“As we get ready for 2023, we are waiting to see if the Federal Reserve will continue to raise interest rates to rein in inflation. That leaves rental-market predictions a bit tough to make, but there are some clear trends coming to the fore,” Buildium says.
7 biggest rental market trends for 2023
1. More Investment-Minded Owners in the Rental Real Estate Market
According to the 2023 Property Management Industry Report published by Buildium, Propertyware, and NARPM, 52 percent of rental owners surveyed consider themselves intentional investors, while just 24 percent think of themselves as accidental landlords—those who own or inherited a property they couldn’t sell and so had to rent out—or unintentional investors, who became landlords by accident, but now consider themselves investors. That marks a significant increase in the share of investors that are a part of property managers’ client base over the last five years.
With more investment-minded owners in their client base, property managers have had to pivot their own service offerings. The prior typical landlord just needed a professional to handle maintenance, rent collection, and tenant turnover; today, more owners want a partner in their investment strategy.
Many property managers now advise their clients on property upgrades and services that will help increase value and portfolio expansion. Being experts in their local market, some investors rely on their property manager to find properties in which to invest.
2. Mixed-Use Properties Are Back
While mixed-use properties—those that include a blend of residential, retail/entertainment, and business properties—lost some ground during the pandemic, the trend is making a comeback as construction gets under way once more.
According to Price Waterhouse Cooper’s (PwC) Emerging Trends in Real Estate 2023, of the 1,300 malls in the United States, 500 are undergoing renovation into mixed-use spaces. The properties offer plenty of attractive features for residents, including easy access to restaurants, shops, and entertainment, as well as such essentials as grocery stores and medical centers.
Mixed-use properties may be worth a look for investment-minded property managers, particularly those who have the staff and resources to add commercial spaces to their portfolios.
3. The Suburbs and Single-Family Rentals Are Still Attractive
Both PwC and Buildium’s reports point to the continued popularity of single-family rentals. According to the latter, 68 percent of respondents lived in suburban or rural areas, a number that has steadily increased over the last five years. These tenants are looking for:
- A safe, quiet, family-friendly neighborhood
- The indoor and outdoor space that allows them to grow their families, whether that means welcoming children, pets, or other family members
- A child-friendly home that provides air conditioning, a washer and dryer, and a dishwasher
4. Record Inflation Will Most Likely Continue in 2023
From food to gas to home heating fuel, everything costs more now. In fact, according to the Federal Reserve Bank of Dallas, inflation is now at a 40-year high. Despite the passing of the Inflation Reduction Act, the cost of living is still rising as we move into 2023.
According to the 2023 Property Management Industry Report, 26 percent of renter respondents paid most bills on time and in full and 11 percent reported that they’re struggling to keep up with their household expenses.
5. Mortgage Interest Rates May Continue to Rise
In early November, the Fed raised interest rates for the fourth time in 2022 to just over 7 percent. The Nasdaq is predicting that they could reach as high as 9 percent in 2023. The dramatic increase has forced Americans who were looking to become homeowners to reconsider, and continue to rent.
6. Renters Are Now Coming from Multiple Age Groups
Baby boomers, who are becoming tired of the hassle of keeping up a house, now make up a significant portion of renters in the United States. At the same time, more millennials, the largest generation in the country, enter the housing market every year, usually as renters first.
7. Renters Are Looking for Diversified Space
The shift to work-from-home and the increased number of families-as-renters will continue to have an effect on the types of spaces renters are looking for. According to PwC and our Industry Report, rental market trends show more residents want:
- Homes with an extra room or flex space: Renters are borrowing space from larger open rooms to create smaller private spaces, or adding an office in dead space off a hallway.
- Units with outdoor space: That doesn’t necessarily mean a large yard. Outdoor spaces could be a simple patio or a small garden.
- A mix of public and private spaces: For example, a home may have a larger kitchen and living room with adjacent food prep spaces or book nooks.