Multifamily Investment Trends for 2023


Critical market fundamentals are altering due to the unstable economic environment even when they have the market fundamentals. More people continue to rent, even when they have the money.

Understandably, home sales have dropped nationwide. For many prospective home buyers, renting is the best option because rising mortgage rates make it difficult.

Renting continues to be the best choice for many Americans when increased mortgage rates and persistently high single-family home prices are considered.

Given these shifts in the real estate market, owners and managers of multifamily rental housing should keep improving the resident experience and ensuring that the cost of renting a house is in line with the amenities and services.

In addition, they must satisfy and even exceed the needs of an expanding population of people and families, many of whom are members of Generation Z and Millennials.

This blog will discuss a few multifamily investment trends for 2023. Let’s have a look!

What Exactly Is Multifamily Real Estate?

Residential real estate with multiple dwellings is multifamily real estate. The property is considered owner-occupied if the owner chooses to live in one of the apartments. Numerous renters may occupy the apartments.

You should expect a few significant distinctions if buying multifamily real estate instead of a single-family one. Since you may only accept one tenant at a time at a given property, excessive vacancy rates and tenant turnover, for instance, can significantly lower your rental income in a single-family house. The same is not true of multifamily properties.

Multifamily real estate guarantees fewer monthly rental revenue and cash flow gaps, although requiring a more significant capital investment than single-family homes.

Multifamily Housing Investment Trends for 2023

1. Technology Helps Owners of Multifamily Buildings in Cooling the Market

Investors must concentrate more inwardly on the areas they can control, such as marketing and spending, as the market cools. Technology is steadily bringing down costs for the latter through automation, improved tenant satisfaction, and operational efficiencies.

The multifamily IT stack is progressively adopting cloud-based innovative building access solutions as the new norm. These technological solutions will lower costs and de-risk your potential downside during a downturn.

In addition, intelligent access not only improves resident satisfaction but also eases administrative responsibilities on property managers and increases NOI for building owners.

2. Interest Rates Increase Occupancy In Multifamily Housing

Multifamily is experiencing unexpected benefits as the Federal Reserve keeps raising interest rates to fight inflation. Many purchasers are delaying since mortgage interest rates are rising, and financing for a house purchase is becoming more expensive.

As a result, people rent their homes for longer as prospective buyers postpone their real estate deals or wait until the market stabilizes.

The multifamily market is expected to stay rich due to high home prices and rising mortgage rates. The number of multifamily vacancies is anticipated to remain low despite rising rents. Please pay close attention to interest rates and housing costs in the residential real estate market as we enter the new year.

Through 2023, the single-family housing market will probably continue to benefit from high mortgage rates and housing costs.

The multifamily market may rebalance when the residential market dynamics stabilize, which could manifest as a decline in performance. The market may, however, be stabilizing after experiencing unusually high activity for the past few years.

3. Affordable Crisis Solved by Innovative Reuse and Renovation

The availability of affordable housing on a national level is anticipated to be limited through 2023. The need for cheap housing options impacts multifamily, and one of the most well-liked solutions will be innovative reuse initiatives and modernizing upgrades.

As more investors and developers act and respond to the need for more housing at affordable rates, it is anticipated that turning other commercial real estate asset classes into multifamily buildings will become prevalent in the market by 2023.

Property owners can change course to improve the profitability of their multifamily assets by renovating existing multifamily buildings into affordable housing options. This will be a marketable investment choice because there is typically a tremendous demand for affordable multifamily housing.

4. The Workforce Moves Toward Multifamily

The demand for urban flats is projected to continue high as more people in the workforce begin to return to the workplace. The national housing crisis and high single-family house prices, taken together, make workforce housing an attractive investment for multifamily investors.

Multifamily buildings seeking to entice tenants into the force may perform better by focusing on metropolitan areas close to professional market hubs.

In addition, renovating and upgrading the structure may be beneficial, especially if the building is older, to assist in positioning multifamily assets as desirable possibilities.

