Commercial real estate outlook: After years of compression, cap rates should begin to climb again

"Across our market, we have seen a surge in property values and demand."


  • By
  • | 12:20 a.m. January 18, 2023
  • Real Estate
  • Share

As we head into 2023, there is a lot of uncertainty regarding the commercial real estate market.  

Our industry has experienced significant growth, development, change and success over the past few years. 

We are expecting some change as we begin to navigate through 2023. 

Northeast Florida has welcomed an influx of new residents recently with a migration of people from other parts of the country. This influx has not only brought residents but also new businesses, investors and capital.  

Across our market, we have seen a surge in property values and demand and more recently, a surge in costs and interest rates. Inventory has been at historic lows but that has started to change and should increase significantly this year due to new construction, changes in user utilization and increases in costs and expenses.  

Sales volume decreased in 2022, however the numbers were still strong.  

CoStar’s data outlines an overall decrease in sales of all property types of about 22% from 2021, but relative to prior years, the 2022 data illustrates the continued growth in our market.  

Cap rates (real estate rates of return) have pushed down over the past few years, but we should expect to see them climb back up as investors’ cost of funds increases and fluctuations in values and lease rates start to take hold.

Inflation, increased lease rates, increased property values and rising interest rates have and will continue to have a significant impact on the market. 

A few additional factors that our industry will monitor closely this year are geopolitical issues, changes in ESG (environmental, social and governance) standards or policies, local political races, costs of construction and changes in insurance.  

The year will undoubtedly bring new challenges to our industry, but we have been through bumpy roads before. 

I am confident that we will tackle these challenges head on and continue to foster commercial real estate growth, health and development in Northeast Florida.

Katie Kirchner is the 2023 president of the NAIOP Commercial Real Estate Development Association Northeast Florida Chapter.