Headwinds and Tailwinds for Q1 2023: What’s Next in Commercial Real Estate

As we say good bye to 2022, it is time to give thought to our 2023 outlook as well as take a look at some predictions for 2023.

Recession is a word that comes up consistently in conversations about the 2023 economy. However, next year’s outlook is far more complex than “will there be a recession?” In fact, it is predicted companies will be able to maintain healthy profitability. 2023 is an opportunity to retool.  You can play it safe, however, there are also opportunities to stay invested and benefit from a possible turnaround as normalization happens.

Let’s take a look at some economic indicators in the form of both tailwinds and headwinds.

Positive tailwinds

The economy: robust consumer spending is expected to continue while inflation is likely to continue to trend lower. Industry: Wall Street analysts are forecasting growth in business profitability during 2023 and given the current shortage of labor, we expect the use of data insights and outsourcing to increase. Financial markets: Attractive valuations in equity, fixed income, and alternative markets are available. Your portfolio: Well-constructed portfolios can participate in market upside while mitigating volatility to help achieve your goals.

Concerning headwinds

The economy: slowing GDP growth is expected in 2023. Industry: Tight labor markets and the rising cost of capital may challenge unprepared business owners. Financial markets: Expect more restrictive credit conditions as the Fed continues to withdraw liquidity in a bid to fight inflation. Your portfolio: Remember, recoveries take time and reward patient long-term investors rather than market-timer.

Key takeaways and recommendations

Despite higher interest rates and slowing economic growth impacting areas such as housing, consumer spending and labor, markets are resilient. Therefore, continue to manage your business as you have. Carefully manage your expenses and focus on technology as an alternative to the labor shortage.Ignore the headlines as most focus on a recession. The full economic picture is much more complex. Across industry, the economy and the markets are a much more even picture. Dig into financial data to get a more complete economic outlook and a more comprehensive background for your investment decisions. Take a holistic approach to your investments while considering all facets of the economy. Focus on high quality investments as high-quality companies should be able to withstand most slowdowns. Focus on managers with long track records who are looking at specific areas of high-quality real estate.

The bottom line is, even with some overall market concerns, 2023 can still be a lucrative year. If you’d like a more in-depth and personal conversation around ways your business can outperform your 2022 results, feel free to contact me.