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Just Released: Viewpoint 2023 Jan 4, 2023

Just Released: Viewpoint 2023

Navigate Uncertainty in the Year Ahead with Insights from Integra's Newly Released Viewpoint 2023 Commercial Real Estate Trends Report

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30th Edition of Annual Report Examines Economic Trends and Outlook for U.S. Property Sectors, Including Senior and Manufactured Housing, Build-to-Rent, and Golf Courses

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 DENVER, CO — (Jan. 4, 2023) — Commercial real estate investors that have battled a choppy market in 2022 face more uncertainty ahead in 2023. One of the hallmarks of the current environment is an extreme divergence of opinions across the spectrum on everything from a looming recession and inflation to the Fed’s rate-hiking policy that is constraining liquidity. Integra Realty Resources’ (IRR) newly released Viewpoint 2023 aims to bring more clarity to current market conditions and trends by looking at what the data is saying and pushing past “fuzzy metrics” that may be clouding perspectives.

What’s ahead for 2023? It’s clearly a tough question in the current environment. Views range from doomsday scenarios of a global financial crisis to guarded optimism of a soft landing and mild recession in 2023. “The silver lining is that while imprudent capital may be destroyed in the wake of uncertainty in the short-term, there will be many new opportunities that will arise from this dislocation,” says Anthony M. Graziano, CEO of Integra Realty Resources.

 

IRR’s team of nearly 600 valuation advisors throughout the U.S. and Caribbean is continuously monitoring the economy and real estate market. The 30th edition of the annual Viewpoint report dissects key economic conditions and secular trends likely to impact property performance and valuations in the coming year. “In order to best serve our clients, we believe it’s important for us to understand and articulate changes occurring in the mindset of buyers and sellers, investors and financiers, and other market makers,” says Graziano.

 

Viewpoint 2023 was produced in partnership with well-known veteran economist, Hugh F. Kelly, PhD, CRE, who added, "While the U.S. economy is projected to remain stable in 2023 despite a range of economic challenges, there are clear signs of slowing in the labor market, with the Federal Reserve forecasting an increase in unemployment. The housing market is also facing difficulties, with high home prices and a decline in existing home sales. These factors, along with ongoing inflation and rising interest rates, suggest that investors should be cautious as we move into 2023 and consider defensive REIT sectors as a way to mitigate risk in an uncertain capital market environment."  


IRR Viewpoint 2023 Highlights 

2023 National Themes
 

The Economy: Despite a multitude of headwinds that include inflation, rising interest rates, war in Ukraine, and lingering effects of COVID-19, the U.S. economy remains firmly “middle of the pack” among global economic forecasts for 2023. GDP is expected to hold in slightly positive territory, while inflation is likely to drop below 4% by year-end.

 

Employment: The jobs market has proved to be resilient for much of 2022 with 5.3 million new jobs added in the twelve months ending in October. However, data is showing deceleration in the labor market. In particular, declines in FIRE and Professional/Business Services job growth are especially concerning for the office sector. Overall, the Fed is forecasting that unemployment will climb to 4.4% in 2023 and remain at that level in 2024.

 

Housing: The ripple effects of housing deflation are likely to spread broadly across the economy in 2023. While home prices remain elevated, the National Association of Realtors (NAR) reported that Existing Home Sales in August 2022 were down 19.9% from the same month in 2021. NAR’s Affordability Index, meanwhile, slipped from 146.5 in July 2021 to 102.2 in July 2022, as household incomes failed to keep pace with home prices.

 

Interest rates: Fed policy has brought harsh reality to the long run of historically low rates. The key question is where will rates settle on the other side of the Fed’s anti-inflation strategy in 2024 or 2025. The answer, in all probability, is NOT back to the pre-pandemic level. In a sustainable inflationary world, Treasury notes should yield a premium of a percent or so above consumer inflation – or roughly 3.0% to 3.5%. Private market lending rates will likely require a further premium of 250 – 400 basis points, depending on the riskiness of the assets.

 

Capital Markets: 2022 was a tough year for major equity indexes across the board. Real estate was not spared, but a closer look reveals some reason for greater optimism going into 2023. Investors could be attracted to REIT sectors that show defensive strength against a looming recession, such as self-storage and retail that caters to value-conscious shoppers. Despite caution in CMBS, both delinquency rates and entry into special servicing have come down from their pandemic peaks.

 

U.S Property Markets

 

Office:

  • Occupancy across the country runs the gamut with large numbers of markets having extremely high or low rates compared to the average of 18.5%, according to Moody’s Analytics.
  • While leases-in-place provide office owners with reasonably reliable levels of income, virtually no region of the country has seen office buildings appreciate in value to any significant degree in the 12 months ending September 2022.
  • A “flight to quality” is evident. Current metrics favor Class A offices over Class B buildings: rents are higher, vacancy is lower, and cap rates are more favorable.
  • Outlook: In an era where “normal” is tough to come by, market professionals have a great opportunity to be selective across the range of possible deals.

