Green Street: Commercial Real Estate Fundamentals Healthy
Green Street, Newport Beach, Calif., reported commercial real estate fundamentals mostly proved healthy last year–except for the office sector–and will likely remain so through 2023.
“Despite an expected slowdown in the U.S. economy this year, rent and occupancy growth should remain solid across most sectors,” said Andrew McCulloch, Global Head of Data & Analytics at Green Street.
But McCullough noted office rents and occupancy fell further in 2022, “and the sector’s bottom is yet to be found,” he said. Green Street still expects the work from home trend to reduce office demand by about 15% over time, he said.
“In the senior housing sector, top-line prospects improved meaningfully last year, but expense pressures have and will likely continue to weigh on net operating income growth,” McCullough said, noting the sector is still early in its post-pandemic recovery. He said senior housing market revenue per available foot, Green Street’s measure of rent and occupancy growth, will likely average 6.5% over the next five years.
“The recent return of seasonal patterns, lower mobility and a portion of employees shifting back to office life have resulted in softening self-storage fundaments,” McCullough said. “The outlook for NOI growth remains positive for 2023, but market revenue per available foot growth is expected to turn negative due to tough 2022 comps, accelerated moveout activity and falling move-in rents.”
Looking at overall commercial real estate valuations, “price discovery across the board is limited, with buyers adjusting to higher costs of capital and wide bid/ask spreads,” McCulloch said. He noted the Green Street Commercial Property Price Index declined 13% last year.