REITs: What’s Ahead for the Second Half of 2023
July 31, 2023 | John Worth | Nareit
As we look ahead to the second half of 2023, the economic and commercial real estate (CRE) environment will continue to be shaped by global central banks’ fight against inflationary pressures that have been more persistent than expected. As the Federal Reserve and other central banks have rapidly raised rates, they have increased recession risks and exposed fault lines in banking, CRE, and private equity business models that were predicated on low interest rates. While REITs are well-prepared for a period of higher interest rates, the combination of interest rate induced change in real estate valuations and concerns about regional and community bank CRE exposure have reduced transactions and created a credit crunch for commercial real estate.
During the second half of the year, we expect the Fed to maintain and likely increase the federal funds rate until it sees meaningful evidence of lower rates of inflation. Though there are some encouraging signs that inflation rates will continue to decline in the coming months, higher short- and long-term interest rates, the resulting economic slowdown, and CRE risks will likely be the defining features of the second half of 2023.
