Which 5 Cities May Be Hit the Hardest by a Recession in 2023?
Most economists are predicting a recession in 2023, even if it’s a milder one than The Great Recession of 2008. As a result, some cities are already bracing for impact, and some are more prepared than others; in fact, cities like San Francisco and Seattle are already experiencing some of the effects of said predicted recession.
Read on to learn more about how a potential recession could affect commercial real estate in these five cities.
1 – San Francisco, CA
In 2022, San Francisco was hit hard by the tech layoffs and the city scrapped and clawed to come back from it. Now, in 2023, employment in the tech industry continues to fall and there seems to be no slowing down.
With employment falling, people are more likely to leave the city to find more affordable housing, giving the Bay Area a less favorable outlook when it comes to its commercial real estate. Some businesses are even moving their headquarters out of San Francisco and into more affordable markets.
Office space vacancies are high in downtown San Francisco, and many leases are set to expire in 2023 with no plan to fill them. And it’s not just office spaces: The housing market has been deemed as already in a recession. High rents and high building costs are causing both businesses and residents to flee from the city.
2 – Seattle, WA
The skyrocketing prices of homes and property in Seattle make it difficult for residents and businesses who call the area home to stay put. And even though home prices are expected to fall in 2023, purchasing a home will still be out of reach for most Seattle residents.
Some residents in Seattle are taking more drastic measures, like purchasing homes with friends and family, to afford housing.
Seattle is also affected by the unstable tech industry: The city has seen a lot of job loss in 2023 as a result of the ongoing tech layoffs.
These factors, struggling housing and job markets, that hint toward a recession make Seattle less opportunistic for commercial real estate developers.
3 – Miami, FL
In Miami, the city is still reeling from the effects of the COVID-19 pandemic, which resulted in lower tourism and a struggling housing market. While some Florida economists expect to see upticks in these areas, it’s possible Miami could be hit harder during this year’s recession.
The housing market was hit especially hard in Miami. With not a lot of land area available for development, commercial real estate investors in Miami are hoping for more opportunities in the multi-family sector, including student housing, affordable housing, and senior housing.
In addition to the housing market, the tourism industry in Miami was hit hard, as well. In 2023, the city is still struggling to see pre-pandemic levels of tourism, mainly because international travel has been lagging.
4 – San Diego, CA
A decrease in tourism and rising inflation rates are two reasons why San Diego is preparing for a minor recession this year. The fear of a recession is magnified by the fact that the city also has a $267 million gap in its budget.
The inflation rate in San Diego is higher than the national average at 6.5%. (The US inflation rate as of March 2023 is 4.98%.) The higher inflation rate is causing an increase in food and housing, which has resulted in a higher cost of living and doing business in the area.
Both these factors have a ripple effect on the entire area. With the cost of doing business in San Diego going up and people not being able to afford to go out as much, businesses aren’t making as much profit, and job security is becoming more of an issue.
5 – Washington, DC
Washington, DC struggles with two major economic problems: a labor shortage and a high cost of living. These two main factors contribute to the likelihood that Washington will be affected by a potential recession in 2023.
One of the biggest problems in Washington is that there is a consistent labor shortage in the tech industry. This makes it nearly impossible for tech companies to move their businesses into Washington, leaving them behind in this industry.
And the tech industry isn’t the only one not growing in Washington. In fact, there are no industries positioned to drive any kind of significant growth in the area in the foreseeable future.