Economic turbulence isn’t rattling rents for local buildings, according to CARW survey (February 8, 2023): Expecting negative impacts from ongoing national issues like interest rates and construction costs, local real estate brokers entered 2023 with a somewhat guarded take on a market that still has strong points but also faces challenges.
That’s among the takeaways from a survey released this week by the Commercial Association of Realtors Wisconsin. The survey, the second of its type by CARW after one in mid-2022, received more than 100 responses. President and CEO Tracy Johnson said the responses were more optimistic than she would expect, given the broader economic challenges currently in play.
“Our members are looking at the fact that companies are hanging onto people, they’re looking at wage growth, they’re looking at the fact that these companies are holding onto their culture, and they’re confident,” she said. “You’ve got all of these macroeconomic issues, interest rates and all of that, but you get through it, so that’s what they’re doing.”
The survey results show that sentiment is different for different areas of the industry. Overall, 89% of responders expected the economy to negatively impact local real estate in the first quarter of this year. That compares with 70% for CARW’s mid-2022 survey that asked a similar question.
Overall, the survey results show brokers think industrial building leasing remains solid, and the outlook for retail space is also positive. The office market continues to lag. Investor demand to buy any of those types of buildings is down, as are prices, partially because interest rates are up.
Mike Kleber, CARW’s 2023 chairman and director of industrial leasing for Zilber Property Group in Milwaukee, said quality buildings, whether office, retail or industrial, are still performing well.
“Industrial continues to be extremely strong,” he said. “Retail is coming out of what was unprecedented times for them and looks to be gaining momentum, and office is just trying to just see where the future lies, whether it be shorter work weeks, work from home or in-between. As they continue to do that, I believe they will see an increase in activity and deals being done.”
The figures for office activity lagged the other two building types. Of the responders, 55% said office leasing is down in the past six months, compared with 44% for industrial buildings and 31% for retail.
Kleber said increased interest by companies of onshoring operations to avoid supply chain disruptions, along with growing demand for e-commerce warehousing, are keeping industrial buildings full.
“You have record years in 2021 and 2022,” Kleber said of industrial activity. “Naturally, you may have a little bit of a slowdown, but I think some of what you are seeing on this, as far as the activity goes, is there is just a lack of supply right now on the industrial side.”
A survey question about vacant space generated a similar divide, with only office showing an increase.
Rents in general aren’t dropping, according to the survey. For office, 18% of responders said they are lower, but 27% said higher. For industrial buildings, only 6% of responders said rents are lower and 44% said higher.
“We didn’t ask about other concessions, but I think there was a lot of speculation that people would have to discount rents in order to maintain tenants,” Johnson said. “I was pleased to see that rents aren’t being discounted.”
The survey results may be found HERE