The last few years have witnes-sed a series of crises in the real estate market in general, but specifically in rental property. The COVID-19 pandemic, the hottest residential market in decades, and the recent rise in mortgage interest rates have all impacted the industry and affected the ways in which investors think and act. Nevertheless, things seem to be stabilizing in real estate at the moment, sending positive signals to all who consider investing in rental properties in the coming months.

With that in mind, let’s take a look at the five most important trends expected in 2023.

1. Recovery of the Short-Term Rental IndustryAlthough the pandemic had a major debilitating effect on the vacation rental industry, the slowdown was relatively short, and the market has already started recovering. The recovery is expected to continue during the remaining months of 2022. By 2023, short-term rentals are expected to have reestablished their position as the more profitable rental strategy when compared to traditional, long-term rentals.

The most encouraging sign is the return to travel, the monthly travel expenditure in the U.S. surpassed the pre-pandemic level (April 2019) for the first time, by 3%. Short-term rentals are directly related to traveling. This means that as more people resume traveling, the demand for Airbnb-style rental properties will increase, allowing for higher daily rates and pushing up return on investment.

If you are interested in this rental property strategy, you should focus on markets with strong Airbnb demand. According to nationwide analysis conducted by Mashvisor, a real estate data analytics company, these cities boasted the highest Airbnb occupancy rates in the U.S. market in the summer of 2022: Portland, Oregon (67.5%); Seattle, Washington (67.4%); Tucson, Arizona (67.3%); and San Francisco, California (66.9%).
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2. Stronger Demand in Secondary and Tertiary MarketsThe second 2023 trend in the rental property investing industry is the continued growth of small, rural markets. The pandemic and the consequent switch to remote working across numerous industries affected the real estate market in major ways. One of the most significant changes to keep in mind as an investor is the massive move from primary markets like New York, Los Angeles, Boston, and Chicago to secondary and tertiary markets.

Because work-from-home policies are expected to remain in many businesses, the trend to smaller markets is forecast to continue into 2023 and beyond. Many professionals and families prefer the peace, comfort, and security small towns and rural areas offer. Although some people might choose to buy a home, others will decide to rent, creating an opportunity for investors.

For those considering investing in a long-term rental property, smaller markets will offer more demand and higher return. Importantly, such locations come with lower property prices, which makes them affordable even for new investors.
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3. Growing Interest in Long-Term Airbnb RentalsAnother important trend the global pandemic stimulated is the emergence of a hybrid rental strategy that combines the benefits of investing in short-term and long-term rentals. As traveling nurses and other traveling professionals need temporary housing in various locations, we have seen a rise in long-term Airbnb rentals, also known as furnished apartments.
From an investor’s perspective, this rental strategy provides higher rental income than traditional rental properties and more predictability and stability in terms of occupancy than vacation rentals. The combined result is optimized return on investment.
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As many people continue to work remotely, some will choose to travel to new locations for extended periods, which will further drive the growth of monthly furnished rentals in 2023.

4. Rise in Fractional Rental Property InvestingYet another major trend in recent years is fractional investing within the real estate industry. Technology has dictated this move rather than the pandemic. Real estate crowdfunding platforms like Fundrise, Realty Mogul, and Crowdstreet have allowed small-scale investors to own fractions of residential, commer-cial, and industrial properties together with other investors.

The benefits this rental property investing strategy offers are numerous; being affordable and passive are the most important. As technology continues to advance in real estate, fractional investing is expected to accelerate in 2023 and beyond.

5. Technological AdvancementsFinally, we cannot talk about 2023 trends in rental property investing without discussing the role technology will play. High-tech will continue to be a main driving force in all aspects of the industry and all stages of the investor journey: from identifying profitable investment opportunities, to purchasing income properties, to renting out and managing both short-term and long-term rental properties.
We can expect existing proptech companies to grow and new ones to appear in the next couple of years to meet all investor needs, making the real estate investing process even more seamless and profitable.

In 2023, the rental market is expected to remain as dynamic as it has always been. There will be numerous lucrative opportunities for investing as long as investors analyze the market, use reliable data, and follow recent developments and forecasts. The five trends outlined here should help you make confident and profitable investment decisions.

Daniela Andreevska is vice president of content at Mashvisor, a real estate analytics tool that helps real estate investors quickly find traditional and Airbnb investment properties. A research process that usually takes three months can now be accomplished in 15 minutes. 

CATEGORY: Article, Market & Trends
TAGS: Trends

​KEY POINTS

• In a ranking 25 of the world’s top luxury real estate markets, Dubai topped the list, with prices expected to increase 13.5% in 2023, according to Knight Frank.
• Seoul and London are expected to be the worst performers.
• Even the strongest luxury markets are expected to cool next year, as interest rates rise and economies slow.

Wealthy investors betting on luxury real estate would do best by putting their money in Dubai or Miami next year, according to a new report.

