The Azucena Take: Real Estate Supply & Demand in 2023

Supply & Demand - It's the backbone of the economy as the price of a good or service is based on the value of its demand in the free market. The concept of supply and demand affects every aspect of the economy, including the investment real estate market. That is why it's crucial for every investor to have a solid understanding of this fundamental economic principle.

So what is the market demand for property types at the moment? 

The basic fundamentals to know is that so long as demand outpaces supply, vacancy rates will be low. But not every property type or market will be seeing these trends. That is why it's important to have a good idea to see how each property type is performing. 

Demand Surpassing Supply

Key Demand Factors

In the investment real estate market, the rule of supply and demand works such that when demand for a particular property type exceeds its available supply in a given market, its value increases, whether in terms of price or rental cost. Conversely, when demand is low and supply is high, the property's value decreases. While this decrease will affect the property's price, rental costs will only be slightly impacted.

Demand for a property type in a market is driven by the following factors: 

  • Job Formation

  • Population Growth

  • Household Formation

  • Changes in Household Income

  • Migration Patterns

Property Supply & Demand

Office: Office demand has been weak following the pandemic, resulting in an average vacancy rate of about 17%. However, the vacancy rates could be higher in certain markets. Although construction has slowed down, there is still a significant amount of inventory available.

Apartments: Due to ongoing supply chain issues and financial burdens caused by rising interest rates, an estimated 400,000 new apartment units could enter the market between late-2023 to mid-2024. However, this is expected to be good news for current apartment owners as vacancy rates remain low.

Industrial: 12% of new properties brought onto the market have been industrial space while its average vacancy continues to decline. 

Retail: When it comes to new inventory, it depends on the property type. 69.7% of all new retail space will be single tenants while 30.3% will be multi-tenant. Vacancy rates have returned to pre-pandemic levels and the average rent has grown by 8.5%.

What it Means for Investors 

The key takeaway is that demand exceeds supply, making their assets highly valuable. There are some exceptions but a smart investor looks for a solution, not an excuse. Even as new properties enter the market, it's unlikely to have a significant impact on an investor's portfolio.


The Azucena Take provides an inside look into the investment real estate market using the research done by Marcus & Millichap.

Carlos Azucena