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01 Dec2022

CORFAC Members Brace for Inflation Impacts, But Continue to Close Deals

As worries deepen about the impacts of inflation and rising interest rates, a majority of CORFAC International’s global member firms saw business sentiment neutralize in their markets after a positive upswing earlier this year. Despite this, more than 62% of respondents experienced greater transaction volume compared to last year, with 17% enjoying significantly increased deal volume, according to the organization’s fall 2022 business sentiment survey. 

“In a tightening economy, the intra-network connections and on-the-ground knowledge CORFAC members bring to their clients is paramount,” said 2022 President Mason L. Capitani, SIOR, Principal of L. Mason Capitani/CORFAC International in Detroit, MI. “Our survey shows that our brokers understand their market dynamics and are focused on continuing to deliver deals.”

Where Deal Activity Is Originating 

Many CORFAC members –76% – are seeing new business from existing clients who are expanding, showing continued growth from 70% of members surveyed earlier this year and 63% at this time last year. In addition, 59% are getting new business from clients relocating to the market, also growing from nearly 50% in the first half of the year. 

Higher deal volume in 2022 is a sign of positive momentum in the marketplace, but brokers are  spending significant time advising clients on how to navigate these conditions. With a great deal of capital sitting on the sidelines, many brokers are advising clients to wait for interest rates to stabilize or prices to match the market. 

Challenging Rate and Pricing Environment 

CORFAC brokers were asked what their greatest concerns are looking at current conditions and macroeconomic trends. Inflation and rising interest rates were by far the most worrisome, with 60% of CORFAC members saying these factors will have the most negative effects on CRE transactions into the new year.

One responding member said that interest rate increases have “created short-term need and long-term confusion and degradation of deals under consideration.” They have also contributed to lower valuations and higher cap rates. Another member explained, “Sellers are seeking prices that do not reflect the higher cost of financing and thus what buyers can finance.”

Optimism Is Dampening 

About 44% of CORFAC members said business sentiment in their local market was somewhat positive, but 30% described it as neutral and only 3% said it was very positive. That’s a downward trend compared to earlier this year, when half of CORFAC members described overall business sentiment in their market as somewhat positive and another one-third said it was very positive. 

What would improve these numbers again? A quarter of respondents want to see GDP or economic growth. Improved delivery of construction materials would also help, said 14% of those surveyed. Some cite a challenging political environment for businesses in states like New Jersey contributing to decreased CRE deals, too. 

Brokers are bracing for a tough year ahead. “The impacts of interest rate increases will be felt next year. Cap rates will have to rise or sellers will have to hold. Many projects will end up on hold due to the new challenging lending environment,” said one respondent.  

However, in an economic environment like this, the need for experienced and local market-savvy advice is more important than ever. Buyers and sellers alike will need help to time their moves to the inflation and interest rate curve, and CORFAC brokers can provide the needed insights.



Patricia True Agos

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