In a ranking 25 of the world’s top luxury, or “prime,” real estate markets, Dubai topped the list, with prices expected to increase 13.5% in 2023, according to real estate consultancy Knight Frank. Miami ranked second, with prices expected to increase 5%. Dublin, Lisbon and Los Angeles followed, with 4% expected increases.
The worst performers next year are expected to be Seoul and London, with prices expected to drop 3% for both. New York ranked in the middle of the pack, at 13, with prices expected to increase 2% next year.

Still, even the strongest luxury markets are expected to cool next year, as interest rates rise and economies slow down, according to Knight Frank. Across the 25 cities, Knight Frank expects prices to rise by an average of 2% in 2023, revised down from the 2.7% Knight Frank projected six months ago.

The revision suggests that the global wealthy, seemingly immune from inflation and economic slowdowns, are holding off on big real-estate purchases or becoming more discerning on price given rising interest rates.
“Although prime markets are more insulated to the fallout from higher mortgage costs, they’re not immune,” the report said. “The transition from a seller’s to a buyer’s market is already underway across most prime residential markets.”

Dubai saw prices soar by 50% in 2022, so the price increases for 2023 mark a substantial slowdown. Dubai has seen a surge in wealthy residents over the past year, driven largely by Russians looking for a safe harbor for their wealth, yachts and real estate amidst Western sanctions over the war in Ukraine.

Prices for Dubai single family homes rose 13% in October, while overall sales volume jumped 73% over the previous year.

Miami also remains a popular haven for the wealthy, given its low tax rates and growing number of financial firms locating their headquarters or offices in South Florida.

Although New York’s expected 2% increase next year is down from 2022, many brokers forecast declining prices next year, especially in Manhattan. Knight Frank said New York will benefit from overseas buyers who are “seeking more, rather than less, exposure to the U.S. dollar as the Federal Reserve ramps up rates.”

Singapore is the only Asian city in the top 10 and one of only four cities whose forecast has climbed in the past six months, according to the report. Singapore is benefitting from wealth flight from China, as rich Chinese citizens move their money – and often their families – to the island to avoid strict Covid lockdowns and a slowing economy.
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Cash will be king across the 25 markets, as buyers willing to pay all-cash will be more attractive to sellers, Knight Frank said. Political and economic volatility in many countries will also lead to a flight to safety in real estate, “pushing buyers to mature and transparent luxury markets.”

​Just a few months ago, homebuyers were competing in knock-down, drag-out bidding wars for modest homes that were selling for six figures over their asking prices. Now, sellers are rapidly dropping prices and doing whatever they can to attract even a single interested buyer.
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Call it the Great Real Estate Reversal.

As mortgage interest rates have soared, making purchasing a home significantly more expensive, buyers largely have disappeared from the market. It’s not that they don’t want to close on a home; it’s that they can’t afford to do so anymore. Home sales are down, prices have fallen, and properties for sale are beginning to pile up.

However, there are some real estate markets bucking the grimness that has overtaken the housing market in recent months. The Realtor.com® economic research team identified these metropolitan areas where sales and prices are anticipated to continue rising next year. These are the top housing markets of 2023.

“They are very affordable markets. These are areas where your housing dollars really stretch further,” says Realtor.com Chief Economist Danielle Hale. “These places did not overheat during the [COVID-19] pandemic housing frenzy over the last two years. That puts them on more solid footing. Prices and sales still have more room to grow.”
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To come up with the list, Realtor.com looked at housing and economic data in the 100 largest metropolitan areas. (Metros include the main city and surrounding suburbs and smaller urban areas.)

​These midsized metropolitan areas generally offer lower-priced homes that locals can still afford. All but one had median prices well under the national median of $417,000 in November because they didn’t experience the huge price spikes seen elsewhere during the pandemic. And buyers are still active in these areas, so sales are still happening.

They also tend to have solid economies and are located near big employment centers. They aren’t the latest tech hot spots and are far from the flashier, larger cities on the coasts. Several of the top 10 had military installations, ensuring a steady stream of people moving in and out of the area.
“These are the real estate markets that are going to be more active” next year, says Hale. “If you’re a seller, it means you can expect buyers. If you’re a buyer, you can expect competition. And if you’re a homeowner, you can expect prices to rise, which gives you more equity in your home.”

The Realtor.com 2023 forecast anticipates that home prices will rise 5.4% nationally, a departure from the big run-ups experienced during the pandemic. The number of sales, which was high over the past few years, is expected to drop 14.1% next year.

“They are really outliers, especially when it comes to sales,” Hale says of the top markets.
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So what are the top real estate markets of 2023?

1. Hartford, CT
Median home list price in November 2022: $372,400
Price change in 2023: 8.5%
Sales change in 2023: 6.5%

Hartford has been bucking the slowdown happening in just about every other housing market. About 90 minutes southwest of Boston and 2.5 hours northeast of New York City, the state capital of Connecticut has seen home prices rising and the number of homes for sale dropping.

The “Insurance Capital of the World” was named one of the hottest markets in the nation in October. Companies such as Aetna, The Hartford, and Cigna are all headquartered in the area.