Multifamily:

  • Multifamily is approaching 2023 with concerns about an inflection point where the stellar results enjoyed in recent years come back to earth.
  • Although rising mortgage rates will create barriers for home ownership, renter demand is expected to soften in the face of a potential recession and decelerating employment.
  • Owners face increased supply pressures, particularly in suburb-dominated metros with ample land at their perimeters that have experienced robust new construction.
  • Outlook: Multifamily cap rates appear headed for an inevitable rise, with negative effects on transaction flows and prices in 2023.

Retail:

  • IRR’s Retail Market Cycle Chart shows 38 of 61 markets in recovery or expansion versus 23 in hyper supply or recession mode, suggesting positive rotation in the sector.
  • However, cap rates, market rents, and vacancy rates have moved, for the most part, only in single-digit basis points, suggesting stagnation rather than an advance for retail.
  • Malls seem to be bottoming out, and many top malls have deep-pocket ownership that can carry through an expected moderate recession in 2023.
  • Outlook: Positive and negative forces are at work in the retail property sector, and macroeconomic conditions are expected to present cyclical risks in the coming year.

Industrial:

  • Despite signs of slowing, industrial still has unmistakable strength. Integra’s industrial Market Cycle Chart for 2023 skews heavily positive, with 50 of 61 markets rated in the expansion phase.
  • As of Q4, rents were up nearly 9% year-over-year, with vacancy down to nearly 4% for warehouse/distribution properties and flex space somewhat higher at 5.9%.
  • Potential market risks include downsizing from major players, such as Amazon, HP, Cisco, and Intel, among others.
  • Outlook: There is plenty of energy propelling the industrial real estate sector into mid-decade, and economic resilience and innovation continue to drive optimism for industrial properties in the coming year.

Hospitality:

  • The hotel industry is highly volatile, with revenue needing to be refreshed on a nightly basis.
  • The COVID-19 pandemic devastated the hotel sector, but its steep decline set-up a strong rebound for the sector in 2022.
  • As of the summer of 2022, travel demand has returned and is stressing airline capacity, while gas prices have risen by only 7.7% year-over-year.
  • The outlook for the travel industry is uncertain due to potential recessions and inflation, which could impact discretionary spending.

Specialty Property Reports

 

Healthcare & Senior Housing: The level of fear experienced in the earlier stages of the COVID-19 outbreak subsided and occupancy and revenues are generally returning to pre-pandemic levels. However, higher wage costs continue to depress NOI margins and higher interest rates will also put pressure on values.

 

Manufactured Housing: Manufactured housing is responding to rising demand from consumers seeking affordable options, and investors are taking notice. Occupancy rates have risen, reaching 93.8%, and sales velocity also has increased. The industry outlook is positive, with occupancy and site rents expected to continue to climb in 2023.

 

Build-to-Rent (BTR): The BTR community offers a desirable alternative to traditional multifamily properties and is expected to continue to see growth in the coming years. An estimated 22 million people now live in manufactured homes in the U.S. As millennials grow into life stages that require the space and benefits provided by single-family homes, demand for BTR communities is projected to significantly increase.

 

Golf Courses: The golf industry has seen a significant increase in rounds played over the past two years. This growth has led to an improvement in the financial health of both public and private courses, with many membership clubs reaching capacity and experiencing an increase in membership dues, green fees and revenue. Despite challenges such as rising interest rates, the industry's future looks bright due to continued growth and the development of alternative golf-centric outlets.

