2023 Commercial Real Estate Outlook

Multifamily rentals still a great investment

We still have a housing crisis in this country, and with mortgage rates ticking up, fewer people can afford to buy. This has led to high demand for rental housing and insufficient inventory. And, with many construction projects having been temporarily halted in the wake of the pandemic, completion of new rental units – though still near historic highs – has been lower in the past few years than anticipated.

Even so, 2022 saw the greatest number of completions for new rental units since 1976, according to RentCafe. The population of the United States was just over 200 million at that time – just 65% of what it is today. 

So, it’s easy to see why the demand for multifamily rentals remains high – especially when considering pent-up demand resulting from individuals who had planned to move before the coronavirus pandemic put off the transition and remained living with friends or family.

Moreover, the costs of construction materials are largely returning to normal after being elevated due to shortages. All of this means that conditions present an excellent opportunity for investors to generate tremendous ROIs buying or building multifamily units.

Many markets can’t get enough single-family residential

As has been noted, there was a significant dropoff in residential construction during the pandemic and again when prices of construction materials reached new highs due to the inflation that followed. The lack of new housing units coming to market led to considerable demand among home-buyers, particularly those fleeing cities or delaying moves until after the pandemic. 

And, though mortgage applications have slowed somewhat since interest rates ticked up, they certainly haven’t stopped. It’s safe to say that single-family housing will remain a hot commodity for the foreseeable future. With prices for materials returning to pre-inflation levels, there’s plenty of opportunity for savvy investors to build a portfolio of single-family homes over the coming years.

The challenge in many major markets is simply finding an adequate inventory of buildable lots that investors can develop into new residential. However, this obstacle is partly being overcome by the increased use of land banks and the redevelopment of older communities.

Demand for infrastructure is growing

A relatively niche field of development for real estate investors is becoming increasingly popular in the form of infrastructure projects. Once a lesser-known area, demand has grown in recent years for the development and redevelopment of key infrastructure projects, leading to increased investment from smaller investors. 

This is especially true for technology-related infrastructure, such as data centers, as well as improvements to airport terminals and other infrastructure projects. Though they often lack the excitement or appeal of luxury residential or high-end commercial, these projects can produce reliable streams of long-term revenue, and many are niche projects in uncompetitive markets. 

Combined with tax incentives and implicit competition for investment dollars, these factors have conspired to generate solid ROIs for investors in the coming years.

Renewed calls to reduce or eliminate capital gains tax

This month Republicans took control of the U.S. House of Representatives after a very tenuous midterm election. Among other proposals, Republicans have long floated the idea of eliminating the capital gains tax – a notion that is sure to be taken back up with the new Congress.

The elimination of this tax – a topic to be discussed widely in the coming months – would make many real estate investments considerably more profitable for investors. It would also give investors considerably more flexibility to jump from project to project, especially in development requiring co-investment with partners with different investment horizons. 

Eliminating the capital gains tax would allow investors to sell or reinvest their earnings without the need for a costly and complicated 1031 exchange. It would also allow investors to tap the gains from a profitable project without completing a cash-out refinance. Instead, they could sell, use part of their profits, and reinvest in new deals without regard for tax liability.

Property management is getting easier with technology

Recent years have seen the advent and popularization of many property management tools, including software and cloud-based platforms. These tools make it increasingly easy for investors to advertise their properties for rent, vet potential tenants, manage leases, collect payments, and so on. 


As these programs have grown in number and sophistication, a growing number of landlords have been moving away from professional managers. Those willing to manage properties themselves have been able to achieve high ROIs, particularly if they have multiple properties or multi-unit properties. 


Still, the property management industry has largely resisted competition for fees. This has led landlords to choose from (1) conventional property managers that charge around 10% of monthly rent, (2) less costly managers that charge 6 to 7%, and (3) do-it-yourself management software options that charge a flat fee starting at less than $10 per month.

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