“We’re still getting people coming in from out of state,” says real estate broker associate Lisa Barall-Matt, of Berkshire Hathaway HomeServices New England. She’s based in West Hartford, a more suburban city just outside of Hartford proper.

“Our [prices] are still attractive, but our market went up exponentially,” she adds. “We could handle it because we were so underpriced before the pandemic.”

As more people can now work remotely, buyers from pricey places like New York City, Boston, and Washington, DC, logged the most out-of-the-area views of homes in the metro on Realtor.com in the third quarter of this year.
Homes are still receiving multiple offers and going for more than the asking price. However, instead of 20 to 30 offers per property before selling for 20% over the list price, now homes are receiving about three to five offers, says Barall-Matt. And the days of six figures over the asking price are over. Homes are generally selling for 3% to 5% more than the list price.

“Prices are still rising,” says Barall-Matt. “The supply is short, and pent-up buyer demand is high.”

2. El Paso, TX
Median home list price in November 2022: $290,500
Price change in 2023: 5.4%
Sales change in 2023: 8.9%

El Paso, which sits at the western tip of Texas on the border of Mexico, is home to the U.S. Army installment of Fort Bliss. The constant movement of service people, affiliated companies, and contractors has helped to keep the local housing market brisk.

That may help to explain why more than half of those looking at El Paso listings on Realtor.com came from outside of Texas. Two-thirds of shoppers were from outside the metro area. The most out-of-the-area views of listings came from Phoenix, Dallas, and Salt Lake City.

Nearly 40% of buyers in the metro purchased their homes using all cash. About a quarter, 24.2%, used U.S. Department of Veterans Affairs loans. The VA loans are attractive because borrowers don’t have to put any money down to buy and can often score lower mortgage interest rates as well.

Buyers looking for a deal can check out this four-bedroom, two-bathroom house with a carport near Fort Bliss for $141,588. Or they can look at this three-bedroom, two-bathroom house with a pergola out back for sale for $235,000.

3. Louisville, KY
Median home list price in November 2022: $290,000
Price change in 2023: 8.4%
Sales change in 2023: 5.2%

The largest city in the state—home to the Kentucky Derby and Kentucky Fried Chicken—has emerged in recent years as a big manufacturing center. Those jobs, plus the low home prices and cost of living, have made it an appealing place for homebuyers.

Nearly half of those looking at homes in the area were from other states, according to Realtor.com data. The area has some of the cheapest mansions in the nation for those looking for more space. It was also popular with investors during the pandemic, although that has since slowed as prices and mortgage rates have risen.
Buyers can find this brick, three-bedroom, 1.5-bath ranch home with a large deck for $275,000. Those on tight budgets can check out this newly renovated two-bedroom, one-bathroom house for under $200,000.

4. Worcester, MA
Median home list price in November 2022: $447,500
Price change in 2023: 10.6%
Sales change in 2023: 2.5%

Worcester has long been a significantly more affordable alternative to ultraexpensive Boston. Those lower home prices have made it a popular destination for cash-strapped families as well as investors. (Homes in the Boston area, about an hour east, were substantially higher at $739,900.)

However, the market has slowed from its peak since mortgage rates shot up. The combination of the higher rates plus high home prices has made it financially untenable for many folks to become homeowners in the area. And the number of folks moving in from other parts of the country has dropped off, says local real estate broker Nick McNeil, of McNeil Realty.

“For the first time in 10 years, I can no longer tell somebody it’s cheaper to buy a home than it is to rent,” says McNeil. “People who absolutely have to buy are buying whatever they can afford.”

The typical Worcester buyer is looking at units in two-family homes or cheaper starter homes with lower price tags between $300,000 and $325,000, says McNeil. They’re often first-time buyers.
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“The people who are looking right now, a lot of them really can’t afford to buy,” he says.

5. Buffalo, NY
Median home list price in November 2022: $239,000
Price change in 2023: 6%
Sales change in 2023: 6.3%

The northern New York city, which sits on the banks of Lake Erie on the Canadian border, has been steadily on its way back up. The one-time manufacturing powerhouse fell on hard times when plants closed, but it has been undergoing a revitalization for years.

It got a boost during the pandemic as more folks who could work remotely returned to the area. Like the rest of the country, the number of homes for sale fell and prices shot up.

The real estate market now appears to be returning to something more normal, says real estate broker Ryan Connolly, of Re/Max Plus. Homes are sitting on the market longer, and sellers are cutting prices.
Generally, prices in the metro area rise about 3% to 5% annually.

“We’re going to go back to what we used to see a few years ago, which is a smaller increase in prices, not a big jump,” he says.

Most of his buyers now are trading up to larger homes because they want more space.
“Things have slowed right now, but I think that’s the time of year. Historically, we’re really, really slow once we hit Thanksgiving,” says Connolly. “But I have a number of people talking to me about purchasing next year, and their budgets are increasing.”
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6. Augusta, GA
Median home list price in November 2022: $318,900
Price change in 2023: 5.7%
Sales change in 2023: 6.2%

Augusta, about two hours east of Atlanta on the border of South Carolina, is known to linksmen as the home of the Masters Tournament. It’s also where Fort Gordon, and the U.S. Army Cyber Center of Excellence, is based. And Realtor.com recently named it one of the cheapest places in America to buy a home.