A solid internet connection is another crucial factor when placing a multifamily building to appeal to the workforce. Both cellular and WiFi connectivity should be excellent in your building.

Many workforce renters will work remotely, either full-time for remote jobs or just a few days a week for hybrid professions. To provide these tenants with a functional workspace, it is crucial that your building has a reliable network infrastructure.

At the absolute least, the system must accommodate WiFi and cell service and not be a dead zone for connectivity. Some structures offer WiFi packages to entice and keep tenants.

5. The Quest for Quality Continues

Tenants seek quality in the office, retail, or multifamily sector. As more tenants think about the experience a building or space delivers, quality becomes increasingly essential for every piece of commercial real estate.

New worries about the pandemic emerged as everyone returned to the constructed environment after a long absence, which ignited this.

Multifamily tenants will consider all their possibilities when choosing a place to live. Tenants in multifamily properties probably have a long list of requirements. The local building that most satisfies their needs, wants, and non-negotiables will be the subject of their inquiry.

Maintaining the structure and updating the common areas are essential for multifamily properties to run well. Here are some suggestions to get a multifamily property ready to draw tenants into the market in 2023:

  • Inside the apartments and in communal areas, paint the walls.
  • Think about updating the lobby’s furnishings and decorative elements.
  • Increase how often the communal areas are cleaned.
  • Provide enticing on-site amenities.
  • High occupancy and record rental growth may be coming to an end.

The rental housing market was supported by record apartment demand and rising rental rates despite the turbulence and uncertainty caused by the pandemic in the United States over the past two years. So it sounds concerning when apartment demand slows, housing construction stops, and growth slows.

6. Impact On Transactions Involving Multifamily Properties Starts

Construction of new multifamily apartment complexes, build-to-rent single-family houses, and sales of existing rental housing are all significantly impacted by rising material costs, increased borrowing rates, and persistent economic instability.

As a result, the number of new apartment starts will shortly decline from multi-decade highs due to increased borrowing costs and weakening fundamentals. In addition, a sharp increase in Treasury rates may drive potential agreements to the sidelines as borrowers wait out the volatility.

Rents and occupancies could stay strong despite a decline in construction starts. That’s because there is a severe housing scarcity in the United States.

As a result, there is a need for more rental housing compared to demand, which drives up rents and occupancy rates.

7. Enduring Optimism Towards Rental Housing As An Investment And A Top Employer

There are many reasons to be optimistic. First, the outlook for rental housing is still positive, even though rising inflation can be both disruptive and unsettling for multifamily owners, investors, and employees.

The housing market as a whole also has a persistent shortage of about 5 million units. These circumstances enable owners of multifamily properties to raise rental rates and offset rising labor, construction, insurance, and other costs, thereby hedging the impacts of inflation.

In 2023, Are Multifamily Properties A Wise Investment?

In general, multifamily properties look like great investments in 2023, not just decent ones. Millions of would-be homeowners have been turned off by the higher cost of borrowing money to purchase a home.

As a result, many have remained in the rental market (both multifamily and single-family rentals). As long as the Federal Reserve keeps raising interest rates, prospective purchasers will likely remain unwilling to take on mortgage debt through 2023.

Multifamily and industrial are the most sought-after asset classifications in 2023. However, competition may present a challenge for multifamily investors in 2023.

Fewer lenders and investors will provide financing for assets in 2023. multifamily should be the most dominant asset class in real estate by 2023.

Six Tech Tips From Top Multifamily Leaders For 2023:

  1. Extend revenue management beyond pricing;
  2. Investigate deals thoroughly earlier;
  3. Eliminate Entry Barriers for Investment Opportunities;
  4. Concentrate on Improving Housing Processes;
  5. Identify the Best Possibilities in the Build-To-Rent Sector;
  6. Utilize benchmarking to close the loss-to-lease gap.

Final Takeaway,

While it’s crucial to remember that past increases in property prices are meaningless if they don’t continue, the markets on our list all have solid multifamily market fundamentals that should make them rich even in the event of a downturn in the economy. So naturally, please don’t take our word for it; before investing, you must conduct your study.

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