Inflation pressures, higher interest rates, and supply chain challenges have created a climate of uncertainty in which commercial real estate executives see revenues coming under pressure, according to Deloitte US Real Estate Leader Jeff Smith.
Speaking on the REIT Report, Smith said that Deloitte’s 2023 Commercial Real Estate Outlook, which is based on survey results for more than 450 CFOs, showed that 48% of respondents expect revenues to decrease in 2022. That compares with only about 9% expecting a decrease in the prior year’s survey.
Despite the anticipated decline in revenues, CFOs were “pretty positive” when it came to real estate fundamentals, Smith said. Over 50% of CFOs said they expect increased leasing and rental rates in the next 12-18 months, along with decreased vacancies, he added.
Elsewhere in the interview, Smith noted:
- Downtown office assets were considered the most attractive risk-adjusted investment opportunities.
- Only 12% of respondents said they were prepared for regulatory action around sustainability.
- Only 7% of CFOs said they are using ESG data analytics in all their investment decisions. “When you think about the changing regulatory environment… you want to make sure you don't leave stranded assets, where assets aren't meeting any local requirements,” Smith said.
- 44% of CFOs in North America cited finding ways to increase the focus on diversity, equity and inclusion as a way to attract and retain employees.
- Real estate executives are demonstrating a broader awareness and interest in how the digital and physical worlds are interacting. There's a lot more interest in crypto payments, blockchain, and smart contracts, Smith said. In this year's survey, 50% of those who responded said they were piloting, in the early implementation of, or in production of cryptocurrency for payments, smart contracts, and tokenization.