While much of the rest of the country experiences a real estate slowdown, Augusta’s lower prices and the turnover generated from the U.S. Army installation are expected to keep the local real estate market busy.
“We are still continuing to see [home] appreciation. But it’s not as drastic as it had been,” says Carmen Blanchard-Stitt, an associate broker at Meybohm Institute of Real Estate. “We’re still experiencing multiple-offer situations, [just] not near as bad as they were.”

More than a third, 35.5%, of all purchases in the area were all cash. Nearly a quarter, 23%, were VA loans. VA loans don’t require a down payment.

The sweet spot in the market is homes priced between $150,000 and $300,000, she says. Buyers are looking for everything from townhomes to single-family homes.

“We see a lot of variety in what buyers are interested in,” says Blanchard-Stitt.

7. Grand Rapids, MI
Median home list price in November 2022: $358,300
Price change in 2023: 10%
Sales change in 2023: 1.6%

Grand Rapids, a Midwestern city just east of Lake Michigan known for its brewery scene, was turbocharged during the pandemic as more local, college graduates decided to stick around and folks who grew up in the area and could now work remotely returned. But higher mortgage rates caused many buyers to hit the pause button. That’s beginning to change.

“We were dead in the water, but in the last few weeks I have eight new buyer clients,” says local real estate broker Steve Volkers, of the Volkers Group. “All of them are first-time homebuyers who have been renting and don’t want to anymore.”

He’s seeing a lot of parents of grown children move to Grand Rapids to be closer to their grandchildren. Many are either buying in all cash or making substantial down payments so their monthly mortgage payments are low.
Local and first-time buyers have needed more time to accept that their monthly mortgage payments are going to be significantly higher than they were just a year ago due to those elevated mortgage rates. Many are coming to the realization that they’re going to have to purchase a smaller or older home than they had wanted.

“They’re adjusting their needs to match their goal,” says Volkers. “First-time homebuyers can’t skip the starter house anymore.”

8. Columbia, SC
Median home list price in November 2022: $300,400
Price change in 2023: 3.6%
Sales change in 2023: 7.7%

The capital of South Carolina, home to the University of South Carolina (go, Gamecocks!), is also located near a military base. About half of all soldiers are trained at nearby Fort Jackson.

The military base, university, and lower home prices have helped to keep the housing market strong. About 14.5% of all purchases in the metro were made with VA loans, according to Realtor.com data, and 15.8% were made with FHA loans.

Buyers can still find large homes for a reasonable price. This six-bedroom, four-bathroom house that is just under 3,000 square feet is on the market for about $300,000. Buyers looking to save some money can check out this brick, three-bedroom, one-bathroom house on nearly two-thirds of an acre for $150,000.

9. Chattanooga, TN
Median home list price in November 2022: $396,500
Price change in 2023: 8.2%
Sales change in 2023: 2.9%

About two hours southeast of Nashville, the Tennessee city’s downtown has undergone a revitalization in recent years that has helped it to attract startups and other tech companies. The metro, the smallest on our list, is known for its outdoorsy lifestyle, popular with bass fishers and mountain climbers.
The lower real estate prices in the area have made it an attractive destination for those looking for more square footage. It has plenty of larger, affordable homes for sale. About 35% of home sales in Chattanooga were all cash.

This move-in ready, three-bedroom, 1.5-bathroom house is on the market for $230,000. This three-bedroom, three-bathroom house with a finished basement on three-quarters of an acre is for sale for $300,000.

10. Toledo, OH
Median home list price in November 2022: $161,100
Price change in 2023: 6.7%
Sales change in 2023: 4.2%

Toledo, about an hour south of Detroit on the banks of Lake Erie, is the cheapest housing market on our list. Those low prices have lured out-of-state buyers and investors to the Midwestern auto and glass manufacturing city.

“It’s slowed down since the rush,” says longtime local real estate agent Rick Turner, of Key Realty. However, “there are still buyers out here. The phones are still ringing.”

About 35.2% of purchases in the metro are all cash.

“We had such a large backlog of buyers this summer with these lower interest rates. Everybody was fighting over stuff,” says Turner. “Now the feeding frenzy is over. Sellers have to come to the realization that buyers are more selective, and they have to step their game up to be attractive to potential buyers.”

Investors are still looking for properties priced between $50,000 and $150,000 that they can rent out, says Turner. Out-of-state buyers are in search of lower-priced properties. And locals are realizing it might be cheaper to pay a mortgage than their rent every month, so they’re jumping into the market.
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There are now more homes for sale in the Toledo metro area to choose from, but many buyers are struggling with high inflation, rising rents, and soaring mortgage rates.

