Lawrence Yun, the Chief Economist of the National Association of Realtors®, addressed the audience at the 2023 REALTORS® Legislative Meetings about the challenges faced by the commercial real estate market due to the tightening of lending policies by small and regional banks. Despite this, Yun noted that the apartment, industrial, and retail sectors have helped keep the industry relatively stable due to continuing U.S. job gains.
During the Commercial Economic Issues and Trends Forum, Yun predicted that the performance of commercial real estate markets would vary across the country, with markets experiencing strong job gains holding on better while those with weaker job conditions struggled to raise net occupancy. The apartment sector saw a modest uptick in vacancy due to robust new supply, while the national office market continued to see rises in vacancy rates due to falling demand.
Yun also discussed the implications of Federal Reserve decisions on nationwide commercial markets, noting that aggressive rate hikes have damaged the balance sheets of regional and local banks that are an important source of commercial real estate loans. He estimated that the continual rise in rates would cause the overall commercial real estate transaction volume to decline by 27% in 2023, resulting in a lower overall valuation of commercial real estate prices.
Despite the challenges, Yun noted that weaker prices would mean opportunities for those with deeper pockets to get deals done in the months and years ahead. He added that appraisal values had fallen by an average of 15% from peaks in early 2022.