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Top 10 Best and Worst CRE Investment Markets for 2023

Published: 02-13-23 Category: Insight

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

10 Best & Worst Cities for CRE Investment in 2023

Although 2023 began with some positive economic indicators, like cooling inflation and lower Federal Reserve rate hikes, America’s big cities are going through their own economic cycles.

To find the cities that would be the best and worst for CRE investments in 2023, we analyzed the "Emerging Trends in Real Estate 2023" report by the Urban Land Institute and PwC. This report is based on the perspectives of 1,450 survey participants and 617 individuals interviewed during the research, including investors, fund managers, developers, property firms, lenders, brokers, and advisors.

We identified the best and worst 10 cities to invest in commercial real estate based on several factors, including investor demand, development/redevelopment prospects, local economy, investment from public and private sources, and debt and equity capital availability.

The survey participants scored each category metric, with 1 being very poor and 5 being excellent. The overall average rank of these individual factors then determined the best cities to invest in this year.

Key findings:

Nashville, TN was ranked as the top city to invest in, with a final rank of 1.
Dallas/Fort Worth, TX, and Austin, TX ranked 2nd and 3rd as attractive cities for commercial real estate investment.
Tampa/St. Petersburg, FL, Raleigh, NC, and Phoenix, AZ were among the other cities ranked in the top 10 best cities for commercial real estate investment in 2023.
The cities with the lowest ranking for commercial real estate investment included San Francisco, CA; Los Angeles, CA; New York, NY, and Boston, MA.

If you want to invest in CRE in 2023, here are the cities where you will have the best and worst opportunities for a return on investment, starting with the best.

#1 – Nashville, TN

Nashville’s fame as a country music hotspot keeps growing, together with a strong job market. Career opportunities have been growing, especially within the construction, manufacturing, professional services, education, and health sectors.

Investors shopping CRE properties are attracted by Nashville’s low 3.3% vacancy rate recorded for 2022 and average asking rent of just under $26 per square foot (PSF). Opportunities within the retail sector are popular with investors, with the median closed price for these properties at $386 PSF, up $40 from 2021.

Metro Investor Demand Score: 4.42 (Rank: 2);
Development/Redevelopment Opportunities Score: 4 (Rank: 2);
Local Economy Score: 4.42 (Rank: 3);
Local Public and Private Investment Score: 3.88 (Rank: 1);
Availability of Debt and Equity Capital Score: 4.29 (Rank: 1).

#2 – Dallas/Fort Worth, TX

Texas is a prime relocation destination for businesses and individuals leaving high-tax states. This made the Dallas/Fort Worth metroplex a hot favorite for investors. By mid-2022, the DFW area’s total CRE volume was just under $23 billion - a 54% increase from mid-2021.

Sales and lease transactions during 2022 included the sale of the Trammel Crow Center for $615 million and the lease signed by cybersecurity leader Trellix for over 75,000 SF in the Legacy/Frisco suburb. As 2002 drew to a close, the Preston Center area came in first in office lease pricing at over $49 PSF.

Metro Investor Demand Score: 4.4 (Rank: 3);
Development/Redevelopment Opportunities Score: 4.04 (Rank: 1);
Local Economy Score: 4.53 (Rank: 2);
Local Public and Private Investment Score: 3.86 (Rank: 2);
Availability of Debt and Equity Capital Score: 4.16 (Rank: 4).

#3 – Austin, TX

The capital of the state, Austin is also known as the Silicon Valley of the Southwest. Companies like Apple, Amazon, Facebook, Google, IBM, and Dell all have a presence in the city. Austin’s economy is powered by a 2.8% unemployment rate, which supports a positive outlook for CRE investors.

The Austin retail market is especially impressive, with a 4.6% vacancy rate and asking rent prices up by over 11% in 2022 year-over-year. Landlords are averaging $28 to $29 PSF annually, with over 604,000 SF of new construction underway. The outlook for industrial properties is strong, with 4.2 million SF of net absorption during 2022.

Metro Investor Demand Score: 4.62 (Rank: 1);
Development/Redevelopment Opportunities Score: 3.86 (Rank: 6);
Local Economy Score: 4.61 (Rank: 1);
Local Public and Private Investment Score: 3.68 (Rank: 6);
Availability of Debt and Equity Capital Score: 4.29 (Rank: 1).

