A report from the
Deloitte Center for Financial Services
2023 commercial real estate
outlook
The global CRE industry faces uncertainty. Leaders can
navigate the future of real estate in 2023 and beyond by
focusing on strategic execution, talent, and innovation.
About the Deloitte Center for Financial Services
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Contents
KEY FINDINGS
2
FORMING A ROAD MAP FOR CHANGING TIMES
3
NEW CONCERNS ABOUT REVENUE CAUSE NUMEROUS STRATEGY
REASSESSMENTS
4
STRATEGICALLY POSITIONING FOR WHAT’S NEXT
8
Office
Industrial
Housing Retail
Hotel
Alternatives: Data centers, senior housing, and life sciences
THE REGULATORY ENVIRONMENT IS HEATING UP
Understanding and complying with ESG disclosure requirements
The challenge to meet expectations
Addressing trends in tax regulation
10
10
11
11
12
13
15
15
16
18
MEETING THE GROWING EXPECTATIONS OF THE TALENT LANDSCAPE 21
Attracting and retaining talent through the great “reshuffle”
The staying power of relocations and the emergence of “super
commuters”
EMBRACING TECHNOLOGY FOR GREATER EFFICIENCY AND NEW
OPPORTUNITIES
Operatingefficienciesandtheapplicationofproptechs
Lookingtothefuture
21
23
24
25
25
THE WINDING ROAD AHEAD
27
ENDNOTES
28
KEY FINDINGS
Most global real estate CFOs are much more cautious with their 2023 operating plans: Our global
survey reveals that only 40% of respondents expect to finish 2022 with higher revenues than last year,
and 33% expect to cut expenses. They cite sustained high inflation, workforce management, and
cyber risk as top risks to financial performance for the coming year.
Owners and investors are targeting offices, digital economy, and logistics properties.
Downtown and suburban offices rank first and third overall for global risk-adjusted asset
class opportunities.
ESG-related actions are still top of mind, but most firms need guidance on how to implement
changes and monitor progress. Only 12% of the total industry surveyed, and 17% of the required
public REITs, are prepared to immediately respond to regulatory action.
The evolving global regulatory environment is expected to bring changes to tax structure and
modernization to the forefront. Potential changes to transfer pricing and profit-sharing and
increases in tax rates could have the greatest impact on commercial real estate (CRE) firms.
Regional approaches are emerging to attract and retain talent. Firms are focusing on increasing
workplace automation, bolstering diversity, equity, and inclusion (DE&I) initiatives, accelerating career
growth opportunities, and offering more recognition and awards programs.
Real estate firms of all sizes are seeking outsourcing opportunities to optimize operational
capacities. There is continued interest in leveraging proptechs to help offer complementary,
innovative services.
While technology budgets tend to be more reserved, those who plan to increase spend have
opportunities to improve efficiency and explore new revenue opportunities in fundraising and digital assets.
2
2023 commercial real estate outlook
Forming a road map
for changing times
“
T
HE WORLD ECONOMY is again in danger …
Even if a global recession is averted, the pain
of stagflation could persist for several years …
For many countries, recession will be hard to
avoid.”1 This, from the World Bank’s latest global
economic forecast, describes how the global
economy is currently in a state of heightened
uncertainty due to economic shocks that have
threatened a pandemic-era recovery. Declines in
equity prices reflect not only economic concerns,
but also geopolitical instability and lingering
disruptions brought on by COVID-19.
The real estate industry also faces an unknown
trajectory. Megatrends such as record inflation and
supply chain disruptions can push and pull
property fundamentals in all directions, ESG
regulation and changes to tax policy can weigh on
decision-makers, and evolving employee
expectations often complicate hiring and retention.
There is frequently pressure to improve operational
efficiencies and adopt innovative emerging
technologies that could provide some remedies.
This year’s commercial real estate (CRE) outlook
will explore the path forward and offer actionable
insights leaders should consider as they plan ahead.
3
New concerns about
revenue cause numerous
strategy reassessments
A
RECENT DELOITTE ECONOMICS report
respondents expect their revenues to improve
offered several scenarios for the near-term
compared to last year, 48% see revenues
outlook in the United States.2 The most
decreasing, and 12% expect no change. In contrast,
likely scenario (at 55% likelihood) is that economic
last year’s survey results were much more
growth continues through 2022, though tightening
optimistic: 80% of respondents indicated revenue
monetary policy, peaking employment growth, and
expectations would be slightly to significantly
continued energy and food shortages slow this
better than the prior year (figure 1).3 Of course,
near-term growth trajectory. Inflation would
those expectations came in the wake of a very
remain high through 2022, but gradually settle
challenging 2020. Furthermore, with revenue
around 2% by mid-2023 as demand for goods
expectations muted, a greater proportion of
subsides in favor of services, helping businesses
respondents (33%) are planning to cut costs
alleviate supply chain issues. The Federal Reserve
compared to last year, when just 6% planned to
would raise rates to combat inflation through 2022,
make cuts.
but slow rate increases as inflation normalizes.
Other, less likely scenarios include: (1) Back to the
1970s (25%) where businesses raise prices and
wages in lockstep and there is sustained high
inflation; (2) COVID-19 relapse (5%) in which
vaccines become ineffective, and lockdowns are
again imposed; and (3) Next recession (15%),
triggered by overly aggressive tightening of
monetary policy as governments attempt to
tame inflation.
Regardless of which scenario comes to fruition, the
2023 Deloitte real estate outlook survey reveals
that concerns about the economy are top of mind
for most global real estate leaders as they prepare
for the remainder of 2022 and 2023 (see sidebar,
“Methodology”). Revenue expectations for the full
year are mixed among those surveyed, and
generally more muted than last year. While 40% of
4
2023 commercial real estate outlook
FIGURE 1
When asked to forecast 2022 revenues, respondents were much less optimistic
than they were last year
2023 vs. 2022 survey results
Increase
No change
Decrease
Anticipated change in revenues
9%
11%
11%
15%
80%
Global average
74%
North America
6%
8%
9%
11%
48%
Europe
12%
85%
80%
Asia/Pacific
43%
49%
11%
13%
37%
39%
Europe
Asia/Pacific
13%
40%
44%
Global average
North America
2022 survey (end of 2021)
52%
2023 survey (end of 2022)
Note: Percentages may not add up to 100% due to rounding.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
METHODOLOGY
The Deloitte Center for Financial Services conducted a global survey among 450 chief financial
officers (CFOs) of major commercial real estate owners and investment companies.
Survey respondents were asked to share their opinions on their organizations’ growth prospects
and forward plans for workforce, operations, technology, and culture. We also asked about their
investment priorities and anticipated structural changes in 2023.
Respondents were equally distributed among three regions—North America (the United States and
Canada), Europe (the United Kingdom, France, Germany, and Switzerland), and Asia/Pacific (Australia,
China Mainland, Japan, and Singapore).
The survey included real estate companies with assets under management of at least US$100 million
and was completed in June 2022.
