After weeks of anticipation, commercial real estate experts watched their prediction come true when the Federal Reserve raised interest rates from 1.75% to 2%. This move comes on the heels of an increase in March from 1.5% to 1.75%. In their reactions, most economists touted the move as a sign of a strong and steadily growing economy and noted that inflation is close to target.
However, the market foresees a 75% chance of a third hike in September, followed by a 50% chance of a fourth hike in December. Given the likelihood of these increases, what do these changes mean for those working in commercial real estate?
Long-Term Impact of Rate Hikes
Commercial real estate experts are not yet worried about the market being affected by these rate hikes. However, if the prediction of further increases comes to fruition, experts warn that rate hikes will adversely impact both the real estate industry and the overall economy.
Specifically, commercial real estate developers and borrowers could be affected by higher lending costs and stricter access to construction financing. These restrictions could stifle deal volume and tighten margins for investors. In other words, when developers and borrowers have a more difficult time getting financed, investors may opt to lock in interest rates, which in turn could lead to a stagnant market.
While we can’t predict exactly what will happen with interest rates, even in the near future, this consensus on anticipating two further increases gives experts in the industry the opportunity to prepare for the best- and worst-case scenarios. This way, your organization won’t be blindsided by what may or may not happen.
The industry experts at Murphy Commercial Real Estate will continue to keep an eye on rising interest rates. In the meantime, we suggest continuing business activities as usual.
Contact us today for more information about interest rates in the commercial real estate industry.