#4 – Tampa/St. Petersburg, FL

Tampa is the largest city in the Tampa Bay area, which is home to nearly 4 million people. The area is growing rapidly, racking up 2.39% in employment growth during 2022. The combined Tampa/St Petersburg retail market is mainly fueled by tourism, with an overall 4.3% vacancy rate.

Average asking rent for retail space is $22.28 PSF, full-service gross. The area has racked up 390,904 SF of absorption through Q3 2022 and new construction totaling 143,550 SF. A notable office property sale was Tampa’s 6302 Corporate Center, a 350,000 SF property. The buyer was Miami investment company Torose Equities.

Metro Investor Demand Score: 4.38 (Rank: 4);
Development/Redevelopment Opportunities Score: 4 (Rank: 2);
Local Economy Score: 4.28 (Rank: 5);
Local Public and Private Investment Score: 3.77 (Rank: 5);
Availability of Debt and Equity Capital Score: 4.17 (Rank: 3).

#5 – Raleigh/Durham, NC

With its proximity to leading universities, educated workforce, and affordable lifestyle, Raleigh-Durham continues to welcome financial and tech relocations such as Fidelity Investments, Apple, Google, and Bandwidth.

Following the previous quarters’ trends, the industrial CRE sector continued to chalk up steady asking rate increases. Overall industrial market, warehouse, and flex property asking rates climbed to $11.13, a 3.5% quarter-over-quarter increase. Asking rate increases for warehouses racked up a 7.9% quarter-over-quarter increase.

Metro Investor Demand Score: 4.28 (Rank: 5);
Development/Redevelopment Opportunities Score: 3.98 (Rank: 4);
Local Economy Score: 4.35 (Rank: 4);
Local Public and Private Investment Score: 3.83 (Rank: 3);
Availability of Debt and Equity Capital Score: 4.1 (Rank: 6).

#6 – Charlotte, NC

With a comfortably low cost of living and strong financial business atmosphere, Charlotte, North Carolina is one of the Top 20 fastest-growing cities in the nation. Another reason for the city’s growth is based on the city’s role as the premier industrial hub for the Southeastern United States.

The city’s industrial CRE gained momentum during 2022 and shows no signs of slowing in 2023. Net leasing absorption has been positive for the last six quarters, while direct vacancies averaged as low as 2.8% over 12 months. These numbers are encouraging occupiers and investors alike to finance new development.

Metro Investor Demand Score: 4.25 (Rank: 6);
Development/Redevelopment Opportunities Score: 3.81 (Rank: 8);
Local Economy Score: 4.23 (Rank: 6);
Local Public and Private Investment Score: 3.8 (Rank: 4);
Availability of Debt and Equity Capital Score: 4.02 (Rank: 8).

#7 – Miami, FL

The seventh-most populous city in the nation, Miami pulls in over 13 million tourists annually and is home to the largest cruise ship port in the world. It’s also a hub for commerce, finance and trade, making it an attractive option for investors interested in all types of commercial real estate.

Retail space enjoyed a 3.1% vacancy rate during H2 2022, with asking rents averaging $37 to $38 PSF (full-service gross). Absorption during this time was 86,892 SF. Average retail asking prices rose by 20% year-over-year.

Metro Investor Demand Score: 4.22 (Rank: 8);
Development/Redevelopment Opportunities Score: 3.91 (Rank: 5);
Local Economy Score: 4.15 (Rank: 10);
Local Public and Private Investment Score: 3.64 (Rank: 10);
Availability of Debt and Equity Capital Score: 4.15 (Rank: 5).

#8 – West Palm Beach, FL

West Palm Beach, in southern Florida, is a popular destination for shoppers and tourists. With a population of 1,497,987, the city’s employment growth rate is 2.07%. Like other tourist destinations, retail leads the CRE investment opportunities.

Retail inventory comprises 38,307,626 square feet of space, with an overall vacancy rate of 4.6% and $261M per Q3 2022 data. Retailers in West Palm Beach can expect to pay an average asking rent of $30.85 PSF per year. Currently, 96,334 square feet of new construction is underway.

