Commercial Real Estate Trends Investors Should Keep Their Eyes on in 2023

Savvy investors are always searching for profitable ways to invest their money in areas that can earn them income immediately or further grow their wealth. One of the most high-yielding ways to do this is to invest in real estate, specifically commercial real estate. When a layperson hears ‘real estate investing,’ they often think of residential properties like houses or condos. While these are profitable avenues for investment, other great opportunities exist in the commercial world.

The simplest way to define commercial real estate is any property that has the potential to generate profit through capital gain or rental income and consists of anything from an office building to residential duplexes and even restaurants or warehouses. If you can make money from leasing it out or holding it and reselling it, it’s considered a commercial asset.

Commercial real estate is an appealing investment class with its consistent returns, higher rental value, and passive income. It has enormous growth potential and a consistent cash flow in rentals, which is why commercial real estate has become an alluring opportunity for investors.

Commercial real estate has seen phenomenal success thus far in 2022. Although forecasts vary among asset classes, the overall industry outlook remains positive heading into the final quarter and beyond. According to NAIOP, most CRE specialists have a favorable industry outlook for the near future but lower overall confidence in the market than last year. Investors remain optimistic for the fourth quarter, despite turbulence from external economic factors.

Here are the trends commercial real estate investors should keep an eye on as we head into 2023.

Single-family rental properties are seeing some of the best returns over the last few years. A combination of rising home prices, advancing technology, and changing tenant preferences has helped fuel the trend. Financial heavyweights like Jeff Bezos are beginning to bankroll the single-family rental industry, buying existing properties and building new ones. And as the old saying goes, if you can’t beat ’em, join ’em.

The average return on single-family rentals is around 8% – 12%, with a maximum return of 12% for mortgage-financed rentals. For cash investments, the return is usually between five and 10 percent. A solid single-family rental market analysis suggests a return of 7% or more on homes priced under $250,000 and 8% on homes priced over $500,000. These numbers are subject to local market conditions, operating expenses, and property type.

Apartment buildings offer wonderful benefits for commercial real estate investors due to their scale and potential for high returns. A report released in July revealed that the national median rent for a one-bedroom apartment is $1,450 and $1,750 for a two-bedroom apartment. Multiplied by, say, 100 units, an investor could make upwards of $1.7 million in gross rental income each year. 

Demand for rentals is currently high because of a low-cost housing shortage across many American cities. Multifamily assets saw strong momentum at the start of 2022, accounting for most of CRE investment volume earlier this year. 

CBRE said that investment in multifamily properties reached $63B during the first quarter, setting the record for the strongest first-quarter performance with signs of continued growth throughout the rest of the year.

The industrial sector comprises companies that produce machinery, equipment, and supplies used in construction and manufacturing and provide related services. 

The industrial market has consistently risen by 4% annually over the past five years and shows signs of increased demand in the near future. Industrial stocks, represented by an exchange-traded fund (ETF)—the Industrial Select Sector SPDR ETF (XLI)—have outperformed the broader market, providing investors with a total return of -7.0% compared with the Russell 1000’s total return of -9.7% over the past 12 months.

Office and retail assets, in contrast, have been slower to rebound from the pandemic as companies continue their migration to remote/hybrid work and traditional brick-and-mortar stores continue to face stiff competition from the growth in e-commerce.

Diane Black Robinson, CEO Of Black Collie capital, has decades of experience helping hundreds of clients analyze, underwrite and secure $900 million in capital funding to achieve their real estate goals. And as 2023 nears, she can help you too!

 We believe access to quality real estate capital shouldn’t be limited to a select few. When you find the right partner, you can access the best financing solution that meets your specific project needs.

 Our experienced teams are on hand to help you finance all types of properties, including:

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With our extensive network of lender relationships, in-depth market knowledge, and capital resources, we are uniquely positioned to work with experienced owners, investors, and developers across all asset classes to grow their portfolios. 

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