Real Estate's New Frontiers in 2023

 Looking at the big picture

The real estate industry is moving past what it sees as cyclical headwinds, such as rising interest rates, falling gross domestic product (GDP), and falling deal flows, and looking at real estate assets in the long term. When we talked to real estate pros for this year's Emerging Trends, they were cautiously optimistic. Their plan was to wait out the current slump and set up their businesses for another time of steady growth and high profits.

We find it surprising that so many people in the industry are willing to look past cyclical headwinds. One real estate agent told us, "When we look back in 10 years, prices that seem crazy to us now will look like a steal."

Some parts of the industry are getting back to how they were before COVID, while others seem to have changed in a way that won't go away. This is because the pandemic has changed how and where we use different types of properties. In different markets, these patterns showed up in how real estate agents saw prospects.

Work from home vs. going back to work

Even though the pandemic is over, most people still don't go to work nearly as often as they did before it. Several sources say that, at least in major markets, less than half of workers go to the office on any given day. Because of this, some big tech companies and investment banks have given people deadlines to come back to work.

It's still too early to tell if these demands from employers will lead to more work in the office, since similar requests in the past didn't seem to change much. At the end of the day, it may be hard for employers to put the toothpaste back in the tube because consumer behaviour seems to be changing. Most people today don't want to drive to work more than once in a while.

The real estate business is being affected by this way of thinking. Insiders we talked to say that between 10 and 20% of the office buildings need to be taken down or used for something else. Landlords will have to do a better job of giving tenants what they want in the office space that is left.

As employers and employees decide how they want to work, many companies will keep their offices, either as a precaution in case they need the space in the future or because they can't get out of their lease. But more businesses are cutting back on their size or not renewing their leases when they end. Because of this, vacancy rates are still slowly going up, which is different from every other major real estate sector. Many tenants are even renting out their office space to other people until their leases are up.

No one can say for sure how much office space workers will need in the years to come. But even in the worst case, we don't think that a lot of people will leave their offices in the near future.

Let's look at the best places to buy a home this year.

Some parts of the industry are getting back to how they were before COVID, while other parts seem to have shifted permanently to a "new normal" as a result of how and where we use different types of properties changing because of the pandemic.

This year's trends show that "magnet" markets, many of which are in the warmer Sun Belt, are still the most important. They are at the top of the list of "markets to watch" while the number of cold-weather markets in the Northeast and Midwest is falling.

Almost all of the top real estate markets on this year's list are in the south and west, where growth is faster, and away from the coasts. Nashville was once again the best metro area, while the Dallas/Fort Worth area jumped five spots to become the second-best market. This year's survey gave the Atlanta metro area a better score, which moved it from number eight to the third spot.

People choose where to live based on how good the quality of life is and how much it costs. Many of the markets that got lower scores this year have infrastructure that isn't good enough for their size and growth.

Even though they dropped in the rankings this year, Raleigh, Phoenix, and Charlotte are still in the top 10. Seattle dropped out of our top 10 list because of slower growth along the coast, but Miami moved up to the number seven spot.