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Each IRR office is led by an MAI-designated Senior Managing Director, industry leaders who have over 25 years, on average, of commercial real estate experience in their local markets.
Integra Offices Map Denver, CO Denver, CO 575 Union Blvd.
Suite 209
Lakewood, CO 80228
Phone: 720-833-5930
Fax: 303-951-1924
Boston, MA Boston, MA
Boston, MA 02210
Phone: 212-575-2935
Fax: 646-424-1869
Seattle, WA Seattle, WA 600 University Street
Suite 310
Seattle, WA 98101
Phone: 206-436-1179
Fax: 206-623-5731
Portland, OR Portland, OR
Portland, OR 97205
Phone: 212-575-2935
Fax: 646-424-1869
Boise, ID Boise, ID 1031 E. Park Boulevard
Boise, ID 83712
Phone: 208-342-2500
Fax: 208-342-2220
Salt Lake City, UT Salt Lake City, UT 5107 South 900 East
Suite 200
Salt Lake City, UT 84117
Phone: 801-263-9700
Fax: 801-263-9709
Las Vegas, NV Las Vegas, NV 8367 West Flamingo Road
Suite 200
Las Vegas, NV 89147
Phone: 702-869-0442
Fax: 702-869-0955
Phoenix, AZ Phoenix, AZ 2999 N. 44th Street
Suite 512
Phoenix, AZ 85018
Phone: 602-266-5599
Fax: 602-266-1515
Sacramento, CA Sacramento, CA 590 Menlo Drive
Suite 1
Rocklin, CA 95765
Phone: 916-435-3883
Fax: 916-435-4774
San Francisco, CA San Francisco, CA 555 Meridian Avenue
Suite C
San Jose, CA 95126
Phone: 408-299-0444
Fax: 408-299-0449
Los Angeles, CA Los Angeles, CA 16030 Ventura Boulevard
Suite 620
Encino, CA 91436-4473
Phone: 818-290-5400
Fax: 818-290-5401
Orange County, CA Orange County, CA 2151 Michelson Drive
Suite 205
Irvine, CA 92612
Phone: 949-591-8150
San Diego, CA San Diego, CA 527 Encinitas Blvd.
Suite 204
Encinitas, CA 92024
Phone: 858-259-4900
Fax: 858-259-4910
Miami, FL Miami, FL 9155 S. Dadeland Boulevard
Suite 1208
Miami, FL 33156
Phone: 305-670-0001
Fax: 305-670-2276
Naples, FL Naples, FL 2770 Horseshoe Drive S
Suite 3
Naples, FL 34104
Phone: 239-643-6888
Fax: 239-643-6871
Tampa, FL Tampa, FL 550 North Reo Street
Suite 220
Tampa, FL 33609
Phone: 813-287-1000
Fax: 813-281-0681
Orlando, FL Orlando, FL 326 North Magnolia Avenue
Orlando, FL 32801-2431
Phone: 407-843-3377
Fax: 407-841-3823
Jacksonville, FL Jacksonville, FL
Jacksonville, FL 32217
Phone: 212-575-2935
Fax: 646-424-1869
Charleston, SC Charleston, SC 11-C Isabella Street
Charleston, SC 29403
Phone: 843-718-2125
Fax: 843-718-2058
Atlanta, GA Atlanta, GA 5256 Peachtree Road
Suite 115
Atlanta, GA 30341
Phone: 404-924-6247
Fax: 404-418-4357
Birmingham, AL Birmingham, AL 880 Montclair Road
Suite 275
Birmingham, AL 35213
Phone: 205-949-5995
Fax: 205-271-2389
Jackson, MS Jackson, MS 617 Renaissance Way
Suite 100
Ridgeland, MS 39157
Phone: 901-356-4934
Fax: 646-424-1869
Dallas, TX Dallas, TX 1100 Mira Vista Blvd.
Suite 300
Plano, TX 75093
Phone: 972-881-7191
Fax: 972-733-1403
Fort Worth, TX Fort Worth, TX 7080 Camp Bowie Boulevard
Fort Worth, TX 76116
Phone: 817-763-8000
Austin, TX Austin, TX 100 Congress Avenue
Suite 2000
Austin, TX 78701
Phone: 512-924-1345
Memphis, TN Memphis, TN
Memphis, TN 38120
Phone: 901-356-4934
Fax: 646-424-1869
Oklahoma City, OK Oklahoma City, OK 13913 Technology Drive
Suite A1
Oklahoma City, OK 73134
Phone: 405-422-0718
Kansas City, MO Kansas City, MO 104 West 9th Street
Suite 400B
Kansas City, MO 64105
Phone: 816-652-0222
Fax: 636-530-0046
Providence, RI Providence, RI 2 Charles Street
Suite B1
Providence, RI 02904
Phone: 401-273-7710
Fax: 401-273-7410
Syracuse, NY Syracuse, NY 812 State Fair Blvd.
Suite 1
Syracuse, NY 13209
Phone: 315-422-5577
Fax: 315-422-5295
Hartford, CT Hartford, CT 97 Broad Street
Middletown, CT 06457
Phone: 860-291-8997