Overall, respondents indicated that sustained high
of greatest concern (37%), European respondents
inflation, workforce management, cyber risk and
are most concerned about the impacts of climate
climate-related regulatory action are most likely to
change (33%) and those in Asia/Pacific (AP) cite
impact revenue prospects for the next 12–18
supply chain disruption as their No. 1 concern
months (figure 2A). While North American
(40%).
respondents felt that changes in tax policies were
5
FIGURE 2A
Respondents’ views on the biggest challenges to their organizations’ financial
performance varied significantly by region
Top concerns over the next 12–18 months
North America
Changes in tax policies
37%
Sustained high inflation
35%
Workforce management
35%
Climate-related regulatory action
33%
Accelerating technology capabilities
33%
Public health mandates
32%
Increased cost of labor
31%
Currency volatility
31%
Supply chain disruptions
30%
Rising interest rates
30%
Increased cost of construction materials
29%
Regional political instability
29%
Cyber risk
29%
Climate change
28%
Europe
Asia/Pacific
Climate change
33%
Supply chain disruptions
Cyber risk
31%
Cyber risk
Workforce management
31%
Sustained high inflation
Climate-related regulatory action
30%
40%
39%
38%
Climate-related regulatory action
35%
Increased cost of
construction materials
29%
Workforce management
Accelerating technology capabilities
28%
Climate change
33%
Public health mandates
28%
Accelerating technology capabilities
33%
28%
Increased cost of
construction materials
33%
33%
Currency volatility
34%
Sustained high inflation
27%
Increased cost of labor
Supply chain disruptions
27%
Public health mandates
32%
Regional political instability
27%
Changes in tax policies
31%
Rising interest rates
27%
Regional political instability
31%
Changes in tax policies
25%
Rising interest rates
Increased cost of labor
25%
Currency volatility
29%
23%
Note: Respondents could make multiple selections.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
6
2023 commercial real estate outlook
Unfortunately, respondents also felt that the
5-point scale, 5 being the most prepared,
industry is not fully prepared to respond to some
respondents from Australia (3.6) and the United
uncertainties ahead (figure 2B), averaging a
Kingdom (3.4) feel the most prepared, while those
response of 3.2 out of 5 for their current state of
from France (2.6) and China Mainland (2.9) feel
preparedness for the concerns they identified. On a
the least prepared.
FIGURE 2B
“How prepared is your organization to respond to the following global concerns?”
Top concern(s) by location
France
Level of preparedness
Climate-related regulatory
action/climate change
2.63
China Mainland Climate-related regulatory action
2.89
Japan
Sustained high inflation
3.03
Switzerland
Currency volatility
3.05
Global average
Sustained high inflation/
workforce management
Germany
Workforce management
3.34
Singapore
Sustained high inflation/workforce
management
3.36
United States
Sustained high inflation
3.37
Canada
Climate-related regulatory action/
public health mandates
3.22
3.41
United Kingdom Public health mandates
Australia
3.44
3.60
Supply chain disruptions
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Note: Respondents could make multiple selections. 1 = ill-prepared, 5 = completely prepared.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
7
Strategically positioning
for what’s next
D
ESPITE OVERALL PERFORMANCE
conditions from last year. Over 57% of respondents
reservations, there is still some optimism
(figure 3) expect leasing activity to improve, with
about real estate fundamentals, with 66% of
corresponding optimism about tightening
respondents expecting improving or stable
vacancies and rental growth.
FIGURE 3
“How do you expect each of the following aspects of real estate fundamentals to
change for the property type you specialize in over the next 12 to 18 months
compared to current levels?”
Worsen
No change
Improve
Cost of capital
37.6%
Capital availability
40.0%
Property prices
Vacancy levels
Leasing activity
Transaction activity
Rental rates
25.6%
23.8%
34.9%
18.2%
42.2%
52.9%
21.3%
57.1%
37.1%
29.3%
36.2%
22.9%
28.9%
21.6%
36.9%
22.2%
20.2%
40.7%
50.4%
Note: Percentages may not add up to 100% due to rounding.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
8
2023 commercial real estate outlook
When asked about which property types present the
identify suburban office the most at 35%; AP
most attractive risk-adjusted opportunity over the
respondents highly favor digital economy properties
next 12 to 18 months, downtown and suburban
(data centers, cell towers) at 43%, while logistics
offices were among the top responses globally where
spaces (warehousing, distribution centers) place
respondents selected them 36% and 35% of the time,
well ahead in North America at 43% of the time.
respectively (figure 4). European respondents
FIGURE 4
Respondents weighed in on the most attractive risk-adjusted investment
opportunities through 2023
Ranked by asset class, 12- to 18-month time frame
Office downtown
36.2%
Digital economy
(data centers, cell towers)
35.1%
Office suburban
35.1%
Senior care
34.9%
Logistics and warehousing
34.2%
Life sciences/biotech
33.8%
Single-family rentals/build to rent
33.8%
Multifamily
32.2%
Industrial (excluding logistics
and warehousing)
31.6%
Student housing
31.1%
Neighborhood retail
29.8%
Hotel/lodging
28.4%
Malls
27.6%
Self-storage
27.3%
Note: Respondents could make multiple selections.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
9
We take a closer look in the following pages at core
just US$6 per foot (6%).10 Class B and C buildings
and alternative sectors according to our
could face challenges to bring in tenants in a
respondent rankings:
market flush with available space, though they
present some of the greatest opportunities at a
market discount. Office owners and investors in
Office
lower quality buildings must often consider making
upgrades to aging assets or conversions for
HOW DID WE GET HERE?
alternate uses or risk obsolescence. While costly,
The return to office, slowed by lingering health
conversions to undersupplied property sectors can
concerns and shifts in employee expectations, has
provide opportunities to acquire properties at a
been gradual. Occupancy levels in top US markets
market discount.
through late July came in at 44% of prepandemic
levels,4 and office vacancies increased to near
Industrial
record highs through Q1 2022—topping just shy of
15% on average globally, 20% in the United States,
HOW DID WE GET HERE?
14% in AP, and 7% in Europe.5
In the first half of 2022, the global industrial and
Owners, investors, and local governments alike are
logistics sector maintained its decade-long run of
exploring alternate uses and conversions to combat
robust performance. Leasing activity in the United
vacancies, with varying degrees of success.
States registered the second highest level of all time,
Residential conversions, an early strategy to
and vacancies in the United States and Europe are
capitalize on rising residential rents and limited
still at all-time lows, with comparably tight
inventory, proved difficult to implement. For
vacancies in mature markets in AP.11 Record
instance, only 3% of New York City office stock is
construction pipelines have added new inventory,
viable for conversion.6 Finding an obsolete office
though not fast enough to keep up with demand. So,
building at an advantageous price, at a high
rents continue to rise. Rent growth averaged an
enough vacancy to facilitate remaining tenant
annual 10% increase globally, led by the United
buyout/relocation, and with the right floor plate to
States at 16%, Europe at 11%, and AP at 4%.12
convert into a residential building is proving
difficult to execute in the current market. However,
This has been largely driven by e-commerce growth
office buildings to life science conversions soared
and the need for space to facilitate online
to meet demand for lab space. While costly, lab
distribution networks. The e-commerce share of
and R&D conversions from offices increased by
retail sales (excluding autos and gasoline) climbed
49% in 2021 from the prior year.
steadily over the past 20 years, reaching over 20%
7
8
by the end of 2021.13
WHAT’S NEXT?
Hybrid work has staying power and many
WHAT’S NEXT?
employees now expect top-of-the-line office space
Forecasts suggest that e-commerce sales should
as a tradeoff for departing the comforts of work-
gain additional share of total retail sales over the
from-home. The difference between high- and
next decade, topping 33% by 2031.14 Though
low-quality assets perhaps has never been wider.
e-commerce growth should still be a driver for the
9
Class A office buildings, on average, are selling for
sector over the long term, the slowing pace of
US$50 more per square foot (15%) than
e-commerce penetration has caused some logistics
prepandemic, while Class B buildings increased by
operators to delay new warehouse openings.15
10
2023 commercial real estate outlook
Globally, the anticipated continued high cost of
significantly.23 However, some fundamental forces
land and construction, as well as expected zoning
can help explain why pricing appreciation may
limitations for centrally located facilities should
endure, albeit slower than the recent torrid pace:
heighten the competition for existing space.
better homeowner financial stability and lasting
Further, continued supply chain disruptions and
supply constraints.
elevated inflation could impact the tenants’ bottom
lines and could influence their location strategies.
