Investment Real Estate Performances in 2023
The end of the year is almost here. Between the holiday festivities and ending the year with a bang, you might be wondering what will 2024 look like. Most investors have already planned for next year while others are waiting for more data before making a plan.
One such data that helps investors plan is the performance of property types during 2023. Understanding how the market did during the year along with the current conditions gives us an idea of what to expect going forward.
Property Performance in 2023
Industrial Property saw a minor uptick in vacancy rates when compared to last year. While there was a minor drop in rent, it's still up by 9.8% Y-O-Y when compared to previous years. While absorption rates are still in the positive, it has started to taper in 2023. This has also followed with 400K sqft having been added to the market. Overall; while industrial space is still strong, it has started to cool when compared to the solid momentum it experienced since 2020.
Multifamily saw vacancy rates begin to climb for the first time since 2019. The national rent has also seen a sudden drop in 2023 while maintaining its positive outlook. This decline has been attributed to the layoffs that have hit numerous job sectors from late 2022 to 2023. Demand for apartments is still high while supply has failed to keep up. It's expected that over 480K units will be added to the market in 2024.
Self-storage has also seen a vacancy rise while asking rent has dropped into the negatives. However, it has not been all bad for self-storage owners. While asking rent has declined, effective rents for existing tenants have remained stable. Construction of new storage units is in a toss-up due to market uncertainties going into 2024.
Office is a market that requires a lot of nuance to explain. On the surface, vacancy is still high while rent has remained flat. But you see a major difference when you compare urban offices to suburban ones. Newer and smaller offices located in the suburbs have been outperforming older and larger properties in the urban core. So while offices are still struggling, some are doing better than others.
Retail has been in the same position as the office but its success has been more obvious. Older shopping malls in areas with little foot traffic have been closing down or being converted into mixed uses. Newer shopping malls located in desired areas have seen a boom in growth both economically and regarding development. Since 2021; single-tenant retailers located in areas with high foot traffic have seen high demand.
What it Means for Investors
This information is grounded in the national average. It's crucial to recognize that what unfolds in your specific market can significantly deviate from occurrences in another city, county, or region. Relying solely on national trends provides only a limited perspective on market dynamics. The overarching conclusion is that the market has undergone substantial changes since late 2022. The impact of interest rate hikes has reverberated through the market, affecting the profitability of certain properties that were once lucrative. Notwithstanding these challenges, many properties continue to yield a net gain.
The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.