What were your expectations for the commercial real estate market in 2023, and how did the actual results align with your predictions?
It’s a mixed bag.
I was fairly optimistic about 2023 going in. A lot of it was historical bias. 2022 was a good year, maybe the second highest revenue in 17 years of doing this. So, I thought 2023 would also be good.
But I didn’t get a real sense of the year and a definite, evolving theses as to what was happening until early summer.
Then, I came to the conclusion that things are really looking good for Alaska long term. I realized the North Slope was jamming, and Alaska’s role for the nation was outsized. (We are the lone state on the Arctic Ocean, closest to China and Russia and Taiwan and the bulk of commerce for the northern hemisphere. Geo-politics, i.e., real and threatened hegemony from Russia and China, also increases our mission critical role in national security. Thus, renewed investment in our infrastructure. The port in Nome. In addition, the transformation from fossil fuels to electric has us both a winner and perhaps a loser, although it is hard to be a loser when the loss of lighting petro molecules on fire may also mean we will save the planet and humanity.) We have the oil, and we also have a lot of the critical minerals that are needed for the new electric. Graphite for example, rare earth minerals, copper, gold, molybdenum, etc. Global warming and rising oceans and weather will also be a mixed bag. But we have cooler temperatures and an abundance of water compared to places like a lot of the Sunbelt.
So, it was time to be bullish, finally, in a sustained way. We’re talking a whole working career of 20-30 years with no sign of an ascendant economy we've seen several times down south, and maybe now things are really looking up.
The rest of the year to now has continued to bolster this thesis. And that is in the face of our known, significant, chronic challenges. A relative complete lack of infrastructure at the state level. Cost of doing business and risk up here. Small population and lack of skilled workers. Housing and homelessness and no easy answers. The biggest negative factor in my humble, flawed opinion: a state that can’t figure out how to pay for stuff and invest, mostly because we are stuck avoiding taxes and doling out fat cash through the PFD, which has led to screwed up priorities and inaction and just talking about the wrong stuff, all the time, for decades.
Surprisingly, or really not surprisingly at all, 2023 was a mixed bag for our business. Ryan and I did a whole helluva lot more transactions. More tenant rep on leases than buy/sell transactions. The deals were smaller. It was just an okay year. The rate environment was interesting and led to a willingness for sellers to carry paper. But the overall effect was lenders less likely to lend, at high rates if at all. Buyers that couldn’t quite justify it or pull the trigger, waiting for a day when rates might be yesterday’s instead of today’s. Less inventory in our preferred market segment (industrial, shop, warehouse), wait and see from Buyers and Sellers, less transactions, less revenue.
The strongest message: We have problems. The future is always uncertain. AND, I am bullish. 2023 was interesting. It will take a long time for a lot of these trends to play out. 2023 did its part in the journey.