Compared to the rampant development of
subprime markets prior to 2008, tighter credit
standards today have built a stable foundation for
Housing
longer-term fixed-rate mortgages. Global markets
such as Germany and the United Kingdom have
HOW DID WE GET HERE?
also increasingly adopted this mortgage structure.24
The past year has recently seen record surges in
housing prices globally, boosted by changes in
And prices continue to be propped up as the
household living and working patterns, supply and
housing market remains woefully undersupplied,
material shortages, and pandemic-era government
exacerbated by pandemic-related construction
incentives. Global home prices across 56 countries
delays, shortages of materials and labor, and
worldwide increased by as much as 10% through
supply chain bottlenecks.25
March 2022,16 with home prices in major cities
growing by up to 12%, the fastest pace since 2004.17
In the United States, housing specialists don’t
Pricing growth in North America (19%) has
foresee average global home prices falling over the
outpaced Europe (12%) and AP (6%). However,
coming year, but pockets in the most overvalued
increasing mortgage rates and limited supply have
regions could experience corrections, especially if
begun to slow home sales in the United States,
local governments intervene.26 Deleveraging
which declined by 17% from January through May.19
initiatives by the government in China Mainland,
Price increases have also drawn numerous
have slumped.27 Deloitte’s baseline economic
18
for instance, have slowed investment and prices
investors into the residential rental sector. In the
forecast still expects house prices to rise faster than
United States, 18% of single-family homes sold in
inflation,28 at least in the United States. Since
the fourth quarter of 2021 were purchased by an
affordability remains a concern, many prospective
institutional investor, the largest institutional
US consumers will likely seek longer rental leases.
share in more than 20 years.20 European
residential investment has surged lately as well,
Retail
topping 30% of total real estate deal flows through
the first quarter of 2022.21 Many investors have
also increasingly adopted the “build-to-rent”
HOW DID WE GET HERE?
model—acquiring land and developing
In early 2022, operational challenges due to supply
communities of single-family rental homes from
chain issues and waning consumer sentiment
the ground up and managing them like new
softened the previously upbeat outlook for the
multifamily buildings.
global retail sector. Supply chain disruptions are
22
impacting transportation and manufacturing costs
WHAT’S NEXT?
and inflation is putting a squeeze on consumers’
Economists point to elevated vulnerabilities in
disposable income. According to Deloitte’s Global
global housing markets and a risk of a sudden price
State of the Consumer Tracker, 77% of the
reversal if financial conditions were to tighten
consumers surveyed are concerned about inflation,
11
a notable increase from 68% at the end of last year.
the year. Global occupancy levels exceeded
And only 45% of consumers expect to spend more
prepandemic levels in April and May of 2022. In
on goods than services, down from 48% in
late July, hotel occupancy in the United States
December 2021.
topped 72%, up 1% from last year, but still off
29
7 percentage points from 2019. Average daily room
Nevertheless, retail leasing returned in many
rates have paced to the third highest level on
mature global retail markets; openings outpaced
record to US$157. Outside of the United States,
closings by nearly 100 million square feet last
occupancies were 68%, still down from a
year.30 Retailers pursuing domestic consumer
comparable week in 2019 of around 75%. However,
growth have forged ahead with new stores and
the daily average rate for room bookings is up 17%
concepts.31 Brands such as Nike have launched
from 2019 to US$144.37
innovative, tech-driven concepts in AP to enhance
the retail experience.32
However, regional recoveries have varied. In
WHAT’S NEXT?
Miami and the Maldives, have recovered more
Tourism and travel are expected to be important
quickly than those reliant on business travel.38
for retail destinations across the globe, as they are
Although, as of June, many people became more
general, areas dependent on leisure travel, such as
still well below prepandemic levels. JLL forecasts
comfortable traveling—54% of Deloitte’s consumer
that tourism should return to those levels by 2023
tracker survey respondents feel safe flying and 66%
to 2024, offering some relief to dips in sales and
of respondents feel safe staying in a hotel, both
demand resulting from the pandemic.33
record highs since data tracking began in April
2020. Near-term business travel expectations also
Retailer spending on artificial intelligence (AI) is
increased with 64% of consumer survey
expected to grow by as much as US$20 billion by
respondents indicating they are likely to travel for
2026, and more retailers will likely use first-party
business within the next 3 months, the highest
transaction data to support sales momentum and
points since coverage began.39
customer experience.34 Retailers in AP that have
incorporated AI are seeing an up to 19%
WHAT’S NEXT?
improvement in customer engagement.35 A South
Consumer spending is expected to shift from goods
Korean convenience operator has added digital
to services, which would benefit this sector.
imaging and cloud point of sale (POS) software
Average room rates are expected to rise as
into their first fully automated smart stores.36
operators pass on inflating costs of operation to
their guests.40
Hotel
Lodging is uniquely positioned as one of the most
elastic sectors in the global real estate industry;
HOW DID WE GET HERE?
owners can adjust room prices in real time.41
The global lodging sector proved resilient in 2021
However, with rising room rates come guests’ rising
and so far through 2022. Increasing access to
service expectations. Owners and operators should
vaccinations, government stimulus money, and
be aware of shifting patterns in consumer travel—
general lockdown fatigue are generally credited
domestic or international, leisure or business—to
with boosting leisure travel in the second half of
navigate operational hurdles more efficiently.
12
2023 commercial real estate outlook
Alternatives: Data
centers, senior housing,
and life sciences
LIFE SCIENCES
Demand for life sciences space has intensified as
the development of vaccines and other COVID-19
therapies continues. Unlike traditional offices, lab
space is insulated from remote work trends since
DATA CENTERS
lab work must be done on premises. This recent
The mass adoption of digital technologies, coupled
boom indicates a shift in an industry previously
with the continued surge in demand for cloud
dominated by big pharmaceutical manufacturers.46
computing and storage, has driven record demand
Small entrepreneurial biotech companies, backed
for data centers. Hyperscalers—the largest data
by record venture capital, US$86.3 billion in 2021
center occupiers, primarily cloud services firms—
exceeding the combined 2016–2019 total, have
comprise most of that absorption.42 Despite
been responsible for numerous breakthroughs and
demand growth, data centers are not insulated
can be much nimbler when choosing locations than
from supply chain issues. Disruptions in the
large corporations can be.47
availability of semiconductors, a primary
component in data center infrastructure, along
with building construction equipment, could
impact operations and new development through
2022 and beyond.43 Strained supply and increasing
cost of land will likely put upward pressure on
rents. Survey respondents from AP indicated that
they believe digital economy properties provide the
best risk-adjusted opportunities compared to all
other property types over the next 12 to 18 months.
SENIOR HOUSING
The pandemic put the senior living sector under
extreme operational pressure, though investment
increased considerably as vaccines and therapies
became available. Price-per-bed increased 22% in
2021, and investment volume increased 61% by
year-end 2021.44 The outlook for this sector is
considered optimistic, largely due to an aging
global population as baby boomers continue to age
into this demographic. In the United States alone,
nearly 1.2 million people will enter senior living
age every year.45
13
RECOMMENDATIONS
Over the next few years, amid high uncertainty, many CRE owners and investors will likely need to
focus on strategic, asset-level decision-making. Uneven trajectories could force the industry in new
directions. A few trends that industry leaders should consider as they construct, consolidate, or
reallocate their portfolios:
• Tenant expectations and how many use spaces have evolved dramatically. With increasing
rent levels, occupiers are now typically looking for high-quality, efficient spaces to match skyhigh premiums. To better attract and retain tenants, owners and investors can enhance tenant
experiences by leveraging data analytics, and more specifically, special intelligence tools, which can
allow tenants to personalize their spaces to maximize productivity.48
• Most respondents continue to have well-founded concerns about supply chain disruptions and
construction costs due to construction delays and soaring land and materials costs. To address
supply constraints, CRE leaders should focus on creative property-use conversions and targeted
location strategies that tap into shifting demographic gateways.
