Richard Barkham, global chief economist, head of global research & head of Americas research, CBRE
WMRE: Which asset class do you anticipate being hit the hardest by this environment that we're in, and which one do you think will feel the impact a little bit less?
Richard Barkham: The greatest uncertainty at the moment, obviously, is about the office market. [Office has] a situation where usage might be back to 60 percent—in the better space, maybe more than that. In America, the return to the office has been extremely slow, but in any case, at the moment, vacancy in the office sector is high. And so that's a sector that we might see capital value drops, particularly in maybe the B and C grades.
But of course, against that, you've got industrial continuing to have the tailwinds from good consumer demand and shift to e-commerce. Multifamily also probably rents will slow down, and vacancy is going up, but it's only going up a little. Multifamily will be hit by rising unemployment and slowing job prospects. But America is chronically short of housing, maybe four to 5 million units short. So that puts a floor on multifamily. And then other sectors that are associated with digital economy, data centers, are likely to continue to do strongly but they’re running into headwinds because of the power issue.
Life sciences—again, the fundamentals are quite good. There is a lot of drug discovery work going on. I think we had a little mini boom over the last couple of years due to venture capital availability, and venture capital has eased up. So maybe life sciences will cool for a little bit. Retail [will be] probably somewhere in the middle. We haven't built any retail for the last 15 years, so it's not as if we've got a ton of space. In fact, we're recording that occupiers can't move because there's not enough space of the quality that they want. But I don't see rents accelerating away in the retail sector. It's just that fundamentals are reasonably good, particularly in suburban areas, particularly grocery-anchored and open-air [centers]. Retail seems to be reasonably well supported and reasonably well priced.
WMRE: What do you foresee in terms of transaction volume?
Richard Barkham: We’ve just run our investor intention survey. They're showing continued desire to deploy capital in real estate with, not surprisingly, multifamily and industrial ahead of the queue. But—monetary tightening is monetary tightening. Overall, volumes will be down in 2022, in 2023, but not too far from the average of the 2014 to 2019 period. So ’21 was a pretty strong year, ’22 was a strong year benefiting from all the stimulus, [and] ’23 will be much more subdued, but there will still be activity.
And we've also done for the first time a lender survey and we do see appetite by lenders to deploy capital in real estate. Again, it mirrors the investor interest in industrial and multifamily. One of the crunch points will be the attitude of banks to the office sector in 2023 because that sector may need refinancing. It's not a whole-scale refinancing, but there is some refinancing required. Will the banks be willing to extend that finance or will it require more equity to come in, and will that equity be around? Will people take to the idea that actually people are misreading the situation in the office sector because the return to work has been slow? So it could go either way, but at the moment it looks challenging for office.