The Azucena Take: Commercial Real Estate Trends to Expect in 2023
The end of the year is almost here. Between the holiday festivities and ending the year with a bang, you might be wondering what will 2023 look like. A smart investor has already planned for next year but it's not too late to get started.
No future plan is going to be perfect and there are so many unknown factors in play that could change everything. However, there are three trends we could expect to see next year. These could define the commercial real estate market of early 2023.
What to Look for in 2023
1. Consumer Sentiment: The Consumer Sentiment Index is used to see how the overall population feels about their financial situation. It's used as means to have an idea about the overall economy. Unfortunately, mid-2022 saw one of the biggest drops all the way down to 50 BPS. This was due to rising interest rates, inflation, and gas prices. By late 2022; the index has begun to rise again.
This means one could expect optimism going into early 2023 about the market. There is inflation, high-interest rates, and fears of a recession. But we are also a market economy, if people are comfortable spending money then it gives investors and analysts high hopes for the economy of 2023.
2. Cash Savings and Revolving Credit: During the lockdown; personal savings spiked from $12 trillion in early 2020 to almost $15 trillion by the end of the year. That trend continued and peaked at almost $18 trillion in August 2022.
Recently it has been on the decline due and it's expected to hit pre-pandemic levels by late 2023 or early 2024. At the same time; credit debt had begun to climb, having hit $925 billion by late 2022. However; this is all due to inflation. When this factor is put into the equation, we see that debt has only risen by 9.7% and is down by 5.6% compared to pre-pandemic levels.
So far credit debt is not a risk indicator but investors should keep their eye on it going into 2023.
3. Labor Shortage: This is still going to be an issue going into 2023 and it's hard to say how long it will continue. Even though the number of job openings has dropped to 10.3 million, it's still high compared to the historic numbers. Meanwhile; the number of unemployed has been still stable at 6 million.
The Federal Reserve believes that either unemployment will need to rise or jobs need to be taken off the labor market to get inflation under control. That will unlikely happen. However, the only red flag investors need to look for is if the number of openings drops fast.
If you're wondering about all those lay-offs in the tech industry, they are at worst a drop in the bucket.
What it Means for Investors?
The big takeaway for investors is that consumer sentiment, cash savings + credit debit, and the labor shortage could define the market in 2023. One should look at these factors when planning ahead. That is why you should be working with an advisor who understands your market and can use these factors to guide you in 2023.
FYI: Doom reading some click-bait article about "A Market Crash" or "Investing in Bitcoin" is not research. Go speak with an actual financial expert to be better prepared.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap.