Investment Real Estate Activity Trends of 2023
As we enter halfway through the Summer Season, industry experts now have more insights into defining the investment real estate market of 2023. Transactional activity has decreased compared to 2022, which may seem negative initially. However, a deeper examination is necessary to understand the nuances at play.
Hence, it's crucial to analyze market trends and figures to avoid relying solely on sensationalist headlines.
Transaction Counts
An alternative to dollar volume is to use transaction counts. Transaction Counts are the total number of transactions that have been completed during a given period. This method removes many of the factors that skew the results in a way that would present an inaccurate understanding of the market.
Fallacy of Dollar Volume
Dollar Volume is the total or sum of the sales prices of all transacted properties during a given period. A common method, it's not an accurate gauge for several reasons. Firstly, the sales mix significantly impacts results, e.g., high-value vs. mid-range property sales. Secondly, changes in overall property value can alter the results.
2022 vs. 2023 at a Glance
Before breaking down the numbers, it's important to note that 2022 was one of the most active years in recorded history. Low interest rates and economic restrictions being lifted in mid-2021 plus pent-up demand fueled growth. While the numbers may have dipped in 2023, they are still on par with the year-over-year average.
To have an idea of how the market performed in 2023 compared to 2022, it helps to look at the transaction numbers. We will break it down by property type and its value range.
Apartments: In 2023, sales of apartments valued at +$1 million were 17% below average. Sales of apartments valuing between $1 to $10 million were down by 19.4%. Sales of apartments valuing at +$20 million were only down by 5% when compared to the average, but it still took a massive hit compared to the numbers from 2022.
Office: 2022 was a good year for offices despite the drop in demand. However, it has taken a hit in 2023. Sales of offices valued at +$1 million were 9% below average. Sales of offices valuing between $1 to $10 million were down by 0.06% while sales of offices valuing at +$20 million were down by 48% when compared to the average.
Retail: This was one of the few property types to beat some expectations in 2023. Sales of retail space valued at $1 to $10 million were 7% above average. Sales of retail space valuing at +$20 million were down by 3.5% when compared to the average.
Industrial: This was one of the few property types to beat all expectations in 2023. Sales of industrial property that are valued between $1 to $10 million were 10% above average. Sales of industrial property valuing at +$20 million were 30% above average.
What it Means for Investors
Compared to 2022; investment real estate transactions have slowed down. Most of this has been driven by rising interest rates which has impacted institutions that would have invested in properties valued over $20 million. Individual investors however are still active in the market, being responsible for 80% of transactions in 2023.
While the market has slowed down, this is not a reason to avoid taking action. Any time is a good time to make a move. Just be aware of the market and set your expectations accordingly.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.