​

 ​Here are the top takeaways from this year’s CRE brain trust:
​

1. Tailwinds Are Stronger Than Headwinds for Capital Markets Going Into the Next Pricing Cycle. According to Michael Van Konynenburg, president of Eastdil Secured, although capital markets have been choppy, the positives outweigh the negatives in today’s environment. With increasing replacement costs, growing rents, a very strong job market, strong balance sheets, limited overleverage and high liquidity ($4.1 trillion on deposit at the Fed), commercial real estate is well positioned for strong momentum in the second half of the year. Konynenburg reminds us that historically, CRE performs well in a rising rate environment. But until FOMO starts to kick in, transactions will tend to be more “bespoke” placements.
2. Return to Work Is Not Going Away. There are a number of unanticipated challenges impacting commercial real estate firms right along with the rest of the country, including the war in Ukraine, inflation, rising rates and the prospect of a recession, but the work from home syndrome is still top of mind for most CEOs. As Owen D. Thomas, CEO and director of Boston Properties, points out, “It has now become about balance of power – management versus labor.” He believes the issue is split by industry, job function, seniority and geography. For TMG Partners Chairman and CEO Michael A. Covarrubias, the issue is still evolving as it has moved past fear of the COVID-19 virus to more of a cultural change. Thomas points out that there is a dramatic gap in performance between East Coast and West Coast. New York City is doing well, but the business district in San Francisco is suffering, with so many tech companies still working from home, the drop in Asian tourism, and the homeless problem. Thomas sees the primary business districts becoming more mixed use. “We need to work together to reactivate the cities through the arts, restaurants and the entertainment industry,” he said. Covarrubias sees the industry becoming more project specific. “There are four kinds of recession: global, U.S., real estate and my building. Real estate is a local business.”
3. Reimagined Office Space Is the Magic Sauce. While the retail and residential sectors are making a strong comeback, Kilroy Realty Corporation’s CEO John Kilroy sees commercial real estate developers acting more cautiously. “For people to make decisions and be aggressive, they need to have confidence and right now, there aren’t a lot of places to feel confident.” With inflation, an inconsistent tax system and so much political rancor, there isn’t a lot of stability to be found. “Companies act like most families do,” said Kilroy. “If you’re uncomfortable about something, you wait, and that’s the pattern we’re seeing.” In this type of environment, there are big buying opportunities to be found, mostly for newer buildings. With the demand for activation and extraordinary amenities, old buildings are obsolete. By keeping what worked best in the office space, and incorporating what makes working from home desirable, reimagined offices can be a wonderful work environment and a wonderful people environment.
4. A Rising Tide Lifts All Boats. Elizabeth Hart, vice chairman, Newmark believes that what the pandemic taught us was the need for collaboration, cross-selling and a sharing of best practices, to create the best communities for tenants and to grow the real estate industry as a whole. According to Andrea Pierce, managing director head of U.S. office and industrial asset management, Starwood Capital Group, “We’re seeing such positive momentum thanks to the willingness of owners, service providers and law firms to work together as peers, not competitors.” The flight to quality and experience continues, with tenants seeking new or reimagined space with large windows, full amenities and more open space to allow for greater collaboration, while activation also remains a key driver. Prebuilt suites are in high demand; there is not a lot of interest in renovating because tenants want efficient space that is ready to go on Day One.
5. Rent Is No Longer the Sole Driver. In these uncertain times, businesses are not basing their leasing decisions solely on rental costs. Improvements and concessions are now playing a key role. According to Robert Paratte, executive vice president of leasing and business development, Kilroy Realty Corporation, “Tenants have more questions beyond rental rates, like, What does my labor force look like? Where do I want to be located? Is my space ready to go?” There will likely be more dynamic pricing on a lease-by-lease basis rather than sweeping rate cuts. While high interest rates aren’t going away any time soon, the experts on the Major Western Region Leasing Markets panel expect that the next six to nine months should give some clarity on the path forward. The bottom line is, until employees come back on a regular basis, companies can’t and aren’t making decisions.
6. There Is Hope for Investors. While all the major bubbles — crypto, SPAC, tech stock and real estate — have essentially now burst, there are some positive investments to be found. According to Stephen Van Dusen, managing director, Eastdil Secured, “From a sector standpoint, fundamentals are the best — industrial, multifamily and also across the alts — data centers, single-family build for rent and student housing.” For those that are sitting on debt, loan maturities are coming up at a very difficult time. But, according to Christopher Peatross, founder and CEO, Swift Real Estate Partners, “Low unemployment spells hope in the office market. If we get people back in the office this could turn around quickly.” The public markets are saying asset values are going to move, while the private markets haven’t quite gotten there yet. ”There is an abundance of opportunity forthcoming,” said Jonathan Lange, senior vice president, Los Angeles Region, Boston Properties. “We feel it more on the public side. Our shares are nearing pre-pandemic close, which is very compelling for us and our teams as we think about how we deploy capital.”
7. Back to the Future.The Western Region Investment Sales Markets panel also took a look ahead to potential topics for 2023. With inflation (hopefully) gone, the war in Ukraine hopefully coming to an end, and employees back in the office, there will be opportunities. We will know the definition of distressed and how high is high when it comes to inflation. Rates will be improved, the lending environment will be better, and the debt markets will be operating better. The industrial and multitenant sectors will be doing fine. We’ll be talking more about adaptive reuse – conversion of office to life sciences, residential and hospitality. “In times of uncertainly, you have to have conviction,” said Van Dusen. “A lot of deals happen early in the cycle. It will look and feel a little different, but we’ll be trending in the right direction.”
8. The Haves and Have-Nots. In times of uncertainty, there is a flight to quality. “In these periods, quality really reigns supreme,” said Eliott Trencher, senior vice president and chief investment officer, Kilroy Realty Corporation. “We’ll see winners and losers in the different sectors as well as a heightened bifurcation between high-quality and low-quality assets.” Peatross sees the haves at about 15 percent of the market and the have-nots at 85 percent. “We need to get leasing going. Banks will not lend if they can’t see leasing,” he said.
9. Development Moves Ahead Despite Continued Supply Chain and Staffing Shortages. Although construction costs remain high and schedules face long delays, projects continue to be built and delivered, particularly in industrial and life sciences. Due to staff shortages, the entitlement process in some jurisdictions can now take 18 to 20 months, up from 8 to 10 months pre-Covid. Applications that once took 30 days can now take 60 to 90 days to be approved. However, developers have continued to be served by their contracts, with force majeure clauses implicated in many of the discussions. Thanks to longtime, trusted partnerships with contractors, issues are being resolved without major disruptions. “We’re not in the business of putting our contractors out of business,” said Sam M. Cheikh, managing director, assets management and assets development, Hines Interests Limited Partnership. “When cost escalation issues come up, we try to partner with the GCs as much as possible so everyone is satisfied at the end of the day.“
10. The Allen Matkins UCLA Anderson Commercial Real Estate Survey. While the first nine months of the year have been sluggish throughout the real estate industry, there are feelings of optimism based on the results of this year’s commercial real estate survey. Among the four asset classes, the sentiment for industrial continues to be positive. Retail is seeing mild optimism in most markets. The San Francisco and Los Angeles retail markets are still battling with the work from home dilemma, but the booming housing market will help. There is also mild optimism in the multifamily sector. The office sector sentiment is neutral in Northern California and pessimistic in Southern California, although the slowdown is considered temporary. Companies see real value in employees returning to work and feel it will be embraced again as they recognize the benefits of culture, loyalty, creativity and mentoring.