Fax: 401-273-7410
New York, NY New York, NY
New York, NY 10036
Phone: 212-575-2935
Fax: 646-424-1869
Northern New Jersey Northern New Jersey 25A Vreeland Road
Suite 100
Florham Park, NJ 07932
Phone: 973-422-9800
Fax: 973-422-9797
Coastal New Jersey Coastal New Jersey 1415 Hooper Ave.
Suite 306
Toms River, NJ 08753
Phone: 732-244-7000
Fax: 732-505-9498
Philadelphia, PA Philadelphia, PA 1515 Market Street
Suite 800
Philadelphia, PA 19102
Phone: 610-238-0238
Wilmington, DE Wilmington, DE IRR-Corporate
Wilmington, DE 19805
Phone: 212-575-2935
Fax: 646-424-1869
Baltimore, MD Baltimore, MD
Washington, DC 20003
Phone: 212-575-2935
Fax: 646-424-1869
Washington, DC Washington, DC
Washington, DC 20003
Phone: 212-575-2935
Fax: 646-424-1869
Pittsburgh, PA Pittsburgh, PA 3535 Boulevard of the Allies
Pittsburgh, PA 15213
Phone: 412-683-2211
Fax: 412-683-2220
Cleveland, OH Cleveland, OH 850 Euclid Ave.
Suite 952
Cleveland, OH 44114
Phone: 330-659-3640
Fax: 330-659-3640
Columbus, OH Columbus, OH 6233 Riverside Drive
Suite 2N
Dublin, OH 43017
Phone: 614-764-8040
Fax: 614-764-8050
Saint Louis, MO Saint Louis, MO 215 Chesterfield Business Parkway
Suite B
Chesterfield, MO 63005
Phone: 636-898-6533
Fax: 636-530-0046
Chicago, IL Chicago, IL 1 N Franklin St
Suite 3010
Chicago, IL 60606
Phone: 312-565-0977
Fax: 312-565-3436
Minneapolis, MN Minneapolis, MN 7301 Ohms Lane
Suite 190
Minneapolis, MN 55439
Phone: 612-339-7700
Fax: 612-339-7937
Nashville, TN Nashville, TN 1894 General George Patton Drive
Suite 300
Franklin, TN 37067
Phone: 615-628-8275
Fax: 615-628-8286
Richmond, VA Richmond, VA 1805 Chantilly Street
Richmond, VA 23230
Phone: 804-346-2600
Fax: 804-747-9140
Greensboro, NC Greensboro, NC 5411-A Friendly Avenue
Greensboro, NC 27410
Phone: 336-676-6033
Fax: 336-676-6025
Raleigh, NC Raleigh, NC 8382 Six Forks Road
Suite 200
Raleigh, NC 27615
Phone: 919-847-1717
Fax: 919-847-1714
Charlotte, NC Charlotte, NC 214 W. Tremont Ave.
Suite 200
Charlotte, NC 28203
Phone: 704-376-0295
Fax: 704-342-3704
Columbia, SC Columbia, SC 141 Riverchase Way
Lexington, SC 29072
Phone: 803-772-8282
Fax: 803-772-0087
Cincinnati/Dayton, OH Cincinnati/Dayton, OH 8241 Cornell Road
Suite 210
Cincinnati, OH 45249
Phone: 513-561-2305
Fax: 513-561-2881
Detroit, MI Detroit, MI 400 W. Maple Road
Suite 100
Birmingham, MI 48009
Phone: 248-540-0040
Fax: 248-540-8239
Indianapolis, IN Indianapolis, IN 4981 North Franklin Road
Indianapolis, IN 46226
Phone: 317-546-4720
Fax: 317-546-1407
Louisville, KY Louisville, KY 13000 Equity Place
Suite 105
Louisville, KY 40223-3976
Phone: 502-452-1543
Fax: 502-451-3657
Caribbean Caribbean Cayman Business Park #A5, P.O. Box 751
Grand Cayman, Cayman islands
Camana Bay, KY KY1-9006
Phone: 844-952-7304
Houston, TX Houston, TX 9225 Katy Freeway
Suite 206
Houston, TX 77024
Phone: 713-973-0212
Fax: 713-973-2028
San Antonio, TX San Antonio, TX 10010 San Pedro Avenue
Suite 220
San Antonio, TX 78216
Phone: 210-446-4444
Puerto Rico Puerto Rico Vig Tower 1225 Ave Ponce De Leon
Suite MZ-4
San Juan, PR 00907-3907
Phone: 844-952-7304
New Orleans, LA New Orleans, LA
New Orleans, LA 70130
Phone: 212-575-2935
Fax: 646-424-1869
Little Rock, AR Little Rock, AR
Little Rock, AR 72223
Phone: 212-575-2935
Fax: 646-424-1869
Grand Rapids, MI Grand Rapids, MI 1009 44th Street, SW
Suite 107
Grand Rapids, MI 49509
Phone: 616-261-5000
Fax: 616-261-5045
Lubbock, TX Lubbock, TX 6309 Indiana Avenue
Suite D
Lubbock, TX 79413
Phone: 806-368-8063
Northwest Arkansas Northwest Arkansas
Fayetteville, AR 72701
Phone: 212-575-2935
Fax: 646-424-1869