Metro Investor Demand Score: 4.17 (Rank: 10);
Development/Redevelopment Opportunities Score: 3.79 (Rank: 9);
Local Economy Score: 4.17 (Rank: 9);
Local Public and Private Investment Score: 3.66 (Rank: 7);
Availability of Debt and Equity Capital Score: 4.09 (Rank: 7).

#9 – Orlando, FL

Like other Florida cities, Orlando is home to some of the nation’s top tourist attractions, including Walt Disney World/Epcot/Magic Kingdom, Universal Orlando, and several water parks. While Orlando and Central Florida offer plenty of commercial real estate opportunities for investors, the industrial sector stands out.

With a 3.7% vacancy rate, the area offers over 140 million square feet (MSF) of industrial inventory. Asking rents in 2022 were around $10.25 PSF for NNN leases. As of November 2022, investment sales for industrial properties hit $1.2 billion for the year, with average sale prices at $145/SF.

Investor Demand Score: 4.18 (Ranked 9th);
Development/Redevelopment Opportunities Score: 3.77 (Ranked 10th);
Local Economy Score: 4.02 (Ranked 14th);
Local Public and Private Investment Score: 3.64 (Ranked 10th);
Availability of Debt and Equity Capital Score: 4.00 (Ranked 9th).

#10 – Atlanta, GA

According to a 2022 CRE market report published by PwC and the Urban Land Institute (ULI), Atlanta beat out almost 80 other US markets, coming in 3rd place in the Cities to Watch category. While employers continue to negotiate in-office attendance with workers, Atlanta office demand remained active.

During Q3 2022, new CRE leases were signed for around 1.4 million square feet (MSF), which helped the year-to-date total rise to nearly 62 MSF. Average asking rents rose 3.6% year-over-year to $31.05 per square foot (PSF) in Q3. The city also led other cities in absorption, grabbing 168,233 SF of positive net absorption during the same quarter.

Atlanta’s Metro Investor Demand Score: 4.16 (Rank: 11th);
Atlanta’s Development/Redevelopment Opportunities Score: 3.77 (Rank: 10th);
Atlanta’s Local Economy Score: 4.08 (Rank: 12th);
Atlanta’s Local Public and Private Investment Score: 3.51 (Rank: 17th);
Atlanta’s Availability of Debt and Equity Capital Score: 3.95 (Rank: 11th).

Top 10 Worst CRE Markets to Invest In 2023

We found these cities have the worst CRE investment outlook in 2023:

#1 – Hartford, CT

Hartford is ranked 79th regarding investor demand, development/redevelopment opportunities, local economy, public and private investment, and debt and equity capital availability. This city will have a poor investment outlook in 2023.

Investor Demand Score: 2.17 (Rank: 79);
Development/Redevelopment Opportunities Score: 2.65 (Rank: 79);
Local Economy Score: 2.42 (Rank: 80);
Local Public and Private Investment Score: 2.57 (Rank: 78);
Availability of Debt and Equity Capital Score: 2.65 (Rank: 79).

#2 – Buffalo, NY

Buffalo has low rankings in all CRE investment areas, 80th in investor demand, 79th in the local economy, and 78th in the availability of debt and equity capital. This city also needs a better investment outlook in 2023.

Investor Demand Score: 2.05 (Rank: 80);
Development/Redevelopment Opportunities Score: 2.72 (Rank: 77);
Local Economy Score: 2.56 (Rank: 79);
Local Public and Private Investment Score: 2.63 (Rank: 76);
Availability of Debt and Equity Capital Score: 2.67 (Rank: 78).

#3 – New Orleans, LA

New Orleans has a low ranking in most CRE investment factors, ranking 78th in investor demand, 75th in the local economy, and 80th in local public and private investment and availability of debt and equity capital.

Investor Demand Score: 2.33 (Rank: 78);
Development/Redevelopment Opportunities Score: 2.79 (Rank: 73);
Local Economy Score: 2.88 (Rank: 75);
Local Public and Private Investment Score: 2.5 (Rank: 80);
Availability of Debt and Equity Capital Score: 2.46 (Rank: 80).

#4 – Albuquerque, NM

Albuquerque ranks 76th in investor demand and 75th in availability of debt and equity capital but is ranked slightly better in the local economy and local public and private investment.