For more information and insight on California’s and the nation’s commercial real estate market, please visit www.allenmatkins.com/realestate. ​

​The emerging trends in real estate that you can't ignore.

The Emerging Trends in Real Estate report, produced by PWC and The Urban Land Institute (ULI), has been the dominant voice in reporting the future of the industry for more than 40 years. 
Given the market upheavals in the years since the COVID-19 pandemic, looking forward and analyzing trends is more important than ever. We’ve combed the report to bring you the highlights and can’t-miss information that will impact your business in 2023. 

The pace is slowing

In 2021 and a portion of this past year, real estate was moving at a record-setting speed. Homes were selling in hours, above asking and for cash. In 2023, however, expect the rate of the market to continue the slow-down seen in late 2022. 
The days a home is on the market will continue to rise, there may be more negotiation over price — though average home prices are expected to stay high, at 30% more expensive than in 2019 and earlier— and rising interest rates will continue to make some buyers wary. 

Remote work affects many facets of the industry

The continuation of remote work has impacts on the commercial real estate industry as well as the residential real estate side. For commercial, companies continuing to work remotely may give up their empty office spaces or downsize, leaving large swaths of commercial buildings empty for repurposing. 
On the residential side, working from home means that employees may be changing their geographic location, and looking for bigger homes with dedicated office spaces. They may also prioritize homes that are environmentally friendly, in an effort to lower electric or internet bills despite spending more time at home. The report estimates that less than half the workforce is going into an office for the full work week. 

Climate change impacts buyer behavior 

Extreme weather and climate-based events are a common occurrence and while it may not be immediately obvious how climate change affects real estate, there is truly no bigger influence than the climate. 
Extreme weather includes flooding, fires, hurricanes, tornadoes and other natural disasters. More and more often, homebuyers are avoiding areas of the country that put them at high risk of encountering one of these disasters. 
Not only do people not want to live in a high-risk area, but they don’t want to pay the high-risk insurance or energy costs either. Homeowners in Florida, or other low-lying areas, must pay for flood insurance to protect against hurricanes. And, homeowners in Arizona, or other desert climates, are paying astronomical electric bills to stay cool in the summer. In 2023 and beyond, temperate and low-risk areas will see an increase in out-of-state homebuyers looking for a more even-keel environment. 

Markets to watch: 

Also included in this year’s report was a list of the top markets to watch for real estate growth. These cities are: 

• Nashville, Tenn.
• Dallas – Fort Worth
• Atlanta
• Austin, Texas
• Tampa, Fla. 
• Raliegh, N.C.
• Miami
• Boston
• Pheonix, Ariz.
• Charlotte, N.C.