• Sources of funding may pull back in the near term as firms reassess their risk tolerance as they face
volatile market conditions. Real estate owners and investors seeking capital should consider creative,
alternative sources, such as looking outside of native jurisdictions for partnerships or approaching
debt funds. Survey respondents’ primary concerns for property fundamentals in the coming months
surround sources of funding and the corresponding impact on overall transaction activity. According
to survey results, 40% of real estate CFOs expect capital availability to worsen in the coming 12 to 18
months, closely followed by 38% who expect worsening cost of capital (figure 3).
14
2023 commercial real estate outlook
The regulatory environment
is heating up
Understanding and
complying with ESG
disclosure requirements
negatively impacted by climate change, and about
half said their operations have been affected (for
example, disruption to business models and supply
networks worldwide). Research also indicates
A recent Deloitte survey showed that approximately
capital sources are becoming more discerning
two-thirds of executives say their companies are
about where they invest; they are increasingly
very concerned about climate change and 79% of
focused on funding sustainable investments.
respondents believe the world is at a tipping point,
Deloitte research finds that ESG-mandated assets
getting ready to act—a jump from the 59% who felt
are projected to make up half of all professionally
this way in a similar Deloitte survey from early
managed assets globally by 2024 at nearly US$80
2021.49 Indeed, almost all respondents (97%)
trillion, compared to US$71 trillion of non-ESG
indicated their companies have already been
mandated assets.50
Meanwhile, regulators around the world are
enacting ESG disclosure rules and expecting
transparency on ESG topics (see sidebar,
“Regulatory actions that could impact the industry
in 2023”). CRE companies will need to respond to
both regulators and investors, who also are raising
expectations regarding ESG disclosure. For
example, outside of the financial statements, an
SEC registrant would need to provide quantitative
and qualitative disclosures in a separately
captioned “climate-related disclosure” section that
would immediately precede management’s
discussion and analysis. These disclosures would
address Scope 1, Scope 2, and Scope 3 greenhouse
gas (GHG) emissions; climate-related risks and
opportunities; climate risk management processes;
climate targets and goals; and governance and
oversight of climate-related risks.51
15
REGULATORY ACTIONS THAT COULD IMPACT THE INDUSTRY IN 2023
On March 21, 2022, the US Securities and Exchange Commission (SEC) issued a proposed rule that
would require SEC registrants to provide disclosures in registration statements and annual reports
(e.g., Form 10-K). These would include climate-related financial impact and expenditure metrics
as well as a discussion of climate-related impacts on financial estimates and assumptions. Such
disclosures would also be subject to management’s internal control over financial reporting (ICFR)
and an external audit.52
The European Financial Reporting Advisory Group (EFRAG) released 13 exposure drafts (EDs) of
proposed European Sustainability Reporting Standards (ESRS) in accordance with the Corporate
Sustainability Reporting Directive (CSRD) proposed by the European Commission (EC). The CSRD
would expand the existing reporting requirements of the Non-Financial Reporting Directive
(NFRD) to include more extensive climate and sustainability considerations.53 At the same time, the
International Sustainability Standards Board (ISSB) is moving forward on its mission to deliver a
comprehensive global baseline of sustainability-related disclosure standards; it released two EDs of
proposed standards on general sustainability and climate reporting. The proposed guidance in the
ISSB’s EDs is expected to be mandated under jurisdictional disclosure requirements such as those
of the United Kingdom, which recently indicated it would require companies under its jurisdiction to
comply with ISSB standards.
The challenge to meet
expectations
immediately implement changes to meet
requirements (figure 5A). Further, only 7% of
respondents currently use ESG data and analytics
Our survey shows managing ESG expectations is
in their investment strategy decisions, though most
fairly new for this industry. Only 12% of
who have identified the risks of noncompliance and
respondents have been planning for major
opportunities for full adoption plan to do so within
regulatory action and say they’re prepared to
three years (figure 5B).
FIGURE 5A
ESG compliance readiness: Most CRE organizations are in early stages
How prepared is your company to comply with regulatory action in your native jurisdiction?
We are not aware of any recently passed or pending regulatory
action that would impact our business strategy
1.1%
We do not believe that recent or pending regulatory action will have a
noticeable impact on our operations and have no changes planned
17.1%
We are aware of recent and pending regulatory action, but do not
currently have the data or capabilities required to comply
24.2%
We are aware of recent and pending regulatory action, but are awaiting
further guidance or industry-driven responses before proceeding
We have been planning for major regulatory action and are prepared
to immediately implement change to meet requirements
45.3%
12.2%
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
16
2023 commercial real estate outlook
FIGURE 5B
“When do you plan to incorporate ESG data and analytics into investment strategy
decisions at your institution?”
Large (>US$20B AUM)
Mid (US$5–US$20B AUM)
Small (< US$5B AUM)
Organization size by assets under management (AUM)
40.2%
38.7% 39.0%
32.1% 31.7%
28.6%
28.6%
19.6%
13.4%
10.7%
7.0%
3.0%
6.1%
0.0%
Currently incorporated
in all decisions
Within a year
Over the next
two years
Over the next
three years
1.2%
In more than
three years
Note: Respondents to this question include only those who said that they were aware of ESG regulatory actions or have
already been planning for these actions.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
Real estate companies will need to learn about
• In some markets, much of the existing real
potential regulatory changes and adopt practices to
estate is not ESG-friendly. The Deloitte 2022
comply with reporting requirements. Since more
London Office Crane Survey reveals that 80% of
than 45% of survey respondents say they are awaiting
London offices will be unlettable by 2030 due to
guidance or an industry-driven response, industry
missing ESG requirements mandated in the UK
associations can play a critical role by providing
government’s energy transition plan.54
observations, information, and recommendations.
• Alignment on metrics can be challenging. One
Real estate leaders should also be sure to focus on
of the most common ESG targets is net-zero.
more than just the “E” in ESG—social and
However, it can be unclear whether this
governance issues are also important. Near-term
includes only landlord-controlled emissions or
those controlled by both tenant and landlord.
ESG challenges can include:
Consistency will be important to making these
• Cost considerations to retrofit existing building
disclosures meaningful to users.
stock. Investors should ensure these
investments are not only financially viable, but
• Social and governance considerations.
also have net efficiency and emissions benefits.
Attracting diverse candidates to the industry
Incremental costs should be analyzed without
and addressing larger societal problems, such
factoring in green incentives and green
as residential housing affordability, have
financing cost savings.
become stakeholder expectations in many
17
regions. In the United States, new SEC rules on
RECOMMENDATIONS
board diversity and human capital management
Based on how quickly ESG initiatives and
disclosures are being developed and deployed,
CRE leaders are encouraged to:
are anticipated in late 2022.
• Take initiatives and proposals seriously when
planning strategy, allocation of resources, and
investment decisions. Consider how to create
value out of ESG regulations. Start performing
relevancy assessments, collect ESG data, and
consider setting targets—in that order. Before
allocating resources to gather data, prioritize
information that will likely be most relevant to
your firm. You need to know what the data tells
you before setting lofty goals that may or may
not be attainable.
Addressing trends
in tax regulation
WHAT’S ON THE TABLE?
With tax legislation around the globe in flux,
many respondents cited increased tax rates,
followed by changes to transfer pricing/profitsharing and the automation of enforcement
(figure 6) as key concerns. More than one-third
of respondents across all regions were
• Evaluate the quality of your data. Baseline
data quality is important. But you should
also look at occupancy rates, usage times,
and space definitions to ensure reliable
and valid like-for-like comparisons and
appropriate benchmarking.
concerned about each of the issues we
asked about:
These changes are explored in greater
detail below:
• Aim to avoid stranded assets. Resources or
equipment that are no longer valuable due to
broader shifts impacting the industry.55 Include
multiple time horizons and scenarios in risk
assessment, not just short-term returns.
