One of the safest statements we can make about real estate right now, both commercial and residential, is that it’s turbulent and volatile.

We’re straight off the back of a global pandemic, followed closely by what can only be described as a tumultuous 2022, into a period of rising inflation (6.45% as of January 2023), increasing costs to finance real estate purchases and cap rates that are under pressure from hiking interest rates.

Challenges abound, both for individuals looking to get into or move upwards in the housing market, and real estate investors. But where there are challenges, there may also be opportunities, and I’ll explore a few of those below.

5 real estate investment predictions

Looking at our current state of play and the impact this could have, here’s what I see happening in real estate investment in 2023…

1. Workplaces will change

There is content and statistics seemingly endless about how the pandemic has changed the workplace as we know it. Businesses have reprioritized, working life has generally become more flexible, and there’s more digitalization evident.

Moving forward, the 2023 trend seems to be for specific locations and specific asset types when organizations are looking for new premises. Many of the older buildings in New York City, for example, are being converted into family residences (the Hanover office is one such example), rather than office space.

Businesses are now looking for quality over quantity in terms of both location and building size and type – after all, there may be fewer people in the office at any given time. There’s also more emphasis on building sustainability – green credentials are increasingly important – and wellbeing amenities, such as fitness facilities.

2. Investors will mitigate risk while building agility into their strategy

With the threat of recession on the horizon, I predict that real estate investors will want to mitigate risk. Ensuring stable cash flows and preserving value will be prerequisites.

However, savvy investors will also adapt to rolling market conditions and have easily accessible funds on hand for opportunities that might be higher risk, but could come with great rewards.

3. Housing affordability challenges will remain

Sad to say, but it doesn’t look like 2023 will be any easier in terms of residential affordability. Rates will probably remain high, and while house prices may fall, that will only be in comparison to the huge increases in the value of the residential property we saw during the pandemic.

But there might be an upside. The businesses that I mentioned in my first prediction that are looking for good locations are increasingly looking to the Northeast, South, and Midwest, where homes are also typically more affordable. Potential buyers might just find good employment opportunities and a foot on the housing ladder in the same place.

4. Demand for warehouse space will outpace demand for retail space

Another after-effect of the pandemic is the huge boost in e-commerce. People simply had to order online what they would have once gone to a store and bought. That switch in buying habits is reflected in the e-commerce sales statistics: in 2020, ecommerce sales increased 42.4% year-on-year. And it isn’t stopping; the increase from 2020 to 2021 was 18.3%, with total sales reaching $959.5 billion, and six months into 2022 showed another 6.8% increase year-on-year.

What does that mean for commercial real estate? A switch from retail investments to warehouse investments. More space is needed in a warehouse to meet the e-commerce demand compared to a retail store. Investors will be looking at warehouse real estate for good returns in 2023.

5. Multi-family homes will yield strong rental returns

Multi-family homes look like a solid real estate investment this year. Their rental rate has increased by almost 15%, nearly matching inflation – but renting is still slightly cheaper than taking out a mortgage.

These types of homes are also in demand, providing a double benefit for investors. A study from the National Apartment Association and the National Multifamily Housing Council predicts that 4.3 million new apartment units will be built by 2035.