Across the nation, the commercial real estate market has faced the double whammy of the COVID-19 pandemic and now the uncertainties associated with inflation and rising interest rates. The impact has been felt differently by different sectors and geographic areas of the CRE market.  Some areas of the country have seen a slowdown in the growth of commercial real estate with lower demand for apartments and office spaces.   In most areas, demand for retail spaces has remained positive while the industrial sector has remained strong across the nation.

In the Milwaukee area, the CRE market is “holding steady in some sectors, thriving in others,” despite the market challenges.  Area CRE pros working the city and its suburbs say, “the future remains bright for commercial real estate in Milwaukee.

Following a brief pause during the height of the pandemic, developers have resumed construction of new retail and mix-use developments in downtown Milwaukee.  Milwaukee’s Deer District, adjacent to FISERV Forum, is now attracting visitors and consumers to the area.  The area’s future includes a new music venue and a new Marriott Hotel.

Other projects scheduled for downtown Milwaukee include Kohl’s opening a 40,000-square-foot store in the fall of 2023 in downtown on the ground floor of the HUB640 mixed-use building, and a new sports and entertainment district called the Iron District. The estimated $160 million Iron District project will include apartments in Michigan Street Commons, a soccer stadium, hotel, and a performance venue.

As we wrap up 2022 and get ready for 2023, here’s a few trends we’ll be keeping our eye on…

  1. RETURN TO WORK IS NOT GOING AWAY

While American businesses are faced with a myriad of challenges entering 2023, the work from home syndrome is still top of mind for most CEOs.  For some, it’s become a classic management vs. labor balance of power issue.  Others see it as a cultural change and are grappling with how to sustain culture, performance and hold onto great talent with a hybrid/return to office model that works best for employees and the company.

There is no new normal that will work for everyone. The pandemic has changed the way we work, and offices need to change as well.  Not every job nor every employee have the right circumstances to work from home.  Offices need to offer places for people to focus, collaborate, learn, socialize and rejuvenate.

  1. CRE Firms Need More Focus on ESG Requirements

The ever-evolving ESG regulatory demands for businesses have made compliance a challenge for many businesses, including those in the commercial real estate market.  A recent Deloitte survey of 450 chief financial officers of major commercial real estate owners and investors showed that only 12% of respondents say they’re prepared to immediately implement changes to meet new regulatory requirements.  Moore than 45% of survey respondents say they are awaiting guidance and/or an industry-driven response, which indicates that industry associations can play a critical role by providing observations, information, and recommendations. CRE leaders should also be sure to focus on more than just the “E” in ESG—social and governance issues are also important.

The world is increasingly waking up to the fact that the climate disaster will pose a much bigger challenge than anything we have experienced in recent decades.  Buying trends are increasingly being driven by conscious consumers – those who prioritize factors such as ecological impact and sustainability when choosing who to buy from or do business with. That’s one of the many reasons that companies need to move their environmental, social, and governance (ESG) processes to the center of their strategy.

  1. Recession is Likely, But Impact on CRE Markets Should Be Minimal

Al Brooks, who heads up Commercial Real Estate for JPMorgan Chase, clocked the likelihood of a recession in 2023 at more than 50%. “We do think there’s a pretty high percentage of a recession next year,” he said. “It’ll probably be relatively mild, but everybody’s got a different position on it.”

While some say we are already in a recession, the key for 2023 is the depth of the recession, according to Tom LaSalvia, Senior Economist and Head of Narrative Analytics at Moody’s Analytics CRE.  “The labor market would likely feel much less pain than many previous recessions. Unemployment would be expected to rise somewhere between 4% and 5%.”  LaSalvia said the tinkering employers are doing with hybrid return to work models will be more influential on the office market than a short, mild recession.  “But a recession could hurt hiring and might cause some firms to delay plans to build or expand offices, at least in the near term,” he said.

  1. Holding onto Talent

Employee’s work lives have been upended during recent years, as more Americans than ever quit their job in what some have called the “Great Resignation” and others refer to as the “Great Discontent” with employees rethinking their relationship to work and how it fits into their lives. In either case, competition for employees has never been fiercer and companies are finding it increasingly difficult to find suitable candidates.

This has put pressure on employers to ensure they are providing attractive careers, the flexibility of hybrid work, and an enticing work environment and company culture. Offering people fulfilling work, ongoing opportunities to grow and learn, flexibility and diverse, value-oriented workplaces will all be essential in 2023.

At the same time, businesses must address the skills gap that exists in many highly specialized areas, and  re-train staff with skills needed to work alongside smart machines, as well as human skills that can’t be automated.  In 2023, these include skills such as creativity, critical thinking, interpersonal communication, leadership, and “humane” qualities like caring and compassion.

  1. REIMAGED OFFICE SPACE

With competition for employees never fiercer, a well-designed workplace can often be the deciding factor for landing a highly sought-after employee, while an uninspiring workspace can be a deal breaker.

Companies are moving away from cubicles and the desk-chair paradigm to an office model that is focused on collaboration and a sense of community, which many experts say is the lifeblood of a successful organization. In addition to rethinking space utilization, companies are using technology to facilitate and create a healthy, safe, comfortable, and productive environment.

“More than ever, companies are rethinking the functionality and structure of their office space,” said Sheldon Oppermann, Compass Properties Executive Vice President. “As a general rule, those looking to upgrade or move into new space want a live/work/play location, amenities that motivate employees to return to the office, and flexibility that includes growth space options.”

“We’re experiencing a once in a generation transformation,” Oppermann said. “Many companies are abandoning traditional office layouts and creating new spaces that offer them flexibility and a recruiting edge, while providing a better work-life balance and well-being for their employees and potential hires.”