• Increases in tax rates. Highly dependent on
the political party in power in legislative bodies,
tax rate changes can happen frequently. Pay
attention to key elections and understand the
impact outcomes may have on tax rates.
• Explore sectoral data when setting targets.
These include regional considerations,
climate conditions, and developments in local
energy systems.
• Global minimum tax. The Organisation for
Economic Co-operation and Development
(OECD) has agreed to a 15% global minimum
• Act on existing assets. New construction alone,
even if net-zero-aligned, will likely not be able
to offset the emissions from existing buildings.
Take a long-term approach in retrofitting assets
and consider focusing on “refurbish and reuse”
instead of “demolish and rebuild.” Bringing any
existing building up to ESG standards is typically
a lighter renovation and often offers immediate
upside to both owners and tenants.
• Engage with tenants to find shared values.
Think about the broader stakeholder group
when developing your ESG strategy, including
investors, customers, suppliers, and employees.
18
tax framework, known as “Pillar 2,” but each
member jurisdiction is responsible for
implementation. Global intangible low-taxed
income (GILTI) is the US version of global
minimum tax at 10% and does not align with
the OECD framework. Legislation has been
introduced in the United States to increase the
GILTI rate to 15% to align with the OECD
framework; however, that bill has not been
passed.56 The Pillar 2 rules contain an exclusion
for certain investment entities, including REITs
that are the parent of a group or that are 95%
held by an investment entity. This exclusion
2023 commercial real estate outlook
FIGURE 6
“Which of the following potential tax changes is of most concern to your
organization?”
Top concerns, by region
North America
your
Europe
Transfer pricing/profit-sharing
45%
Automation of enforcement
44%
Increase in tax rates
43%
Increase in tax rates
41%
Elimination of or reduction in
tax allowances/benefits
(depreciation, interest, etc.)
41%
Elimination of or reduction
in tax allowances/benefits
(depreciation, interest, etc.)
38%
Automation of enforcement
36%
Increased transparency and
reporting
37%
Increased transparency and
reporting
36%
Transfer pricing/profit-sharing
37%
Global minimum tax
31%
Global minimum tax
34%
Asia/Pacific
Increase in tax rates
48%
Increased transparency
and reporting
47%
Automation of
enforcement
45%
Global minimum tax
43%
Transfer pricing/profit-sharing
43%
Elimination of or reduction
in tax allowances/benefits
(depreciation, interest, etc.)
39%
Note: Respondents could make multiple selections.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
19
may not apply to a REIT’s subsidiaries unless
– Carried interest rate as ordinary income in
certain ownership thresholds are satisfied, and
the United States. In the past, carried
the subsidiary activities are considered ancillary
interest has been taxed as capital gains, not
to passive rental real estate. Uncertainty exists
ordinary income. This topic is not new, and
around the application of these provisions.
it was most recently up for debate within
the Inflation Reduction Act of 2022, but
• Global transfer pricing and profit-sharing. An
was removed prior to passage by the Senate.
OECD proposal for increasing taxing rights of
market jurisdictions is likely to impact mostly
– The UK government’s proposal to make
very large multinational companies, which are
sovereign wealth funds pay corporation tax
required to pay tax in every jurisdiction in
on properties, similar to how other foreign
which they operate. Now slated for 2024, the
institutional investors are taxed in UK
proposal would allocate certain multinational
real estate.57
profits to countries where their customers
are located.
– Elimination of section 1031 like-kind
exchanges. This US benefit was repealed for
non–real estate assets and additional
• Elimination or reduction in tax allowances/
benefits. Jurisdictions continue to search for
limitations may be introduced. Legislative
sources of revenue to fund investments,
proposals may involve a full elimination for
including infrastructure and COVID-19
real estate assets or a significant reduction
assistance. This need for funding is why tax
to the value of real estate that may be
allowances such as depreciation and interest
exchanged tax-free. While full repeal is not
expense deductions are expected to continue to
currently in any legislative package and
be key areas of focus. Benefits particularly
thus not likely, changes to this benefit
relevant for real estate owners that may be
would significantly impact the US real
removed include:
estate industry and should continue to
be monitored.
RECOMMENDATIONS
Looking ahead to 2023, CRE leaders should aim to:
• Prepare for increased transparency into reporting and increased data requirements for automated
regulatory enforcement in certain jurisdictions.
• Consider tax when planning for ESG initiatives. While much of the potential change to the global
tax landscape could result in increased taxes, increased tax benefits are expected for ESG
initiatives. In the United States, the Inflation Reduction Act of 2022 allows REITs and other nontax-exempt entities to sell tax credits and exclude amounts received from such sale from gross
income for tax purposes. This law allows REITs, which have largely not been able to benefit from
ESG credits under existing laws since they rarely pay federal tax, to benefit from qualifying ESG
activities. In Europe, real estate companies implementing ESG initiatives can look into various
credits and incentives. For example, the European Commission has enhanced depreciation
allowances for companies that invest in energy-efficient equipment.58
20
2023 commercial real estate outlook
Meeting the growing
expectations of the
talent landscape
Attracting and retaining talent
through the great “reshuffle”
Workplace redesign and flexibility are important as
well. Businesses are trying to create office spaces
that welcome employees back to the office. Some
The talent market continues to be competitive in
are adding amenities such as lounge spaces, coffee
many markets. Employees are cashing in on low
shops, large patio spaces, rooftop decks, onsite
unemployment rates, a rising cost environment,
gyms, and even golf simulators, hoping employees
and more jobs offering remote working options.
will be lured to come into the office for high-impact
When hiring or retaining employees, CRE
meetings and team discussions while completing
companies should consider the desire to work
their individual work remotely. Real estate owners
remotely as a long-term talent trend.
Hines and Ivanhoé Cambridge recently
When looking forward to the next 12 to 18 months,
Class A office tower in downtown Houston. They’ve
68% of respondents in our survey expect their
also set up private gardens and outdoor terraces.59
incorporated these experiential amenities into their
company’s overall headcount to increase or stay
consistent. However, nearly 50% of respondents
Employees continue to seek mentorship and
from firms larger than US$20 billion assets under
learning opportunities within the industry. There
management (AUM) say their firms need to lower
are many local groups trying to tap into the young
headcount slightly in the coming year. Meanwhile,
pool of employees and train them to be the next
44% of respondents from smaller firms (less than
generation of leaders within real estate. The Urban
US$5 billion AUM) say they plan to increase
Land Institute, for example, offers special
headcount slightly. Understanding employee
programming for real estate professionals of
expectations will be important in managing
different age groups such as the Young Leaders
recruitment and retention. More than 40% of
Group for those under 35,60 and the NEXT
respondents expect to bolster DE&I initiatives, add
initiative for mid-career professionals.61 Employers
additional health and wellness benefits, and offer
who help employees participate in real estate–
regular remote working options. But only about a
specific learning programs often find it becomes a
third (or fewer) are prioritizing measures such as
key part of the company’s talent experience and
workplace redesigns, implementing flexible
instrumental in employees’ personal and
schedules, and offering more career growth and
professional growth.62
skill development (figure 7). These are areas CRE
firms should continue pursuing to help enhance
the talent experience.
21
FIGURE 7
“Which of the actions is your company most likely to take over the next 12-18
months to attract and retain talent?”
