Will A Slowing CRE Market Grind Slower in 2017?
The Federal Reserve’s decision to raise its overnight rate by a modest 25 basis points to a range from 0.5 percent to 0.75 percent will most likely slow down CRE deals as we enter 2017.
Rising interest rates may force asset re-pricing and play a significant role in the commercial real estate market this year. Rising rates widen the gap between buyer/seller expectations and slow down transaction velocity as investors reassess prospective yields.
While sellers are still trying to achieve peak pricing, buyers are reevaluating acquisition criteria in a rapidly moving capital environment. The performance outlook remains positive but modest upward pressure on cap rates is emerging, according to a Marcus & Millichap recent report.
The good news is that higher interest rates are often a sign of a strong economy, which tends to fuel a robust real estate market.
Some economists expect the rates to rise steadily as President-elect Donald Trump prepares to unveil a stimulus package designed to boost the economy substantially. But the idea that rates can continue rising may cause investors to rush to buy assets before the cost of borrowing increases.
View the Marcus & Millichap report here.