The last 12 months held managed property portfolio growth, the addition of new members to our Saratoga team and one of the busiest transaction cycles in our history.  We successfully completed 16 commercial real estate transactions totaling over $70m.  This would not have been possible without our collaborative approach to brokerage as well as the unique, thriving market capitalizing in post-pandemic activity and historically low interest rates.  Many of the buyers were participating in 1031 exchanges while others were looking at the opportunity to enter a new geographic market.  Sellers were a mix of those seeking the chance to exit the market in lieu of the coming financial uncertainty as well as those taking advantage of the low cap rates to sell and diversify their portfolios with other investments. With the Fed raising rates to curb inflation, we are seeing the higher interest rates have a direct impact on investors and developers requiring financing.  This has led to a slower transaction market as both buyers and sellers pause to employ even more strategic entry and exit timing.

The Whatcom Business Alliance recently held it’s annual economic forecast breakfast in which Wells Fargo Economist, Shannon Seery, provided insights about the coming year.   Seery noted that the current 40-yr high inflation which will lead to a ‘mild’ recession, likely in Q3 of 2023.  The Fed’s rapid tightening (quickest since 1980’s) to combat inflation will have continued implications over next 12 months though since supply chain issues are broadly improving, economic analysts believe inflation has peaked.  Consumer spending is slowing and a mild recession 7-8 months from now is anticipated.  It will be classified as ‘mild’ since households have a larger financial cushion (more personal excess savings) than was seen going into the last recession.  Due to the current supply/demand in labor in which there are not enough laborers to support the job force need, there will likely be a reduced layoff cycle to counteract the labor shortage.  The Fed plans to cap rates at 5-5.25% in Q1 of 2023 and while it will take time for rates to come back down (2% is the Fed target), they are expected to slowly decrease and approach the target 2% by the beginning of 2024.   Small businesses may experience some tightening and reduced capital expenditures but those that have weathered the pandemic are well-versed in the art of pivoting, pairing down as needed and riding out the turbulent economic waters.

2023 may look quite a bit different from a market and transactional standpoint but as with all recent world events, we know that the people surrounding you are what matter most.  We at Saratoga are grateful for not only our internal team but the opportunity to work and interact with each of you.   We continue to be in this together.  Wishing you all the best during this holiday season and in the coming year.