Anticipated talent-related actions, by region
12–18 month time frame
North America
Europe
Increased focus on diversity,
equity and inclusion initiatives
44%
Increased focus on diversity,
equity and inclusion intiatives
Regular remote
work offerings
43%
Accelerated career growth
opportunities
40%
Workplace redesign
41%
Accelerate upskilling/
re-skilling initiatives
36%
Flexible workday schedules
41%
Workplace redesign
35%
Increased workplace
automation
39%
Additional employee health
and wellness benefits
35%
Recognition and Rewards
37%
35%
Additional employee health
and wellness benefits
Commit to climate change
reduction initiatives
35%
34%
Accelerated career growth
opportunities
Regular remote work
offerings
33%
Increased workplace
automation
34%
42%
Accelerate upskilling/re-skilling
initiatives
29%
Flexible workday
schedules
29%
Commit to climate change
reduction initiatives
27%
Recognition and
rewards
28%
Asia/Pacific
Recognition and rewards
45%
Accelerated career growth
opportunities
43%
Increased workplace
automation
41%
Additional employee health
and wellness benefits
40%
Flexible workday schedules
39%
Commit to climate change
reduction initiatives
39%
Regular remote work
offerings
38%
Increased focus on diversity,
equity and inclusion initiatives
37%
Accelerate upskilling/
re-skilling initiatives
34%
Workplace redesign
32%
Note: Respondents could make multiple selections.
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
22
2023 commercial real estate outlook
The staying power of
relocations and the emergence
of “super commuters”
still indicated they expect to be in the office half of
the time. This policy has led to a boost in morale:
nearly 300 employees have relocated, citing moving
closer to family, seeing the world, and international
The pandemic—and its resulting remote workforce—
opportunities as primary benefits.66
also spurred population shifts. Nearly 5 million
Americans relocated63 and more Australians moved
A new workforce population has emerged since the
out of major cities than at any point in the last two
pandemic: “Super commuters.” These are people
decades.64 Such shifts are an important part of the
who permanently relocated during COVID-19
hybrid work model, and firms should consider that
quarantines in search of space or to be closer to
many employees will likely expect work-from-home
loved ones. Many believed they would continue to
accommodations for the long term. Australian
work from home, but now, some employers want
software company Atlassian has created a “Team
them back in the office, at least with some
Anywhere” policy that allows their 8,000+ staff to
semiregularity. So, these super commuters willingly
work from any location in a country in which
commute at least 90 minutes in one direction, as
Atlassian is based.65 The company only requires
they’ve become locked into their new locations due
office attendance four times a year, but staff have
to affordability or lifestyle preferences.67
RECOMMENDATIONS
• Empower people at all levels, regardless of seniority and job function. Employees increasingly
want to know how their work contributes to company goals. Reverse-mentoring initiatives are a
good way to incorporate the opinions of more junior members alongside senior leaders. Firms
should provide opportunities for career development and upskilling by supplementing daily
responsibilities with projects outside of employees’ normal scopes.
• Foster inclusivity with those who work remotely. Take steps to ensure everyone has equal
opportunities to form connections, especially so that those who spend less time in the office don’t
feel “punished.” Strategies include intentional in-person meetings, hybrid working team training
sessions, equitable promotion rates for remote workers, and encouraging manager one-on-ones.68
23
Embracing technology
for greater efficiency and
new opportunities
S
OME SURVEY RESPONDENTS foresee a
year’s outlook mentioned the potential for some
reduction in technology budgets in the near
companies to move ahead of the pack based on
term, given overall economic concerns,
their technology plans. Given 2023’s more
including inflation, labor costs, and ongoing supply
uncertain environment, this separation of leaders
chain uncertainties. Many see some level of
and laggards may accelerate and also perhaps
technology cost-cutting at their companies, and less
concentrate into a smaller number of companies.
than half expect to see any increase at all, especially
in Europe (figure 8). This is in marked contrast to
The top areas of technology investment are to drive
last year’s survey results, where only 7% anticipated
revenue through fundraising and customer
spending cuts and two-thirds expected their
relationship management, and property operations
companies to increase spending going forward.
management, according to survey respondents.
Regarding property operations, many firms are
But 17% of respondents say their companies plan
working to integrate sources of IoT (Internet of
to increase their tech budgets by 5% or more. Last
Things) data to control major building systems
FIGURE 8
More companies plan to cut tech spending in 2023 vs. 2022
Expected changes in budgets allocated to technology
Decrease
Flat
Increase
48%
41%
22%
27%
25%
North America
37%
Europe
42%
27%
31%
Asia/Pacific
Source: The Deloitte Center for Financial Services 2023 Real Estate Outlook Survey.
Deloitte Insights | deloitte.com/insights
24
2023 commercial real estate outlook
more precisely, improving energy and resource
proptechs can bring, but only about a quarter feel
efficiency while also improving tenant comfort. A
that way in Europe; and firms with less than US$5
recent study has shown that low ventilation and
billion in AUM increasingly targeted back-office
poor air quality in offices can negatively affect
functions compared to larger firms. Over 43% of
cognitive function and impair productivity more
respondents identify process automation as their
than previously understood.69 Smart building
top target capability for proptechs, followed by 35%
development is a big part of this trend, but it is still
who look for marketplace data and analytics.
in the early stages globally. Only 9% of our
Property visualization through augmented and
respondents’ total portfolios could be considered
virtual reality (AR/VR) was also near the top of the
“smart” today, but that is projected to almost
list, at 33%.
double to nearly 15% in five years. Analytics and
data management could be key enablers here:
More types of proptechs are finding their way into
Avison Young has found that, by investing in tech
a variety of real estate applications. One
platform consolidation and master data
noteworthy example is in the emergence of
management, their analysts can spend most of
“ConstructionTech” companies. For example,
their time providing insight instead of hunting for
BeamUP and Versatile are using AI to enhance
the right data.70
building design, construction, and management.72
Regulatory proposals on climate disclosures have
Operating efficiencies and
the application of proptechs
also stimulated interest in climate-related
proptechs as well. Firms such as Brookfield and JP
Morgan Chase are leveraging providers to help
Many of our respondents seemed interested in
manage energy usage and carbon in the properties
either acquisition or partnership activities in the
they occupy in anticipation of potentially increased
coming year. Additionally, respondents from real
disclosure requirements and to meeting ESG and
estate firms of all sizes pointed to increasing
sustainability goals.73
outsourcing capabilities to optimize operational
capacities. Of particular interest are back-office
Looking to the future
functions, where risk management and internal
audit, property management, and tax accounting
and reporting were most often cited by survey
Smart contracts are also gaining momentum in real
respondents. Portfolio management and CRE
estate. More than half of our respondents reported
development were also cited as candidates for
being in pilot, early-stage implementation, or
outsourcing by respondents in large- and mid-
production. These efforts may be linked to early-
sized companies.
stage exploration of the metaverse, where smart
contracts serve as the foundation of all virtual real
Investor interest in real estate–focused startup
estate transactions.74 And despite the recent
companies, or “proptechs,” rebounded in 2021
volatility in the cryptocurrency markets, a recent
after a significant decline in 2020, according to the
survey suggests there is still strong interest in
Deloitte Center for Financial Services’ analysis of
crypto for payments.75 Our survey respondents
Venture Scanner data. Indeed, 2021 saw a new
cited this as an area of interest as well. Recent
high, with more than US$24 billion invested
deployments include a Miami developer’s plan to
globally in proptechs.71 But proptech enthusiasm
accept crypto for preconstruction deposits for its
varies by region and company size: Nearly half of
Cipriani Residences development,76 and
respondents in AP and North America see benefits
Jamestown announcing that it will accept rent
25
payments through cryptocurrencies for their
companies are researching tokenization, and
properties in the United States with plans to
almost half report being either in pilot or the early
expand to Europe. According to a company
stages of implementation.
spokesperson, Jamestown’s program does not
expose them, or their investors, to cryptocurrency
REAL ESTATE AND THE METAVERSE
volatility, as the firm works with an exchange agent
The metaverse has been at the leading edge of the
to facilitate the conversion of cryptocurrency to
hype cycle for several months now. The promise of
cash for payment of rent.
