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Real Estate Outlook – Optimism Tempered By Inflation, Possible 2023 Recession

William Saya

8.24.22 | Industry Insights

At Berdon’s webinar, Current State of The Economy: Rising Building and Construction Costs in Real Estate, held in conjunction with Bloomberg Media, we asked a select group of executives across multiple business sectors to share their thoughts on the future outlook of the real estate market. The consensus was optimism guarded by the still-untamed inflation rate and the belief that a recession was considered to be a possibility for some time in 2023.


The discussion began with an overview, by Yelena Shulyatyeva, Senior Economist Bloomberg LP, of economic conditions and the potential impact on the New York Metro real estate market. Based on the strong labor market and demand for goods remaining high as the supply chain is finally regulating post-pandemic, Yelena expects to see double-digit growth in real estate prices coming to an end but does not expect any outright declines. Yelena noted that there is a tremendous amount of housing inventory in the pipeline. As supplies continue to loosen up, it is forecasted that construction projects not yet completed will move along, and planned projects will also begin to move forward. With rents continuing to grow and home prices continuing to be less affordable, anticipated rent hikes will likely take place over the 3rd and 4th quarters. Ultimately Yelena does anticipate a slowdown in new home prices as more supply becomes available.

Shulyatyeva noted that the earlier government stimulus has kicked in and contributed to inflation, but no further stimulus is expected. While inflationary pressures are expected to continue through at least next year, Yelena pointed out that household debt servicing is still low, service sector hiring remains high, and last year’s tremendous appreciation in real estate prices has been an impetus for consumers to continue to spend. While she factored in consumer fears of a looming recession and an inevitable slowing of the pace in hiring, she concluded that any recession, if it comes, should be mild, particularly when compared to the 2008 “Great Recession.”

Industry Professional Insights on the Direction of Real Estate

Berdon moderator Meyer Mintz, Tax Partner and Co-Leader of the Real Estate Practice Group, then brought the rest of the panel into the conversation. There was a general agreement that the recently reported 9.1% jump in the consumer price index, the worst since the 1980s, and uncertainties over the Russia-Ukraine War and its potential impact on heating oil, among other commodities, were chief concerns.

Richard Dargel, COO of Marino\WARE, which produces cold-formed steel framing products, reported that steel prices have fluctuated radically, making budgeting for projects difficult — compelling people to assign contingencies to any project requiring the material.

The concept of taking extra steps to help bring a project to completion in the current market was agreed upon by all panelists. Robert Palumbo, President & CEO of Cauldwell Wingate, LLC a construction management and general contracting company, indicated that inflation is a major factor impacting projects—resulting in many choosing to lock in prices on materials by paying in advance.

Julie C. Geden, Senior Principal at Zubatkin Owner Representation, LLC a project management and owner representation firm, also added that due to a variety of issues—including lag time in shipping, trucking costs, and finding qualified drivers– it is not possible to mitigate risk in the current environment, but there are steps to take to protect the viability of projects. For example, she noted that using different and alternative materials (i.e., metal, stone, glass) for facades —– can be considered to help keep the project moving. Palumbo added that using alternative materials that are also locally sourced can avoid the excess costs associated with the importation and long-distance transportation of the materials.

Overall, the panelists advocated for value engineering, a systematic approach to save on labor, materials, and expenses. As an example, using thinner walls with soundproofing materials is one path to help trim the budget.

In addition to the issues associated with the cost and supply of building materials, Palumbo reported that the labor market within the industry is also a major contributor to projects not getting completed. He described the current labor market as a battleground for subcontractors who don’t have enough people for their current projects, and labor crews are often pulled from one project to service another that might be “screaming louder.”

The conversation concluded with a discussion about the New York City market and how local politics are impacting construction and development. Both Palumbo and Geden agree that New York Mayor, Eric Adams, is “sending the right message” that bureaucratic delays from the City must be addressed and mitigated. They note that people have been walking away from projects in frustration over paperwork delays and the demands of complex regulations, which they are “feeling in their pocketbooks.”

All three panelists see the outlook for the New York City construction industry as bright. Each panelist was heartened by the fact that they are seeing a return of tourists to New York City as they see this and other recent positive developments as evidence that the City is back.

If you missed this event, stay tuned for our invite to the annual Real Estate Industry Executive Forum with important updates from the Bloomberg and Berdon teams on these and other real estate topics.

If you have questions, contact William Saya at 212.331.7588 | bsaya@berdon.com or your Berdon Advisor.

Berdon New York Accountants