2023 Commercial Real Estate Industry Perspectives

Due to the pandemic-fueled course correction, the global CRE industry is facing unprecedented uncertainty, with the potential for transformational shifts in how buildings will be used and valued in 2023. But leaders can prepare now by making strategic decisions and focusing on innovation to be better positioned for success in the future.

Deloitte research from earlier this year uncovers ongoing apprehension about the global economy’s influence across a wide breadth of financial services sectors, with the prospect for a regional or global recession or stagnation in the near term.

The Impact of ESG Compliance

CRE firms are only now finding their stride in managing ESG compliance and tax regulation. For the most part, they’re taking their cues by observing industry-driven responses and recommendations from industry associations. CRE leaders must understand and meet industry standards to comply with local and international regulations.

Additionally, CRE firms must prioritize ESG compliance to remain attractive investments for investors. To stay ahead of the competition and protect their bottom line, CRE leaders must be mindful of the ever-changing ESG regulations and taxation policies to make informed decisions.

Overall, CRE firms increasingly recognize the importance of ESG compliance and the need for greater transparency in their operations and tax regulation initiatives, such as the international Common Reporting Standard.

Firms can explore opportunities to capitalize on the new ESG regulations by investing in technologies and practices that ensure compliance with global standards and sustainability initiatives.

The Prospect of Turbulence in 2023

CRE leaders demonstrate concern for the global economy due to mixed revenue expectations and are preparing for a turbulent 2023. A mix of sustained high inflation, cyber risks, climate regulations, and workforce management conflicts are emerging as issues of significant concern for the global CRE industry and the potential impacts on revenues in the coming months.

Additionally, climate regulations further complicate the industry’s ability to maintain steady revenue streams in uncertain economic conditions. CRE leaders must be mindful of potential risks and opportunities to make informed decisions that will benefit their firms in the long term. Keeping an eye on the latest trends in technology and sustainability, focusing on cultivating talent, will ensure they have access to the best resources to help their firms grow.

CRE leaders can help their firms navigate a period of uncertainty by making informed plans to respond to potential market changes. They should also be proactive in anticipating future needs and developing strategies for staying ahead of changing trends and regulations. To remain competitive, CRE leaders must evolve to meet the needs of their investors and tenants by focusing on innovation, technology, and sustainability. They should also take advantage of current opportunities to acquire distressed assets or explore new markets.

The Influence of Employee Expectations

The pandemic-driven shifts in employee population due to work-from-home arrangements are now the norm. This new landscape forces many firms to contend with competitive talent markets as employees benefit from the low unemployment rates and rising wages environment.

CRE companies should take note of this long-term trend of desiring to work remotely and adjust their strategies accordingly. By recognizing and meeting employee expectations, CRE leaders can better equip themselves to attract and retain top-notch talent.

The Case for Investing in Technology

In turbulent times, CRE firms often prepare by capping spending to ensure survival. Unfortunately, this short-term approach can cause long-term errors when investing in beneficial technology and solutions to help the firm achieve its objectives. At a time when CRE firms need to maximize their efficiency, failing to invest in innovative technology solutions can be a costly mistake.

Recruiting service providers to fill gaps and leverage core services is one way CRE firms can remain competitive. By hiring experienced professionals with specific skill sets, CRE firms can retain valuable employees while decreasing costs. Utilizing experienced service providers also allows CRE firms to access expertise that may not be available in-house. Additionally, having a team of skilled professionals can help CRE firms become more agile and adapt to changing market conditions.

Overall, Optimism Prevails

Despite the weather on the horizon, most forecasts anticipate stable or improving conditions in real estate fundamentals for the next year, primarily in property prices, vacancy levels, and rental rates, with leasing activity and rental growth leading the charge.

Strong optimism for potential opportunities in downtown and suburban office commercial real estate markets endures, though CRE owners and investors should carefully consider each market’s fundamentals before deciding their approach. Ground-level understanding of trends and micro-economies of each area and its future trajectory will help drive strategic decision-making and position CRE owners and investors to capitalize on potential opportunities.

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AVANA | Extensia Financial provides conventional financing to businesses in various asset classes. Our Commercial Real Estate loans range in size from $1MM to $30MM and amortization of up to 30 years.

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