A survey of large institutional investors predicts that the office sector will have the poorest performance of major commercial property sectors in 2023. 

The Pension Real Estate Association asked members to predict annual returns for offices, apartments, industrial and retail properties. The results forecast negative appreciation in 2023 for all four categories, ranging from a decline of 3.3 percent for industrial properties to 9.7 percent for offices. 

“There are significant lease expirations taking place, so we’ll really see in black-and-white the effects of work-from-home on office demand,” said Greg MacKinnon, PREA’s director of research. “There’s also a general consensus in the industry that office valuations have declined, but they just haven’t shown up in the appraisals yet because there really is a lack of transactions.” 

The 26 firms that responded to the survey predicted positive total returns for retail and industrial properties, at 1.3 and 0.7 percent respectively, and declines of 0.3 and 5 percent for apartment and office properties. 

Industrial properties could be vulnerable to a supply glut following several years of explosive development activity and a potential economic downturn that would suppress consumer spending, MacKinnon said. 

Fundamentals appear to be strong in the multifamily sector, driven by renter demand for apartments coupled with limited new supply, MacKinnon said. Survey respondents forecast apartment total returns of 0.3 percent, income returns of 4.1 percent and negative appreciation of 4.4 percent in 2023. 

Respondents to this year’s survey included AEW, Barings, CBRE Investment Management and MetLife Investment Management.