On the whole, 2022 was a challenging year for markets. However, real estate investors learned key lessons that they’ll take into 2023 and beyond. The future of brick-and-mortar retail remains uncertain, as does the long-term outlook for commercial office space. Meanwhile, supply chain issues continue to be a concern, inflation is nearing a four-decade high and the Fed is still raising interest rates as it struggles to strike a balance between cooling the economy and triggering a recession. As crowdfunding platforms like Yieldstreet offer real estate investors new, less costly ways to invest in real estate, here’s what investors learned in 2022, and what may be useful into 2023 and beyond.
Homebuyers hold off during high interest rates
The continuing effects of Russia’s Ukrainian invasion and the resulting sanctions have rippled throughout the global economy, most notably in terms of fuel, shelter and food prices. This, in turn, has exacerbated inflationary pressures world economies were bound to experience as pent-up demand for goods and services was unleashed post-quarantine.
The Fed has been working to bring inflation more in line, using its primary tool—interest rate increases. However, ongoing inflation means more rate increases are expected for 2023, which could affect commercial property investors negatively. However, residential investors might benefit, as rising interest rates give potential homebuyers pause, which means they are likely to continue to rent.
Affordable housing demands will benefit savvy investors
According to Moody’s Analytics, the third quarter of 2022 saw multifamily vacancies hit a five-year low of 4.4%. Demand for affordable housing will continue to outstrip supply, creating an opening for commercial real estate investors to innovate methods of creating affordable housing.
Industrial Real Estate Primed For Growth?
As pervasive as it seems, e-commerce should continue as an emerging market. According to the U.S. Census Bureau, e-commerce accounted for 14.1% of total sales in the third quarter of 2022. This means the logistics industry, as well as industrial real estate opportunities could still have room for growth into 2023. However, retail has niches in which it will still have traction. Grocery stores are faring well, as are barbershops, drug stores, auto repair shops and coffee houses. Opportunities also exist in mixed-use conversions of B- and C-class malls in prosperous residential areas, blending housing with retail opportunities such as restaurants and movie theaters. Downtown retail is likely to experience setbacks, as office workers have demonstrated a decided preference for remote work.
The Bottom Line
On the whole, 2023 already promises a continuation of many 2022 problems. Market volatility, excessive inflation and the resulting interest rate advances likely mean a decline in lending activity, as well as volatility in asset pricing. However, opportunities still exist for investors who can manage the market’s ebbs and flows. Economic downturns of this nature usually produce shakeouts, which can represent discounted opportunities to invest in real estate either directly, on crowdfunding platforms like Yieldstreet for experienced investors.