Among many notable characteristics of these popular cities is their location; nearly every city in this list is in the Sun Belt. None of these cities include the typical heavy hitters: New York, Chicago and Los Angeles, proving that the trend towards mid-sized, more affordable cities will continue into 2023. 

However, the influx of both residential and commercial activity in these areas may disrupt the market patterns these cities have been accustomed to. Rising prices, changing demographics and new infrastructure await them. 

2023 is going to be a challenging year for all housing industry professionals but with an eye on the emerging trends, a flexible attitude and a willingness to adapt, real estate agents will weather this storm and come out on the other side better for it. 
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For an even deeper dive into these topics, you can read the full report, here. Have any predictions or concerns going into 2023? Comment below. 

When considering real estate investing, there are several determinants to find the ideal location. Not only is the property itself important, but where it’s located has a major impact on potential renters and investment revenue. 
To find the most promising and best places to invest in real estate in 2023, data was gathered from the house price index per state in Q2 2022,1 median property tax,2 rental vacancy rate,2 home appreciation,3 debt-to-income (DTI) ratio,4 consumer price index (CPI),5 cost of living3 and rent-to-income ratio2 in the 100 largest U.S. cities.

To learn more about how the ranking of the best cities to invest in for 2023 was setup: jump to the methodology section.

Discover which cities are the most promising to invest in real estate, plus advice on real estate investments.  
Key Findings:

• Fort Wayne, Indiana, is the most promising city to invest in real estate.
• 40% of the top places to invest are located in Ohio.
• Cities in Missouri have the best home appreciation rate at 94%.

​1. Fort Wayne, Indiana

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 18.12%

First on the list is Fort Wayne, Indiana. As the second largest city in Indiana, there’s plenty of room for growth and real estate investments. Fort Wayne’s local population grew by 0.67% in the last year, making it the fastest-growing city in Indiana.6 Some of Fort Wayne’s most notable neighborhoods include Royville, Brierwood Hills and Westlawn.


Fort Wayne’s median listing price sits at $199,947, roughly 102% less than the median house price in the United States at $617,890.


Fort Wayne has also seen a 7.6% decrease in home prices since July, making it a timely opportunity for those looking to invest.

​2. Toledo, Ohio 

• DTI: 1.02
• CPI: 276.525
• Rent-to-income ratio: 14.29%

Known as the Glass City due to its long history of glass manufacturing, Toledo is an ideal city for those looking to invest in affordable rental properties. Toledo was recently ranked No. 2 for best cities to buy a home in a buyer’s market, just behind Cleveland.7


It also ranked as one the top 10 cities with the lowest cost of living in the United States.8 Popular neighborhoods in Toledo include Southwyck, Westgate and DeVeaux.


The current median sold price in Toledo is $115,462, with the majority of homes selling between 30 and 90 days of being on the market. Plus, with a home appreciation of 13.53%, you’ll likely see your investments grow significantly over a several-year period.

​3. Indianapolis, Indiana

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 21.51%

If you’re looking for a blooming city to invest in, look no further. Indianapolis, Indiana, has seen a 1.51% population growth just in the last year, close to doubling the U.S. national average of 0.9%.9 It’s seeing growth in the younger demographic especially, with 38% of its residents under the age of 25.10 Indianapolis is also seeing a jump in job opportunities, and it was just ranked in the top three best cities for startup businesses.11


Some of the best neighborhoods for young professionals include Broad Ripple, Fountain Square and Meridian-Kessler. The current median sold price in Indianapolis is $229,997, with 38.8% of homes being sold below asking price. This is great news for those looking to get a sweet deal on a potential rental property.

​4. Cleveland, Ohio

• DTI: 1.02
• CPI: 276.525
• Rent-to-income ratio: 27.7%

Cleveland, Ohio, made the top 10 largely due to affordability – a great benefit for those looking to invest in rental properties in the city. Cleveland was recently ranked No. 1 as the best place to buy a house in a buyer’s market.7 Known as the Forest City, Cleveland reels in potential buyers who love city life but enjoy seeing more green than brick.


Popular neighborhoods in Cleveland are Ohio City, Tremont and University Circle. The median sold price in Cleveland is $119,920, with 49.4% of homes being sold below asking price.

​5. Wichita, Kansas

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 18.43 

Looking for a Midwestern city to invest in? Look no further than Wichita, Kansas. The city has continued to see steady population growth over the last several years, with a 0.75% increase just in the last year. If you’re worried about an upcoming recession, Wichita was ranked No. 2 in the most recession-proof cities in the U.S. due to its steady job growth and affordable real estate market.12


Wichita has a home appreciation rate of 12.97%. Top-rated neighborhoods in Wichita include Crown Heights, Indian Hills Riverbend and College Hill.

​6. Detroit, Michigan

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 31.39 

Home to Rocket CompaniesⓇ, Detroit, Michigan, has plenty of opportunities for real estate investing. In the last 5 years, home values in Detroit have increased by over 122%.13  Detroit is currently ranked in the top five places to live in Michigan. Some of the best neighborhoods in Detroit for renters include Bagley, Corktown and East English Village.


