Both the residential and commercial real estate markets have weathered significant turbulence since early 2020. As 2023 dawns, it’s important to assess both current and expected market conditions and trends to better ensure that real estate development decisions made this year are as informed as they can be.
One of the primary reasons why it’s so important to make informed decisions at every point in the real estate development process is that short-sighted and ill-informed thinking can lead to legal challenges and negative financial consequences. For example, failing to account for supply chain delays can cause parties to unintentionally breach their duties under a development contract. Anticipating such delays can inspire tiered completion clauses within contract language that protect the interests of all parties.
Unfortunately, supply chain issues continue to impact development in every sector. Inflation continues to influence whether various developers are choosing to build or to pause certain projects until costs come down. And although it has been widely predicted that the Fed will stop raising interest rates at some point in 2023, it is likely that they will continue to rise in the coming months. Yet, certain property types are performing well and as the market continues to stabilize, there is hope that the real estate development industry will benefit from increasingly predictable conditions in the near future.
Multifamily properties are performing well at present, partially because owners and investors are in a position to adjust rent rates as the market changes. Industrial space is also performing above average as well, given that the evolution of the e-commerce market is such that warehouses and similar spaces are increasingly in high demand from e-commerce operators whose business models have either survived intact or successfully evolved since early 2020.
Understanding the ways in which recent economic turbulence is still affecting the market and planning for increased stabilization of market conditions over time seem to be the two primary focuses of many savvy developers as 2023 dawns. By treating these two issues seriously, developers will likely place themselves in the best possible position to succeed in the coming year.