If interest rates and inflation stabilize in the next few months, commercial property deal activity could pick up in the second half of the year, JLL CEO Christian Ulbrich said in an appearance on CNBC from the World Economic Forum.
“The real estate industry relies on predictability," Ulbrich told the network during an interview at the meeting of business and global leaders in Davos, Switzerland. "Rising interest rates aren’t such a big issue as long as they’re rising as predicted."
That wasn’t the case last year, however, as rapidly rising rates unsettled the real estate industry and contributed to a large decline in transaction volumes, said Ulbrich, who lives near Frankfurt, Germany.
While inflation has come down from the highest levels it had been in decades, it still is too high, said Ulbrich, who expects the Federal Reserve to tweak interest rates again, at least slightly, in coming months in a further attempt to contain inflation.
Ulbrich said JLL's clients are watching and hoping for clarity about interest rates and when inflation will come down further.
"Real estate people tend to be optimists, so some people hope that we’re close to being there, but we'll have to watch," Ulbrich said. "Inflationary pressure is still very high. We are hoping for the third and the fourth quarter of 2023."
He also said the pandemic accelerated the trend of office tenants wanting to sign shorter-duration leases due to businesses' difficulty in knowing how much space they would need in 10 to 12 years.
“What we see in the leasing market is a complete bifurcation between the best buildings, which are coming to a market where we achieved new record-high rents all around the globe, and those buildings that are dated and not meeting expectations of tenants — where it’s very hard to find a tenant overall, and if so, at very low rates,” Ulbrich said.
Many of the outdated office buildings in New York and other cities will require a repurposing into other uses, he added.