Investors are being more cautious than usual these days, with recession fears and interest rates seemingly unstable. CBRE released its 2023 U.S. Investor Intentions Survey, which reports subdued sentiment among real estate investors across the board. Over half expect a decrease in purchase activity throughout 2023, with 60% saying they will sell less than in 2022 or not at all. That said, according to CBRE, investment volume will still remain historically healthy.

Source: CBRE (February 2023)

“High-performing secondary markets, particularly in the Sun Belt, continue to attract investors. Dallas, Miami, Austin, Nashville and Raleigh-Durham are expected to perform best. More investors will implement opportunistic and debt strategies than last year because of attractive returns amid higher interest rates and tighter financial market conditions.”

Tony Cantu of MPA reports on the above, noting that multifamily is the most sought-after property sector by investors in 2023, and the second most by lenders. That said, about half of investors expect price discounts of between 10% and 30% for multifamily assets this year. 

For mom-and-pop investors, the data is also similar, according to Redfin. Real estate investor purchases fell a record 46% year over year in Q4 2022. That said, the drop in investor purchases reflects a broader pullback in the housing market and sales volume. Of note, the investor share of purchases still sat at 18% of all homes sold, down only from 19% a year earlier.

Source: Redfin (February 2023)

Unsurprisingly, investors mostly pulled back from single-family homes, favoring more affordable condos and townhomes. According to Redfin Senior Economist Sheharyar Bokhari: 

“It’s possible that investors will start to wade back into the market this year given that mortgage rates have ticked down from their 2022 high—especially if home prices show signs of bottoming…But it’s unlikely that investors will return with the same vigor they had in 2021. That’s good news for individual buyers, who are still grappling with high housing costs but no longer losing bidding war after bidding war to investors.”

Office space

Whereas the residential rental investment markets seem to maintain their robustness, the same can’t be said for office. CommercialEdge released its 2023 Office Market Report, noting that the total vacancy now sits at 16.6% but that not all assets and metros in the office market are created equal:

“Metros with high quality office products might be better positioned to weather the storm, as tenants continue to look for well-amenitized, Class A office space in premium locations. This trend is expected to put downward pressure on older assets, especially those that are not well-located and well-kept, positioning these at a higher risk of distress as well.”

Currently, 5 markets account for a quarter of the national construction pipeline:

Source: CommercialEdge (February 2023)

Tristan Bove of Fortune reports on a Cushman & Wakefield report, highlighting that 330 million square feet of office space could become vacant by 2030 mainly as a result of remote and hybrid work. Before the pandemic, the national office vacancy rate sat at 12%, but by 2030 Cushman & Wakefield believe this will jump 55%, to 18%. This will have an impact on markets heavily dependent on office workers:

“Early evidence of remote work’s impact on urban office neighborhoods, and the businesses that once served office workers, may have already emerged during the pandemic. In several studies last year, economists warned of a “doughnut effect,” or the migration of workers from city cores to suburban areas that is forcing many retail businesses and restaurants to relocate further from the city too.”

Four-day work week

Adding to the move away from in-person office work is a new push toward a 4-day work week. A pilot project was recently completed in the UK: 61 companies and 2,900 workers between June 2022 and December 2022 worked only 4 days a week. Here are some of the findings:

• Of the 61 companies, 92% are continuing with the 4-day week.
• Following the pilot, 39% of employees reported less stress, and 71% had reduced levels of burnout. 
• Levels of anxiety, fatigue, and sleep issues decreased, while mental and physical health improved.
• When compared to a similar period from previous years, organizations reported revenue increases of 35% on average.
• 15% of employees said that no amount of money would induce them to accept a 5-day schedule over the 4-day week to which they were now accustomed.

Source: Bloomberg (February 2023)

Propmodo reports on this experiment, noting that if companies in North America embraced a 4-day workweek, it might entice employees to return to the office. “[I]f the notion gains more steam, I think office building owners and office managers should lean into the idea. Forcing people to come into the office has not proven to be particularly effective. Maybe providing a comfortable, productive space where people can get 5 days’ work done in 4 is a better strategy.”

Irina Anghel and Arianne Cohen of Bloomberg report on this study, highlighting that this larger trial follows similar, yet smaller, ones in the U.S., Ireland, and Australia. These smaller experiments had similar results to the one in the UK. One of the key findings as well is that women disproportionately benefited from the 4-day workweek, and all participants reported a higher level of productivity and exercise.