The first half of 2023 was uncertain for those involved in the commercial real estate sector. The combination of continual interest rate increases, bank failures and concerns about a potential recession impacted investments and appraisals.

These and other concerns were highlighted in LightBox’s recently released annual “2023 Mid-Year Sentiment Report,” based on a survey of LightBox’s client base across all commercial real estate sectors. Appropriately subtitled  “A New Era of CRE Challenges and Opportunities,” respondents reflected on the impact that “a slower-than-expected first quarter had on previous forecasts for a more robust second half of 2023.” Additionally, only 15% of respondents across all of LightBox’s CRE market segments indicated that their Q1 2023 business volume exceeded their expectations.

Concerns on the Rise

Respondents expressed concerns about pricing uncertainties, the likelihood of a recession and the potential wave of loan maturities. Ongoing Federal Reserve Effective Federal Funds Rate hikes, property price and valuation adjustments and bid-ask spreads added to the overall pessimism from those involved with the survey.

Senior Vice President of Broker Operations at LightBox Tina Lichens told Connect CRE that the survey responses weren’t necessarily surprising. But “historically, we’ve seen more optimism from brokers, as they have a strong sales mindset and tend to see the glass as half-full,” she said. “The recent survey was more negative across the board, with both brokers and investors downgrading their sentiment. This was the first time the broker segment expressed such a pessimistic outlook.”

The Role of Technology

The report also indicated that “technology is playing an increasingly important role in enabling professionals across the industry to improve efficiency, accuracy and reporting.”

“In the commercial real estate world, understanding and being able to interpret property data is more important than ever, especially given the current bid-ask spread and uncertainty over valuations,” Lichens said. “We’re also seeing a lot of companies looking at customer relationship management (CRM) systems to more efficiently manage client relationships, for example, or collect, analyze and combine their own data with third-party data to achieve business goals.”

Respondents said that one challenge is keeping up to date with new technologies. Others included redundancy potentials, cumbersome processes and unrealistic expectations about usage levels and results.

Now, for the Optimism

The LightBox report wasn’t 100% doom and gloom. Potential distress and anticipated loan maturities could pave the way for loan sales and opportunistic acquisitions. “There is a tremendous amount of capital that has sat on the sidelines while cap rates have become compressed and rental rates have gone up and markets have worked almost perfectly,” Lee & Associates Senior Vice President CEO Jeff Rinkov told LightBox.

As a result, the survey’s longer-term investment outlook (the next 12 months and beyond) suggests increased buying opportunities and potentially higher sales volumes.

“Commercial real estate remains a solid long-term investment, particularly for those who can capture savings on the front end and secure properties with the right market dynamics,” Lichens said. “It’s important to realize that this current cycle is more of a temporary downturn that we can work out of over the next 18 to 24 months versus an underlying financial crisis.”