operating in digital worlds has not escaped the
77
notice of the financial services industry; several
The confluence of digital assets has led to some
banks and insurance companies have opened
experimentation with the conversion of real assets
digital branches in the metaverse. Indeed, in the
to digital tokens, such as the Bahnhofstrasse
largest single metaverse entity, more than US$350
building in Zurich,78 and Britain’s Greenwich
million in virtual property transactions were made
Peninsula project owned by Hong Kong SAR’s
in 2021 alone.81 Our survey respondents are
Henry Cheng.79 While these proofs of concept
dipping their toes into these digital waters: While
demonstrated the art of the possible in real estate
21% expressed no interest in anything metaverse-
tokenization, the combination of recent disruption
related, at 35%, the share of those that are
in cryptocurrency markets along with regulatory
“researching” further capabilities exceeds any other
uncertainty may have kept a lid on the growth of
identified emerging technology.
real estate tokenization. For example, US
regulators have taken divergent views on how
While the notion of virtual real estate is interesting
digital assets should be treated: as currencies,
from a financial point of view, perhaps the more
commodities, securities, or taxable property.80
compelling use case for the metaverse in the near
Nevertheless, the promise of tokenization—more
and to gather community feedback. Speaking of
efficient processing and the ability to tap into a
design, with the expansion of virtual work, the
large retail investor base—suggests that real estate
potential for metaverse-based conference rooms
leaders should keep an eye on this developing
could have longer-term impacts on the design of
trend. Over a quarter of respondents say their
office and other properties.82
term is as an augmented form of AR/VR for design
RECOMMENDATIONS
• Consider the benefits that external service providers and proptechs can provide to existing
operations. Leveraging a third party to cover back-office functions could allow CRE firms to spend
more time enhancing core services. Innovative technology partners can also differentiate frontline
offerings from competitors.
• Technology is not a place where the real estate industry should be cutting back on spending. Real
estate firms with the flexibility and risk appetite within the current environment can get ahead by
exploring how technology can unlock potential and achieve better efficiencies in the long term.
• Emerging technologies, such as smart contracts, tokenization, and the metaverse, are being
explored by more than 80% of respondent firms. More than 50% of respondents say their firms
are committing hard dollars to piloting, early implementation, or in-production initiatives to bring
these capabilities to life. Firms should not dismiss these technologies as fads. Commit efforts to
investigate how these technologies can complement and enhance your existing services.
26
2023 commercial real estate outlook
The winding road ahead
E
CONOMIC AND POLITICAL uncertainty have
made the path forward murkier. Following a
pandemic-fueled course correction, the global
real estate industry faces transformational shifts in
how buildings are used, valued, and transacted.
And frequent shifts in the global economy could
impact the industry even more. Operating with a
“business-as-usual” approach should be long behind
us. Real estate firms should make informed,
innovative plans to meet the evolving needs of
investors, tenants, and regulators alike.
The road map will likely vary significantly based on
firm size, subsector, and location. Office owners in
Europe might face different realities than data
center investors in AP or logistics developers in
North America. Understanding and responding to
change is only part of the solution. CRE leaders
should also focus on smart implementation. They
can leverage an engaged and increasingly remote
workforce to help keep operations efficient and
effective. Leaders should also consider how
potential ESG disclosure regulations and changes
to tax policy could impact operations. They can
also explore unlocking additional value through
strategic partnerships and enhanced data
capabilities. Actions like these may seem like bold
moves now, but they could give some firms an edge
when so many others could be consolidating or
cutting back.
27
Endnotes
1.
World Bank, Global Economic Prospects (Washington, DC: World Bank, 2022).
2.
Daniel Bachman, United States economic forecast Q2 2022, Deloitte Insights, June 16, 2022.
3.
Deloitte 2022 real estate outlook survey.
4.
Kastle Systems, “Back to Work Barometer,” accessed August 3, 2022.
5.
JLL, “Momentum dips as rising headwinds inspire caution,” August 2022.
6.
Erik Sherman, “Office-to-apartment conversions? Some say it’s just a fad, and a small on at that,” GlobeSt, April
14, 2022.
7.
Taylor Stucky and Ian Anderson, “Despite the cost, construction of life sciences properties brings strong
returns,” CBRE, April 21, 2022.
8.
Ibid.
9.
JLL, “Why companies are flocking to the newest offices,” February 9, 2022.
10. Lynn Pollack, “The numbers behind the flight to quality office assets,” GlobeSt, March 21, 2022.
11. JLL, “Vacancy remains tight despite record high supply pipelines,” August 2022.
12. Ibid.
13. Ibrahiim Bayaan, “Urban logistics and rental growth: Evidence from building level data,” CBRE, May 18, 2022.
14. Ibid.
15. Jack Rogers, “Warehouses on hold, projects canceled, Amazon buys more land,” GlobeSt, June 29, 2022.
16. Kate Everett-Allen, “House prices register double-digit price growth but for how long?,” Knight Frank Research,
June 6, 2022.
17. Everett-Allen, “House prices in global cities rising at their fastest rate since Q3 2004,” Knight Frank Research,
June 6, 2022.
18. Ibid.
19. National Association of Realtors, retrieved from FRED, Federal Reserve Bank of St. Louis, accessed July 12, 2022.
20. Nicholas Rizzi, “Nearly one in five US homes sold in Q4 2021 bought by institutional investors,” Commercial
Observer, February 16, 2022.
21. Paul Stewart, “European real estate: The build-to-rent opportunity,” Barings, March 2022.
22. Will Parker, “Built-to-rent suburbs are poised to spread across the US,” Wall Street Journal, June 7, 2021.
23. International Monetary Fund, Global financial stability report, October 2021.
24. Economist, “How long can the global housing boom last?,” January 8, 2022.
25. Ibid.
26. Lance Lambert, “The housing market is entering the ‘most significant contraction in activity since 2006,’ says
Freddie Mac economist,” Fortune, June 9, 2022.
28
2023 commercial real estate outlook
27. Bloomberg Businessweek, “China’s property slump is a bigger threat than its lockdowns,” June 23, 2022.
28. Bachman, United States economic forecast Q2 2022.
29. Deloitte State of the Consumer Tracker, accessed July 7, 2022.
30. CBRE, “Retailers will employ mix of offense and defense for 2022 expansions,” March 14, 2022.
31. JLL, “Major leasing markets remain active, although signs of caution emerge,” August 2022.
32. Sharon Soh and Himanshu Mehrotra, “Retail transformation – The future of retail in APAC,” Branding in Asia,
January 13, 2022.
33. JLL, “Major leasing markets remain active, although signs of caution emerge.”
34. Bobby Stephens and Simon Chafetz, “Early 2022 retail and consumer products industry trends,” Deloitte,
January 2022.
35. Soh and Mehrotra, “Retail transformation – The future of retail in APAC.”
36. Ibid.
37. STR, “Market recovery monitor - 16 July 2022,” July 22, 2022.
38. JLL, Global hotel investment outlook 2022, January 2022.
39. Deloitte State of the Consumer Tracker, accessed July 14, 2022.
40. JLL, Global hotel investment outlook 2022.
41. Bram Gallagher, “Are hotels a hedge against inflation in the modern era?,” CBRE, February 18, 2022.
42. Patricia Kirk, “Growing demand continues to drive new data center development,” Wealthmanagement.com,
March 7, 2022.
43. Ibid.
44. JLL, Seniors housing & care investor survey and trends outlook, March 31, 2022.
45. IREI, “Niche properties in the spotlight,” September 2021.
46. Peter Grant, “Demand for science lab buildings soars during Covid-19 pandemic,” Wall Street Journal, March 1,
2022.
47. David Smith and Sandy Romero, 2022 Q1 Life sciences update, Cushman & Wakefield, 2022.
48. Marco Macagnano and Saurabh Mahajan, “Digital real estate in 2022: How to succeed in a world of disruption,”
Deloitte, June 2022.
