial real estate. 

Real estate professionals’ confidence in the industry dropped in New York City and across the U.S. in the fourth quarter of 2022 as the market continues to deal with a slow return to the office, high interest rates, and layoffs in the finance and tech sectors, according to reports from the Real Estate Board of New York (REBNY) and the Royal Institution of Chartered Surveyors (RICS).

SEE ALSO: New York City Office Owners and Brokers Tout Recovery

In New York City, commercial brokers’ confidence dropped for the fifth quarter in a row, from -40.58 out of 100 in the third quarter of 2022 to -45.61 in the fourth quarter, according REBNY. The board creates the measure by surveying brokers and tracking their positive or negative responses.

“High interest rates and inflation underlie ongoing broker malaise,” Keith DeCoster, REBNY’s director of market data, said in a statement. “Substantive and widespread momentum in office leasing … will be needed for commercial confidence to turn around.”

Things weren’t much better out of the city, as office, retail and industrial companies felt similarly despondent, RICS found. 

Roughly 71 percent of U.S. firms surveyed by RICS said the commercial real estate market was in a downturn in the fourth quarter of 2022, compared to about 65 percent who thought the same in the third quarter, according to RICS.

Plus, the number of U.S. companies that said the lending markets had deteriorated rose from two-thirds of firms in the third quarter to three-quarters in the fourth quarter of 2022, according to RICS. Two weeks after RICS conducted the survey, the Federal Reserve announced its sixth consecutive interest rate hike in February. 

“With interest rates moving higher across much of the world and economic news flow generally downbeat, it is hardly surprising that the overall tone to the [report] is one of caution,” Ann Gray, RICS’ president, said in a statement.

At least in New York, commercial brokers had some hope left for the future. Their outlook on the next six months of the industry improved for the first time in the past three quarters, rising from -22.83 out of 100 in the third quarter to -20.57 in the fourth quarter, according to REBNY. 

That sentiment was bolstered in part by improved tourism in the city and strong retail leasing, with Manhattan seeing 60 retail spaces leased in the fall of 2022 while only 20 were added to the market, according to REBNY.

Celia Young can be reached at cyoung@commercialobserver.com.