Citing a quote often attributed to Yogi Berra (who once denied ever saying it), Cushman & Wakefield’s Jennifer Edwards begins a look into the coming year by writing, “It’s déjà vu all over again.” The new year is beginning with “more uncertainty across the United States and the world.”  

In view of this unsettled macroeconomic climate, Edwards discusses 10 critical questions the firm is asking. “It may be some time before we know the answers, but no doubt they will shape the economy and the real estate industry over the next several quarters,” writes Edwards, senior content manager, global research at Cushman & Wakefield. 

Will labor markets cool off? “Keep an eye on the quit rate,” measuring how many workers are quitting their jobs for new ones. It’s currently at a near record high. “That needs to continue to decline to take pressure off the Fed.” 

How will the debt markets respond in 2023 and beyond? Watch for interest rates to level off and macroeconomic uncertainty to fade, leading to a cooling off in financial market volatility. That in turn will bring liquidity back to commercial real estate debt markets. 

Will consumer spending return to pre-pandemic norms? Keep an eye on experiental retail. “Overall consumer spending is likely to slow in 2023 given the economic headwinds, but pent-up demand for consumer services remains.” 

Will the central bank be able to tame inflation without causing a recession? “Future markets expect the Fed to pause in mid-2023 to in the 4.75% to 5% range and begin lowering rates end of 2023 or early 2024.” In the interim, there’s a concern that the Fed is moving too aggressively on raising the federal funds rate. 

Are occupiers really fleeing to higher quality office space? While tenants may appear to be in the driver’s seat when it comes to leasing office space—in some cases taking less square footage but investing the savings in spaces with greater amenities and higher rents—owners can be proactive here. “Well-capitalized landlords can create value by investing in amenities, services and experiences in and around their buildings.” 

How are portfolio allocations shifting throughout the institutional space? Expect to continue seeing institutionalization among niche sectors and continued activity in these sectors, signaling that they’ve reached maturation and in turn fueling activity and more diversification opportunities. 

Can households afford today’s sky-high rents? Although on a relative basis renting has never been cheaper, Cushman & Wakefield says home prices need to fall by 25% to reach the historical spread between rents and mortgage payments. That’s a bigger drop than we saw during the Great Recession. 

Will construction costs stabilize? Such stabilization would remove some of the volatility and uncertainty that have buffeted the construction sector since the pandemic began. Here, though, Cushman & Wakefield expects commodity prices to remain elevated relative to pre-pandemic levels. 

Will industrial deliveries cause a supply-demand imbalance? The sector has been riding high since the onset of the pandemic, but Cushman & Wakefield thinks the brakes will be tapped this year. “In 2023, the goods boom will wind down and a record amount of new supply will be delivered. For the first time in years industrial vacancy will drift higher, bringing better balance to the market.” 

Will a recession spur more people back to the office? “The long-term trend in office usage is going to be driven by the ability of building owners and occupiers to create spaces and places where employees want to be, are productive, and have options to connect, innovate and get all types of tasks done efficiently.”