49. Jennifer Steinmann, 2022 Deloitte CxO sustainability report, Deloitte, 2022.
50. Tania Lynn Taylor and Sean Collins, Ingraining sustainability in the next era of ESG investing, Deloitte Insights, April
5, 2022.
51. Emily Abraham et al., “Comprehensive analysis of the SEC’s proposed rule on climate disclosure requirements,”
Deloitte, March 29, 2022.
52. Ibid.
53. Gina Miani et al., “The disclosure heat is on: The move toward international standardization of sustainability
and climate reporting,” Deloitte, May 26, 2022.
29
54. Siobhan Godley, Michael Cracknell, and Nigel Shilton, “London Office Crane Survey,” Deloitte, Summer 2022.
55. Joel Makower, “The growing concern over stranded assets,” GreenBiz, September 10, 2019.
56. Jeff VanderWolk, “Global minimum taxation for large multinationals,” Bloomberg Tax, January 3, 2022.
57. Mary McDougall, “UK Treasury plans to levy more corporation tax from sovereign funds,” Financial Times, July 6,
2022.
58. European Commission, “Platform for Tax Good Governance,” June 2021.
59. REJournals, “Texas Tower signs five new office tenants, including Cheniere’s new 150,000-square-foot global
headquarters,” June 28, 2022.
60. Urban Land Institute Young Leaders Group
61. Urban Land Institute NEXT Initiative
62. Kate Heinz, “6 Reasons why employee development is key,” Built In, July 6, 2022.
63. Adam Ozimek, “The new geography of remote work,” Upwork, 2022.
64. Emilia Terzon, “COVID-19 has made a tree change more alluring – but that may not last,” ABC News, June 2021.
65. Cara Waters, “Four times a year in the office: Atlassian goes all in on WFH,” Sydney Morning Herald, April 29,
2021.
66. Jennifer Liu, “4 people on how their company’s switch to work-from-anywhere spurred them to move around
the world,” CNBC, April 17, 2022.
67. Ibid.
68. Michele Parmelee, Don’t want to lose your Gen Z and millennial talent? Here’s what you can do, Deloitte Insights,
May 18, 2022.
69. Harvard T.H. Chan School of Public Health, “Office air quality may affect employees’ cognition, productivity,”
press release, September 9, 2021.
70. Stephanie Overby, “12 tips for achieving IT agility in the digital era,” CIO, June 15, 2022.
71. Deloitte Fintech Dashboard, Venture Scanner, accessed June 20, 2022.
72. Kyle Wiggers, “AI-powered building design startup BeamUP emerges from stealth with $15m,” TechCrunch,
March 20, 2022.
73. Jack Rogers, “Brookfield uses blockchain accounting to verify ESG,” GlobeSt, May 5, 2022.
74. Alexis Montano, John E. Thomas, and Daniel G. Berick, “Real estate law may soon play a role in the metaverse:
What family offices need to know,” Squire Patton Boggs, June 9, 2022.
75. Will Canny, “Bank of America survey shows consumers aren’t done with crypto yet,” CoinDesk, June 13, 2022.
76. Peter Lane Taylor, “Crypto just became real estate’s hottest new thing. Here’s what that means for buyers,
sellers and developers,” Forbes, May 7, 2022.
77. Real Estate Weekly, “Jamestown partners with BitPay to accept cryptocurrency as rent payment,” April 27, 2022.
78. Lukas Hofer, “$135M Swiss property deal closed on the blockchain; just another day in the office,” ICO.li,
January 22, 2020.
79. Zinnia Lee, “Billionaire Henry Cheng ventures into Web3 with investment tokens for London real estate,” Forbes,
June 21, 2022.
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2023 commercial real estate outlook
80. Christina Mkrtchyan, “Tokenization of real estate: Revolutionizing real estate through digitalization and reduced
market barriers,” Business Law Digest, University of Southern California Gould School of Law, December 29,
2021.
81. Ibid.
82. Karen Zabarsky, “How the metaverse will design our cities,” Propmodo, April 4, 2022.
Acknowledgments
The authors wish to acknowledge Parul Bhargava, Somya Mishra, and Taylor Rihl for their extensive
contributions to the development of this report. We would also like to thank our colleagues Darin
Buelow, Renea Burns, Kaylyn Ciesielski, Trey Clark, Tony Cocuzzo, Karen Cronin, John D’Angelo,
Margaret Doyle, Nathan Florio, Siobhan Godley, Lize Griffiths, David Hagger, Lynn Kawaminami,
Philip Law, Marco Macagnano, Saurabh Mahajan, Michael Mueller, Robin Offutt, Adam
Regelbrugge, Christine Robinson, Brian Ruben, Nigel Shilton, Drew St.Amant, Alberto Valls, and
Michael Velten for their insights and guidance.
31
About the authors
Jeff Smith | jefsmith@deloitte.com
Jeff Smith is Deloitte’s National Real Estate leader with nearly 30 years of audit and accounting
experience. Throughout his career, Smith has worked with public and private owners, developers,
sponsors, managers, and lenders in nearly all sectors of the real estate and hospitality industries.
Kathy Feucht | kfeucht@deloitte.com
Kathy Feucht is Deloitte’s Global Real Estate sector leader and an audit partner with more than 20
years of experience. She serves as lead client service partner for both public and private clients in the
Chicago and Milwaukee marketplaces, with a focus in the real estate and hospitality sectors.
Sally Ann Flood | sflood@deloitte.com
Sally Ann Flood is the West Region Real Estate Audit leader and leads the Global Real Estate Audit
practice as part of Deloitte’s Global Financial Services Audit Executive team. She is the National Real
Estate Eminence leader working with our teams in delivering real estate sector eminence to the
marketplace. Her experience includes providing extensive services to a number of Deloitte’s large
clients with operations in the US and internationally. Her clients have included early stage companies,
private and public REITs, real estate investment advisors, proptechs, hotel operators, construction
companies and developers.
Tim Coy | ticoy@deloitte.com
Tim Coy is a research leader and subject matter specialist on commercial real estate at the Deloitte
Center for Financial Services. In his career, he has experience advising clients from across the
industry—REITs, investment managers, developers, brokers—on topics such as real estate market
fundamentals, data trends, and portfolio strategy.
32
2023 commercial real estate outlook
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Industry leadership
Jeff Smith
National Real Estate leader | Partner | Deloitte & Touche LLP
+1 617 437 2804 | jefsmith@deloitte.com
Jeff Smith is Deloitte’s National Real Estate leader with nearly 30 years of audit and accounting
experience. Throughout his career, Smith has worked with public and private owners, developers,
sponsors, managers, and lenders in nearly all sectors of the real estate and hospitality industries.
Kathy Feucht
Global Real Estate leader | Partner | Deloitte & Touche LLP
+1 414 977 2662 | kfeucht@deloitte.com
Kathy Feucht is Deloitte’s Global Real Estate sector leader and an audit partner with more than 20
years of experience. She serves as lead client service partner for both public and private clients in the
Chicago and Milwaukee marketplaces, with a focus in the real estate and hospitality sectors.
Deloitte Center for Financial Services
Jim Eckenrode
Managing director | The Deloitte Center for Financial Services | Deloitte Services LP
+1 617 585 4877 | jeckenrode@deloitte.com
Jim Eckenrode is managing director at the Deloitte Center for Financial Services, responsible for
developing and executing Deloitte’s research agenda, while providing insights to leading financial
institutions on business and technology strategy.
Tim Coy
Manager | The Deloitte Center for Financial Services | Deloitte Services LP
+1 332 323 4896 | ticoy@deloitte.com
Tim Coy is a research leader on commercial real estate at the Deloitte Center for Financial Services. He
is responsible for the development of market-leading insights and thought leadership initiatives in
support of Deloitte’s Real Estate Industry practice.
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