Northmarq’s latest report on the Build-to-Rent sector predicts uneven performance in 2023 due to increasing vacancy rates as deliveries outpace market absorption. The tight capital market is causing developers to focus on finishing existing projects while delaying new developments. However, the long-term outlook for the sector remains favorable as the labor market performs well and high single-family home prices deter potential first-time buyers. Renter demand is expected to support rent growth, despite a 35% premium on Build-to-Rent units compared to traditional apartments. Construction financing is becoming more challenging to obtain, particularly from regional banks, and investment activity has slowed. Phoenix leads the Build-to-Rent construction market with nearly 6,000 units in its pipeline.

Florida has become a prime destination for investors due to factors such as strong population growth, a tax-friendly environment, and a variety of investment options. The state’s commercial real estate attracts capital investments from both the US and global players, and its infrastructure, including ports and the Brightline high-speed train, has made it a crucial hub for trade. Additionally, South Florida has increasingly attracted technology companies and startups, while the restaurant and hospitality sectors have also experienced growth. Florida’s tax-friendly status and high rankings in areas such as innovation and job growth further contribute to its appeal for businesses and investors.

Kohlberg Kravis Roberts & Co. acquired a 1.3-million-square-foot industrial park, GO | 99, for $165 million, marking the largest industrial sale in 2023. Cushman & Wakefield facilitated the sale of a 599.5K-square-foot industrial building in Glendale for $81.7 million. Ivanhoe Electric purchased 5,975 acres for its Santa Cruz Copper Project for $34.3 million, while Christ Church Gilbert bought a church building and two commercial buildings for $24 million. Lincoln Property Company’s LPC Desert West and Goldman Sachs signed Tempur-Pedic to a full-building pre-lease at Buckeye85.

Atlanta is witnessing a decline in commercial real estate transactions due to elevated borrowing costs, resulting in an 80% YoY decrease in sales volume for multifamily and office properties in Q1. Prices are starting to moderate, with retail space seeing a 17% YoY decline. Despite the slowdown in lending activity, demand remains strong for retail, multifamily, and industrial properties, driven by Atlanta’s growth and limited supply.

The commercial real estate (CRE) market faces challenges due to high inflation and remote work, but Bank of America analysts believe these issues are manageable and do not pose a systemic risk to the U.S. economy. They expect loan modifications and extensions to become common, helping borrowers avoid higher costs or defaults. Property repurposing and the limited impact of the office sector’s woes on the overall CRE market also support a manageable outlook. Improved underwriting standards and increased equity provide a buffer against risk, leading to the assessment that CRE contagion risk for the broader economy is minimal and manageable.