5 Effects of Interest Rate Hikes on Commercial Real Estate

5 effects of interest rate hikes on Commercial Real Estate

According to Fox news, the Federal Reserve on Wednesday signaled it could “soon” raise interest rates for the first time in three years, paving the way for a March liftoff as policymakers seek to keep prices under control and combat the hottest inflation in nearly four decades. Although interest rates are at a historic low, it is likely they will increase soon.  There are many concerns in the commercial real estate industry regarding higher rates and its impact on the market. Listed below are some of the effects of rising interest rates:

  1. Capitalization (cap) rates increase causing a drop in real estate values. 
  2. It becomes more expensive for investors to borrow from lending institutions and banks. 
  3. Lenders exercise more caution making it more difficult to secure loans.
  4. Capital flow changes affect the supply and demand for a property
  5. Investor’s annual return on their investment can be substantially reduced.

When it comes to purchasing commercial property, it is important to shop multiple banks for low interest rates. There are many options available that can affect your investment so it is a good idea to seek a professional Real Estate Broker for guidance.