Homes in Detroit are selling under 30 days of being on the market. Although homes are selling quickly, Detroit is seeing a home appreciation rate of 15.42% – so you’ll want to act quickly if you see an investment property you love.

9. Cincinnati, Ohio 

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 21.38

Ohio continues to be a popular place to invest in real estate, with Cincinnati coming in at No. 9. Cincinnati was recently ranked as the No. 1 best place to live in Ohio.16 Some of the best neighborhoods in Cincinnati include Hyde Park, West Price Hill, East Price Hill and Oakley.


The median sold price for homes is currently $252,333, with a high home appreciation rate of 13.53%. Sold prices have decreased 4.8% since August 2022, with homes typically selling under 30 days of being on the market. ​

​10. Columbus, Ohio 

• DTI: 1.14
• CPI: 276.525
• Rent-to-income ratio: 21.62

As the capital of Ohio, Columbus is known as a great place to live for job opportunities and career growth. It was even ranked in the top 15 cities to launch your career.17 Columbus is home to several large universities, making it a hub for student housing rentals. These neighborhoods include the University District, Victorian Village and Short North.


The median sold price for homes is currently $246,417, with a high home appreciation rate of 13.53%. As of September 2022, homes in Columbus are being sold for 12% more than they were in 2021.

​Below are some frequently asked questions about real estate investing.

What Are Some Tips For Real Estate Investing?

​After you’ve found the ideal place for your real estate investing needs, here are some tips on how to better understand the real estate market as a new investor. 

1. Learn the real estate market

Once you’ve chosen your location, whether it be a large city or a small town, connect with local real estate investors and agents to learn more about the local market. You can learn a lot from those who have been investing in real estate in your area and the expectations of cash flow and revenue.

1. Understand homeowners insurance

As a homeowner, you’ll need to insure your purchased home. However, when buying a potential rental property, you’ll also need rental property insurance – also known as landlord insurance.

1. Make a plan

Once you’ve done your research on the local market, always make a plan for the next steps. Be mindful of market conditions and seasonality. Ask yourself questions like, “What are popular months for renters to renew leases?” and “What are the median rental rates in the local area?”
What Makes A Real Estate Market Attractive For Real Estate Investors?A real estate market can be deemed “attractive” to real estate investors if they see these three things:

• Appreciation
• Cash flow
• A balance between appreciation and cash flow

If you’re seeing a high home appreciation rate plus a cash-on-cash return on rental properties, these are great signs the city you’re looking at has promise in investing opportunities.

​KEY POINTS

• Investor home purchases dropped just over 30% in the third quarter of this year compared with the same period last year, according to Redfin.
• The drop in investor sales outpaced the drop in overall home purchases, which were down roughly 27% in the third quarter.
• Home prices are still higher compared with a year ago, but the annual gains are shrinking at an unprecedented pace.

​Home sales have dropped for nine straight months, driven by surging mortgage rates, and now investors are pulling back even more than traditional homebuyers.
Investor home purchases dropped just over 30% in the third quarter of this year compared with the same period last year, according to real estate brokerage Redfin. That’s the biggest drop in investor sales since the Great Recession over a decade ago, with the exception of a very brief stall in the first two months of the Covid-19 pandemic in 2020.

The drop in investor sales outpaced the drop in overall home purchases, which were down roughly 27% in the third quarter. The investor share in the overall market also fell to 17.5% of all sales from 18.2% a year ago. The share is still, however, slightly higher than the 15% share seen before the pandemic.

“It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” said Sheharyar Bokhari, senior economist at Redfin. “This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year.”
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Non-investor homebuyers are facing much higher mortgage rates and a shortage of affordable homes for sale. Investors tend to use cash more often than traditional buyers, so they are not quite as influenced by mortgage rates. They are, however, influenced by home prices, which are weakening.

​Home prices are still higher compared with a year ago, but the annual gains are shrinking at an unprecedented pace. The S&P CoreLogic Case-Shiller national home price index was up 13% in August, which is the most recent reading, but that was down from a 15.6% annual gain in July.

“The -2.6% difference between those two monthly rates of change is the largest deceleration in the history of the index (with July’s deceleration now ranking as the second largest),” Craig Lazzara, managing director at S&P DJI, said in a release. “Further, price gains decelerated in every one of our 20 cities. These data show clearly that the growth rate of housing prices peaked in the spring of 2022 and has been declining ever since.”
Investors who are still in the market, however, are still paying higher prices than last year. The typical home purchased by an investor in the third quarter cost $451,975, up 6.4% from a year ago, but down 4.3% from the second quarter.  
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Regionally, markets seeing the biggest decline in investor activity were Phoenix, Arizona, Portland, Oregon, Sacramento, California, and Atlanta, Georgia. All of those were some of the hottest pandemic-driven markets that are now seeing the steepest slump in overall sales. Miami also saw an outsized drop in investors, suggesting that even the massive drive to the Sun Belt is finally easing.