In December 2015, the Federal Reserve raised the benchmark interest rate for the first time since 2006 with a quarter of a percent hike. What are the implications for commercial real estate?
Cushman & Wakefield’s most recent report indicates that the Fed’s decision is not something to be feared, but to be celebrated. According to their special report and presentation, here’s the bottom line on interest rates and commercial real estate values:
- There is no guarantee long-term interest rates are going to rise. Inflation is the key metric to watch, not the Fed Fund Rate.
- If they do rise, that typically means CRE values will also rise as a stronger economic growth drives NOI higher.
- If they do rise, value-add is the hot play as it has more upside from improving leasing fundamentals.
- If they do rise, core assets with long-term leases in place are the most exposed, but then again, there is no shortage of demand for these assets.