Investor Demand Score: 2.55 (Rank: 76);
Development/Redevelopment Opportunities Score: 2.84 (Rank: 71);
Local Economy Score: 2.89 (Rank: 73);
Local Public and Private Investment Score: 2.63 (Rank: 76);
Availability of Debt and Equity Capital Score: 2.79 (Rank: 75).

#5 – San Francisco, CA

San Francisco has a relatively lower ranking regarding investor demand and development/redevelopment opportunities, ranking 65th and 80th, respectively. The city will have a far below-average investment outlook in 2023.

Investor Demand Score: 2.82 (Rank: 65);
Development/Redevelopment Opportunities Score: 2.4 (Rank: 80);
Local Economy Score: 2.89 (Rank: 73);
Local Public and Private Investment Score: 2.52 (Rank: 79);
Availability of Debt and Equity Capital Score: 2.81 (Rank: 71).

#6 – Providence, RI

Providence is ranked 73rd in investor demand, 72nd in development/redevelopment opportunities, and 71st in both availabilities of debt and equity capital and local public and private investment.

Investor Demand Score: 2.62 (Rank: 73);
Development/Redevelopment Opportunities Score: 2.81 (Rank: 72);
Local Economy Score: 2.85 (Rank: 76);
Local Public and Private Investment Score: 2.95 (Rank: 64);
Availability of Debt and Equity Capital Score: 2.81 (Rank: 71).

#7 – Baltimore, MD

Baltimore has a below-average ranking in most CRE investment factors, including 76th in the local economy, 70th in local public and private investment, and 76th in the availability of debt and equity capital.

Investor Demand Score: 2.55 (Rank: 76);
Development/Redevelopment Opportunities Score: 3.09 (Rank: 58);
Local Economy Score: 2.85 (Rank: 76);
Local Public and Private Investment Score: 2.87 (Rank: 70);
Availability of Debt and Equity Capital Score: 2.77 (Rank: 76).

#8 – Portland, OR

Portland has a relatively lower ranking in most CRE investment factors, including 68th in the local economy and 74th in local public and private investment. However, it has a slightly better order regarding the availability of debt and equity capital, ranking 66th.

Investor Demand Score: 2.74 (Rank: 70);
Development/Redevelopment Opportunities Score: 2.78 (Rank: 75);
Local Economy Score: 3.02 (Rank: 68);
Local Public and Private Investment Score: 2.71 (Rank: 74);
Availability of Debt and Equity Capital Score: 2.96 (Rank: 66).

#9 – Tacoma, WA

Tacoma is ranked 60th in investor demand, 70th in the local economy, and 67th in debt and equity capital availability.

Investor Demand Score: 2.96 (Rank: 60);
Development/Redevelopment Opportunities Score: 2.79 (Rank: 73);
Local Economy Score: 2.96 (Rank: 70);
Local Public and Private Investment Score: 2.91 (Rank: 66);
Availability of Debt and Equity Capital Score: 2.88 (Rank: 67).

#10 – Tucson, AZ

Tucson has a below-average ranking in most CRE investment factors, including 69th in the availability of debt and equity capital and 64th in the local economy.

Investor Demand Score: 2.89 (Rank: 62);
Development/Redevelopment Opportunities Score: 2.88 (Rank: 68);
Local Economy Score: 3.13 (Rank: 64);
Local Public and Private Investment Score: 2.83 (Rank: 71);
Availability of Debt and Equity Capital Score: 2.85 (Rank: 69).

The commercial real estate market in 2023 is expected to continue its growth trajectory in many areas across the US, driven by low-interest rates, strong demand, and a recovering economy.

This provides several investment opportunities for individuals and institutional investors, who can take advantage of the favorable conditions to invest in tangible assets and earn a stable, consistent return on their investment. Whether you are a seasoned commercial real estate investor or just starting, 2023 is shaping up to be a good year for the sector in many markets across the country.

Methodology

MyEListing analysts analyzed data from 80 US cities to determine the top and bottom-performing commercial real estate markets for investment in 2023. The cities were evaluated based on metrics in five key categories:

Investor demand;
Development/redevelopment prospects;
Local economy;
Investment from both public and private sources; and
The availability of debt and equity capital.

Each survey participant ranked each category, 1 being the worst prospect for this year and 5 being an excellent prospect. The final ranking was determined by taking the average of each city’s rankings across all categories, with data sourced from the Urban Land Institute and PwC.